View from the Observation Deck

1. Some investors want nothing to do with stocks. Higher levels of volatility plus a couple of bad bear markets since 2000 give them serious pause.
2. We believe that the notion of "throwing the baby out with the bathwater" is not only extreme, it could prove costly moving forward. Investors have choices.
3. It is no secret that many investors have committed to Treasuries in an effort to mitigate risk, despite the fact that they are, in some cases, locking in yields lower than the rate of inflation.
4. There are three stock sectors that are inherently more defensive than others (see chart). In other words, they are less vulnerable to cyclical changes in the economy.  
5. All three of them outperformed the Barclays Capital U.S. Treasury: Intermediate Index since the start of 1990 (see bar grouping at far right of chart). The same is true for this decade. 
6. That is worth noting, in our opinion, because the yield on the 10-Year T-Note was 7.94% at the start of 1990, compared to 1.56% on 5/31/12. That is an ideal climate for owning Treasuries.
7. With respect to event risk, since 1990, the markets have endured three wars in the Middle East, two terrorist attacks on the World Trade Center, the bursting of two bubbles (Internet and Housing) and others.