The most consistent question we’ve fielded over the past few weeks has been about the relationship between stocks (and other risky assets) and bonds. In recent trading sessions, the S&P 500 has touched new highs while the yield on the 10-year U.S. Treasury note has touched new lows. If an investor knew nothing else except the level of interest rates, he or she would likely assume that the economy is mired in recession. Or, if that same investor knew nothing else except the level of the S&P and the recent stock market rally, he or she would likely think the economy is booming. So, what gives? We think that financial markets are being driven, not by economic fundamentals, but by the activities of central banks. Why else would investors pay Germany to purchase its newly issued 10-year bond last week? What does this mean for investors moving forward? In the short-term it could mean…not much. As long as central banks continue to stimulate the economy via monetary policy, it’s not unreasonable to expect more of the same. The questions become: 1. when will their policies become ineffective, and 2. when will they choose to reverse course? We are focusing our attention on the things that central bankers are also focused on, because their actions will likely have ramifications for all segments of the financial markets moving forward.