It is the best of times.

The age of wisdom.

The epoch of belief.

The season of Light.

The spring of hope.

We have everything before us.

Source: Drudgereport.com

The financial markets have become a tale of one city, a utopia in which the streets are paved with risk-free reward. Try to remember the air of invincibility that abounds today, as we may not see anything like it for years to come…

• The S&P 500 ended July up for the 9th month in a row and 16th time in the last 17 months.

• The Volatility Index (VIX) hit its lowest level in history.

• At 5.6%, annualized volatility in the S&P 500 over the last 12-month is just about as low as it’s ever been.

• It’s been more than a year since the S&P 500 has suffered a 5% pullback, the 4th longest streak in history.

• The Dow has hit 31 all-time highs in 2017 and has done so with no more than a 3% pullback.

Sentiment is ebullient, with 1) the S&P 500/Dow/Nasdaq 100 on pace for their 9th straight year of gains, 2) record-low volatility, 3) the U.S. economy in its 8th year of expansion, and 4) the Federal Reserve maintaining an extraordinarily easy monetary policy.

Inflation is tame, credit is loose, and any geopolitical concerns (Syria, Iran, North Korea, etc.) are quickly dismissed. Even Greece, who not long ago was said to be certain to default, is back out issuing bonds again. The bond offer was oversubscribed as Greek yields hit their lowest levels since 2009.

President Trump has taken to twitter on a daily basis to promote successes in the stock market, with the implication being that all-time highs are evidence of a booming economy and a direct consequence of his efforts.

If these are the best of times, we should certainly enjoy them, for they will not last forever. But we should also recognize that the best of times tends to mean poorer risk/reward, just at the worst of times coincides with opposite. When the streets appear to be paved with risk-free reward they are instead paved with reward-free risk…

• 10-years ago, you could have bought 3-month Treasury bills at a 5% yield. Today, U.S. Junk Bonds (HYG) yield less 5%.

• European Junk Bond yields are at record lows.

• Leveraged Loan (BKLN) yields are at record lows.

None of this matters in the short run. Markets can always go higher; we saw that in 1997 when the Shiller P/E Ratio (CAPE) was at the same level as today (above 30). Exuberance can always become more irrational and greed can always become greedier.

But the tranquility that exists in markets today – from stocks to bonds and everything in between – will be hard to surpass for some time. These are the best of times. Enjoy.