It seems everyone is tempted to indulge just a bit more than they should during this wild financial party hosted by the Bernanke Fed. Those in money market funds are buying short-term bond funds. Municipal bond owners are extending maturities. Bond investors are venturing into exotic places like Rwanda and Bolivia. And now, according to a May 1st Wall Street Journal article, “Bond Funds Running Low On… Bonds,” a total of 352 mutual funds classified as “bond funds” by Morningstar now own stocks. That’s up from 283 in the first quarter of 2012.
“The number of bond funds that own stocks has surged to its highest point in at least 18 years.”
A similar phenomenon occurred during the late ’90s tech bubble as investors simply couldn’t resist the temptation to push the envelope for greater returns. Remarked Ehrenkrantz King Nussbaum strategist Barry Hyman on December 22, 1999:
“Value players have become growth players, growth players have become momentum players, and momentum players are out of their minds.”
History doesn’t always repeat, though it often rhymes.