What's supposed to happen is that people sell stocks and buy bonds when bonds get "cheap." Other people are supposed to sell stocks to lock in higher cash rates or CDs. Rates, which compete against stocks, offer better and better competition.
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At least that is what's supposed to happen. But it doesn't happen when you have stocks that go up 500%, 600%, 700% and 900%. People are willing to take a tremendous amount of punishment on some stocks if they can hit one 600% winner. Bonds, any bonds, bonds at 7% or 8%, don't cut it against those kinds of percentage gains.
In fact, the market is surprisingly rational when you consider that some stocks in a very short time are putting on lifetime moves. They make the old rate-of-return competition game seem like jets vs. cars. Sure, a bond at 7% might be more of a
than a 5% yield, which is
-like, but you can have all of the BMWs you want. I am driving a
or a 757 with my
When you think of it like that, you understand why stocks keep smoking bonds no matter how high rates go.
No wonder the old paradigm seems washed up.
The seasonally strong days continue with end-of-the-month buying coupled with beginning-of-the-month buying. Then we should run into some turbulence -- but nothing major.
James J. Cramer is manager of a hedge fund and co-founder of TheStreet.com. At time of publication, his fund had no positions in any stocks mentioned. His fund often buys and sells securities that are the subject of his columns, both before and after the columns are published, and the positions that his fund takes may change at any time. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Cramer's writings provide insights into the dynamics of money management and are not a solicitation for transactions. While he cannot provide investment advice or recommendations, he invites you to comment on his column at