Montreal, Canada

What would you rather own over the next ten years: Stocks or bonds?

A dividend yield of 4% per annum, or 48% compounded, from now until 2020 looks mighty appealing compared to staid bonds after a massive 30-year bull market.

Unless we face a long and drawn-out Great Depression II, then stocks should easily outpace bonds over the next ten years. Combined with dividends, which are pretty attractive on some of the largest global multinationals -- stocks offer better inflation-adjusted returns and far greater value.

But let's be clear about the current state of the American economy. This is not the time to be lunging after aggressive capital gains or even stodgy blue-chip stocks paying fat dividends. For my U.S. managed accounts, I've recently purchased Coke (KO), Johnson & Johnson (JNJ), Statoil ADR (STO) and Reynolds American (RAI). Cash remains high at 30%.

I'm buying blue-chips lately but continue to keep my powder dry because we'll experience more market dislocations this fall and in 2011 as uncertainty grips financial markets.

Economists and most analysts have failed to appreciate the state of this economic recovery and continue to compare this growth cycle to previous recoveries since WW II; that is the wrong way to analyze this post-2008 growth cycle because it remains deeply fragmented and impaired by a sluggish job market, contracting or tepid bank credit and a free fall in the U.S. money-supply as measured by M2. Let's not forget this Great Recession was triggered by a credit crash.

This is not your typical expansion because, unlike previous post-WW II recoveries, this one isn't being accompanied by bank credit growth; in the absence of bank lending or loan demand, it's pretty hard to build a bullish case for a highly leveraged economy that's still in the process of winding down debt, building savings and consuming less goods and services. It's also running out of gas lately because government stimulus is just about exhausted.

I still like Treasury bonds for two reasons. Firstly, everyone I know hates them, which makes me believe bonds are still largely a contrarian bet even though investors have dumped record amounts of cash into bond funds since 2009. In the late 1990s, investors raced into stock funds and that party kept on going until March 2000. The same can happen in bonds. We're only in the second year of bulging bond fund inflows.

Secondly, it's hard to argue with the rising forces of deflation or, at the very least, accelerated disinflation since May. The economy just doesn't have the juice it needs to build a sustainable growth path and, at this point, government stimulus is over.

However, bonds are in the 8th or 9th inning of their historical bull market. At some point, banks will start lending and that's when inflation will burst. Bonds will rank as one of the best shorts in history. Anyone holding bonds must watch them like a hawk.

Bonds still have one last hurrah – unless you're expecting an economic boom in 2011. I'm certainly not. And if that's true, then Obama is a one-term President and bond yields are heading to 2% or lower.