In late 2007 and early 2008, an inverted yield curve in the U.S. provided warning signs that trouble was ahead. "Did anyone tell you that yield curves in India and Brazil have recently inverted?" he asked. "What's fueling it? A massive credit bubble."

One indicator Bernstein favors is an estimate of capital scarcity. Ten years ago, Silicon Valley was awash in venture capital money, while energy, materials and industrial companies went starving. "Today, U.S. small-cap companies can't get capital," he noted, adding that they probably are the best bet today.


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