How long can this last? Obviously we are seeing the vestiges of a large scale asset allocation rotation out of cash / bonds back into equities – but the fact that defensives are rallying harder than cyclicals, when the equity market is doing so well, smacks of a lack of conviction on the investor’s behalf.

Why should they be worried? After all, the 2013 equity market rally has had US debt sequestration, the Cypress debacle and now all-out aggression on the Korean peninsula thrown at it, and has still managed to shrug the negativity off. What can stop the rally now? Well, nothing cures high prices better than high prices, and by most measures developed world equity market valuations are stretched – and becoming even more stretched as each (positive rally) day passes. Still, an overbought market is by no means a total panacea to the global equity market’s present euphoric state. As Keynes said, ‘the market can stay irrational longer than you can stay solvent’ and most of us know that markets rarely trade within ‘fair-value’ territory – they are either unerringly ‘cheap’ or ‘expensive’ (mostly the latter)

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