After 15 years of expecting inflation rates to fall, bond investors have abandoned hope. For the first time in the history of capital markets, they have given up.

But bonds are still bonds, despite the recent debacle. The nature of the bond contract guarantees that bonds will have less price and return variability than common stocks. If bonds are not what they used to be qualitatively, then perhaps neither are the more junior securities, like stocks.

The stock market teaches us that even the most extreme swings in investor sentiment sometimes prove temporary. Investors’ love affair with stocks culminated in 1972; by late 1974, stocks had become wallflowers.

Clients, being human, are susceptible to peer pressure. They are often tempted to change stock-bond ratios at precisely the wrong time. Will money managers have the courage to help them resist those pressures this time around?