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Crumbling Corporate Bonds Market Wags the Equity Dog
By James J. Cramer


The untold story of this market is the incredible collapse of the corporate bond market. Every day, some new company is downgraded to junk or almost junk, and that causes, as if by rote, many of the corporate bond mutual funds to dump, wholesale, the corporate bonds of the target.

This degradation is reminiscent of the government's decision 10 years ago to limit the amount of junk that savings and loans could own. It caused a total rupture in that market.

That's what we are getting now. Nothing moves a stock down faster these days than a downgrade from the Moody's and Standard & Poor's folk. Not only do you have those who bail immediately on this stuff, you also have many hedge funds that are short stocks and long bonds -- and they have no choice but to put out more common stock when they see their bonds going down. If they don't do it right, they could be history, a la the funds run by Ken Lipper that did convertible arbitrage.

Unfortunately, the bond market is not well-followed by the media. It is regarded as a backwater, the tail that wags the equity dog. The reality is that the opposite is true: The equity tail is getting crushed by the bond dog!

That's what you have to be watching.

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