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I think what he is saying is that equities (stocks) are fully valued now.

I'm not sure what he is saying, but I don't think that is it. Sounds more bond than stock related.

I just want to know what it means regarding my 401k allocations... should I get out of bonds and fixed incomes or load up on them now?

My advice is to ask someone who really knows -- that's not me.

Personally, I'm still afraid interest rates will run up. It hasn't happened yet and for that I am grateful. The economy seems to be growing at an ideal rate (around 4%). This means the Fed won't panic and try to hit the brakes with big rate hikes, which in turn means that rates overall will be 'stable' and rising slowly.

Many fixed rate investments will trade at a discount or a premium depending on its face rate and market rates. In other words, if you had a T-Bond which paid more than current market rates then you could sell it for a premium over its face amount. People would pay 101 dollars for 100 dollar bond if they thought the 100 dollars would earn more interest than 101 dollars invested elsewhere.

The danger (again just in my inexpert and amateur opinion) is that we will see a return of high inflation. It is a real possibility as the Federal government is forced to spend increasing amounts of money in defeating the Islamofacists or some other factor causes the economy to overheat. Even worse would be "stagflation" caused by say a spike in oil prices or another OPEC embargo. Then inflation would be coupled with economic recession ala the Carter years.

Either way, fixed return investments will take a beating. On one hand the return won't keep pace with rising costs and on the other hand it could only be sold at a deep discount (the reverse of the premium reasons)

For now, our President and the Fed are doing a superb job of growing the economy out of the recession which was caused by the Clinton tax hikes. Please consult with a genuine financial adviser.