Bernanke 2014 pledge sparks global shift

SAN FRANCISCO (MarketWatch) � Earnings are weakening. Greece is mired in dissent. The potential for war in the Middle East is as great as it�s been in years. And investors are pouring money back into stocks.

Call it a contrarian play, but the size of the gains of stock indexes since the beginning of the year and the amount of money investors have shifted into stocks seem to reflect something else. Desperation.

Click to Play Tough year ahead for muni bonds

WSJ's Liam Denning makes a stop on Mean Street to discuss municipal bonds. Namely the fact that investors searching for attractive yields have boosted the prices of the bonds.

Desperateness not only for a solid year in the markets after the rollercoaster of the past three years but also for return in an unprecedented low-yield environment. Investors remain concerned about the lingering financial crisis and the potential for Europe to lurch back into panic mode. But they can�t take another year of low yields on their fixed-income investments and no return on their savings and money market accounts.

Ben Bernanke�s pledge to keep interest rates at or near zero through 2014 � three more years � was the final straw. The Federal Reserve chief was simply trying to assure the markets the Fed wasn�t going to jump the gun on what�s been a spate of improving economic news, including last Friday�s surprising number of gains in jobs in January.

Instead, he unwittingly set off a rush into stocks that has propelled some indexes to their highest levels in years � or more than a decade in the case of the Nasdaq COMP

And it�s not just U.S. markets. Investors have piled $7.6 billion into global ETFs since the beginning of the year. That�s compared with $9.9 billion in all of 2011, according to research from TrimTabs, reported in MarketWatch�s markets blog, The Tell, on Wednesday. See blog on ETF purchases surging. The buying is coming in places like Asia and Latin America, even Japan, the company said.

Also on Wednesday, Laurence Fink, the chief executive of BlackRock Inc. BLK ,�told Bloomberg News in an interview in Hong Kong that investors should have 100% of their investments in equities. Fink cited the low returns expected by safe Treasury bonds and noted that dividend returns on stocks are now better than many bond returns. See Bloomberg interview with Fink.

Of course, the gains in stocks have also led to concerns that the market is overextended and that a correction is due. That is likely. Corrections tend to happen. And no smart investor can rule out the potential for a sudden crisis sparked by bad news from Europe or hostilities between Iran and Israel. The oil markets are particularly attuned to this. Read Lawrence Macmillan's argument that stocks are overbought.

But sudden events like that usually lead to quick selloffs and not fundamental shifts. Bernanke drew a line in the sand on interest rates that set a time-clock on Fed monetary policy. By removing interest rate risk, he removed one of the great uncertainties for equity investors. And the markets simply responded.

What does this mean for bond markets? They still take in plenty of money. The Treasury was even told by a group of bond traders recently that it should consider offering negative yields, meaning it would effectively charge investors to buy Treasury bonds. Read Rex Nutting's the on the demand for more debt.

Corporate bonds, even high-yield bonds, are also selling briskly, with high-yield indexes returning a paltry 7% or so these days, compared to the mid- to high-teens in healthier years. No shortage of buyers there.

But the fear factor is beginning to unwind, especially against the backdrop of a quiet few months in Europe and improving U.S. economic information. The bond rally will end, and when it does it will be quicker than most analysts expect.

Meanwhile, investors are not dipping their toes but diving back into the equity markets. There are plenty of fundamental arguments both for and against this strategy.

But those who are buying might simply say that it�s come to the point where they have little other choice.