It is indeed a rare event for bonds to out-perform stocks over a 20 year period. It happened...
in the twenty years ended in 1933, 1949 and 2008. As the Leuthoid Group chart shows, stocks did very well in the five years after 1933 and 1949. Average stock market performance over the next five years should be equally strong.
PE ratios are always thrown for a loop during recessions. Once earnings return to "normal", PE ratios return to "normal". It is important to understand what returning to "normal" means. It is normal for profits to expand sharply after recessions and it is normal for PE ratios to rise to very high levels when interest rates are low.
Bull Markets happen during times of PE ratio expansion. The product of higher earnings times higher PE ratios results in very high prices. A major Bull Market is already underway. Sure, it is possible for our government to derail this Bull Market, but indications are that voters are already upset with "big government" and politicians are backing away from cap and trade taxes. There are still massive taxes called for in the latest version of the health care bill, but it still has hurdles to jump before becoming law.
Potential republican governorships after the November elections in Virginia and New Jersey are causing politicians to take notice. Corizine has been forced to spend big in New Jersey to potentially hold his seat.
Regardless of who is elected, the great technological move to the mobile Internet is underway with momentum. In addition, nano-science is leading us to wonderful new products that will save money and lives.
There are many reasons to be optimistic about the future. The dramatic decline in the cost of money, as illustrated in the chart, is one strong reason to be an aggressive buyer of stocks and real estate.
in reference to: Stock/Bond Performance Differential « Systematic Relative Strength (view on Google Sidewiki)