How can we describe this sorry decade for financial markets? A good start might be, "Everything you know is wrong." After all, lower interest rates are supposed to be good for equities, and yet that was disproven in both directions. How about higher commodity prices and a weaker dollar being negative for bonds? That didn’t work either. And the benefits of global diversification? Um, no, that just seemed to mean you lost money in a large number of places simultaneously.

Let’s get a little more specific and turn to one of those yieldcurve theories taught in business schools and economics programs everywhere: the "liquidity premium." Like other theories with wide acceptance, this one makes sense upon initial examination. It states long-term lenders demand a higher interest rate in compensation for expected inflation. This should mean the long-term rate should equal the short-term rate plus expected inflation, with adjustments for what are called "preferred habitats" and "market segmentation."

What do the data say?