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Wednesday, April 27, 2011

Every once in a while, you get to see a market train wreck coming. It should have been obvious in 2006, for example, that real estate was about to be slaughtered, or in 2000 that tech stocks had it coming. Determined not to be fooled again, a lot of smart people are calling for a comparable Armageddon in bonds. Newsletter writer and bond manager Marilyn Cohen calls it “bondland’s nuclear winter,” which gets my vote for best alarmist rhetoric.

You have to admit, the case against bonds is pretty strong:

Today the Federal Reserve said it would continue to hold short-term interest rates near zero percent “for an extended period,” a policy that has no doubt contributed to the decline in dollar and inflation in commodity prices. A lot of economists, including some on the Fed itself, believe the policy can’t help but spread inflation.


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