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What Killed Toys ‘R’ Us?

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How Many Times Have We Heard That This is the Death of Bonds?

I know they don't move much, but in these turbulent times, just getting your principal back from an investment is a winning proposition. I have been bullish on bonds since March 30, 2012, and at the time, I suggested that this was an early sign of economic weakness, and on April 23 I wrote:

"A topping equity market appears to be a sign of an economy that has peaked as well. This has been heralded by strength in bonds. Most likely, this is signaling further quantitative easing as the Federal Reserve intervenes in the bond market to prop up the economy and the equity markets."

So fast forward to this week, and we note the following. The calls for the death of bonds has been pre-mature. Once again! How many times have we heard this over the past several years? Yes, they are boring, and yes, the market is very distorted courtesy of the Federal Reserve. But since April 30, the Vanguard Total Bond Market ETF (symbol: BND) is up 1.42% while the SP500 is down nearly 7%. The i-Shares Lehman 20 + Year Treasury Bond Fund (symbol: TLT) is up nearly 13% in this time period. Of course, hindsight being nearly 20/20, this suggests the Fed is continuing its purchases at the long end of the curve, and in all likelihood, the next round of quantitative easing will target these maturities as well.

For the record, figure 1 is a weekly chart of the TLT. Note the breakout to new all time highs. Even to the equity bulls this must mean something. Right?

Figure 1. TLT/ weekly

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