the best way to think about the long-term linkage b/w stock and bond is thru so-called Fed model:
http://en.wikipedia.org/wiki/Fed_modelAt 17 PE, SP500 is not cheap. Historical average is 15. SP500 is cheap only relative to the yield of long-term bond. The spread of E/P ratio and dividend yield relative to current yield of long-bond, however, is still quite high, which pushes investors to take on credit and equity risks. The issue is that entry into SP500 at this PE level effectively locks in a lower expected return in the years to come, unless you are willing to short long-bond at the same time.
while in immediate and long horizon, bond yields are going up, shorting long-bond incurs other risks however in short term:
1 long bond in a panic can behave like gold.
2 also the yield of US long bond, while low , is still higher than similarly rate sovereign bonds denominated in EUROs. we are 6 month away from the end of tapering and QE, yet the long bond yield keeps on dropping lately. ECB and JCB are not backing off in the immediate horizon. the recent flattening of yield curve is largely caused by cross-border yield carry trade/arb.
just my 2c.