The Bottom Line:
We are nearing a tipping point. The Fed's "tapering" is a serious threat to the stock market and more importantly the bond market.
I have dramatically reduced my positions in bonds. Interest rates are rising and I don't see how this can be prevented. I still hold some bonds to be diversified but if you learn one thing from this post it's to understand that bonds are not "safe". In fact, they are much more risky than the stock market right now and you risk getting killed if rates move higher.
The reason I see rates moving higher is two fold: Either the economy improves and the Fed tapers in order to control inflation or we pull a "Greece" where the economy implodes and the risk of servicing our debt scares away buyers of our bonds.
We may see a temporary rally in bonds if the market pulls back but longer term I expect the 10 year bond to hit 5%. If and when this happens it will be painful for fixed income investments including junk bonds, REIT's, treasuries and any other interest rate sensitive stocks.
My long positions remain focused on energy and tech. MSFT, OKE, CSCO, ETE, CHK, and a few others. I also hold some gold and silver as a hedge.
Be careful out there folks!