Bonds have been the darling of investors ever since the recession began. They were quickly identified as the safe haven for money, even when everything else was falling apart. This still holds true today, as investors are still piling money into them despite the rest of the market settling down.
Investors now seek safety, calculated as just getting their capital back. And if they also pick up a little income -- it's very little income these days -- that's fine. The objective is return of capital, not the return on capital.
Meanwhile, the stock market is rallying without these investors. Despite the litany of issues that anyone can provide on the economy's travails, corporate earnings continue to beat estimates and the equity market's valuation remains cheap. Strategists keep suggesting that earnings projections are overly optimistic. But the companies continue to exceed these estimates and business discussions sound consistently more positive, even as corporate leaders remain cautious as well.
No one believes economic conditions will improve, despite the economy's ongoing tepid recovery. That said, stocks are amazingly cheap yet are still being ignored by investors in favor of a safer bet. This will only last so long as either greed will take over or the bond bubble will burst.
