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David Kotok is happy to fade Meredith Whitney's bet against municipal debt. An improving economy...
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Friday, May 13, 2011, 10:17 AM ETDavid Kotok is happy to fade Meredith Whitney's bet against municipal debt. An improving economy has state and local revenues on the rise at the same time budgets are being cut, writes Kotok. "We're going to dig in our heels on the other side."
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This news story has 17 comments:
just point them out
E
Meanwhile, those doing their homework make money, as usual. An example:
In regard to muni bonds, Meredith Whitney's recent hysteria has set up another of those undeserved, but foolish-to-miss, opportunities. Many muni ETF's, which usually trade at par or premiums to underlying NAV's, plunged almost overnight on Whitney's call and are presently selling at 8-15% discounts to their actual value. At these extraordinary prices some of these muni funds are yielding 7-8% tax free.
Apparently, I guess, all the "smart money" has sold these off before the "final collapse." It's situations, like this, that provide opportunity for calm, thoughtful value players, as the more emotional flee to the exits.
4 to 7 year duration Muni CEF's without leverage are the thing to buy and they are available as you say with a nice discount still.
folks - do not let ideology or panic lock you out of the best part of the bond market
E
This isn't a town hall meeting full of sheeple.
People here know better than to stick their hand in a 4-7 yr snake pit full of municiple time bombs.
Perhaps, instead of your persistent ever-negative retorts, you could offer some factual assessments as to why investing in some muni-bond funds at steep discounts to underlying value isn't a smart play, as a significant discount is already built in due to the recent panicky sell-off. Everything in investing is a choice of relative values and risk-reward assessments, not the absolutist jargon you toss out with abandon.
People --"folks" even-- who wish to diversify their portfolios and make good returns should identify genuine opportunities when they present themselves. Or, they can just marinate in polemics and diatribe and wonder why they can never make their portfolios advance.
with every petty bullying comment you do little but burnish your reputation as a tool.
E
coming from a troll like yourself, it's meaning's as empty as a Fed job creation directive.
Tack,
you provide intelligent rebuttal, however it's flawed on one major level...
"steep discounts to underlying value"
There's that word again, "value".
Value because we've had one sell-off after years of Fed and Treasury induced fiat vomiting?
This hasn't even started yet. Look at Europe, look at Japan....heck, look at us with job bleeding, income falling, inflation, real tax revenues falling, housing, housing, housing...
You speak of "value" and "discounts" in a pure and wholesome quantitative manner.
Me? I'll take the qualitative road in this record low volume, big bank traded, HFT driven market, because I KNOW in the end all lies unfold...and this my friend is a lie supersaturated "market".
I am so far away from your view, I can't even fully elaborate it all here because it would monopolize the thread. Let me try to summarize a few salient points:
1) There will be no dollar collapse, period. It's only relevant how currencies change vis a vis each other, not underlying goods. The U.S., Europeans and Chinese have all been printing away, so none will revalaue extraordinarily relative to the other. Sure, everything will get more expensive; so what? Sometimes, I think many of the commenters were born last week. When I was a kid Maryland crab cakes were $0.35 each; now, they're about $12-14 a piece. But, it was murder to make that $0.35 because average take-home pay was about $5-10K per annum back then.
Prices are only relevant if you don't make money or invest to cover monetary growth. That's just the way it is, so anybody moaning about inflation better figure out how to make money because price inflation has been with us forever and will remain that way, sometimes slower, sometimes faster. The productive and industrious get ahead; others are left behind, nanny state or no nanny state.
2) It gets almost hilarious, in my view, that the very same people who said (say) that QE was/is/will be ruinous, now, say it's suspension will be likewise. In particular, the inflation induced by QE was supposed to make interest rates skyrocket and bonds worthless. Now, the same arguments are made that bonds will decline, even though QE's suspension logically should strengthen the dollar, contain rates and likely make bond prices stabilize or rise.
3) And, munis aren't going to collapse on any broad scale by a long shot. Even those ringing alarm bells were calling for a 1% default rate, and, now, the outlook is improving, as sales and income tax revenues have been advancing, and most states have gotten serious about containing and reducing expenses (just like many here in SA have been hollering about). There simply isn't going to be any muni meltdown, simple as that. (Meredith Whitney was/is a one-trick pony, whose time in the limelight is way, way past Andy Warhol's limit.)
I do believe that the end of QE could see a gradual, but only gradual, rise in market rates, but, for muni ETF investors, any such adjustment will more than be compensated for by the component of bond-price recovery due to the fear factor, as it becomes obvious that no muni Armageddon awaits. Prices are already trending in that direction from their nadirs. Some ETF's are still selling at up to 15% below market values for the underlying bonds, and this is completely unjustified, as the bond values, themselves, were already adjusted downward by the "Meredith Effect" and in any case represent the actual market values.
From my vantage point, the risk-reward ratio looks favorable, especially for anyone who needs or wants tax-free returns. It's not often (in fact, I'd say unprecedented) that equivalent before-tax returns at these levels are offered by tax-free munis.
.35 cent crabcakes!?!? I would eat until I puked.
anyway, thanks for the detailed POV, so here goes...
Relative pricing to goods has been getting more skewed as time goes on. The value of currency when that crabcake was .35 was much higher, even in relative terms to income.
Price inflation cycles occur, I do agree. However, we are in uncharted territory this time with record debt, record Fed balance sheet, record employment trends (underempl, etc), record housing crash, etc The QE is going to keep on coming, meaning more dollar debasement. Ultimately we will see an inflationary volcano like no other. Now, one may say, "but the Treasuries/bonds say...". Well, how can we possibly use Treasuries as a barometer when the majority buyer is the Fed via its ponzi deputies, the Primary Dealers.
Again, I see your logic...and you make very sound and reasonable arguments, but again, you make them in a vacuum belief of "free capital markets" and "sound, stable global monetary systems". It's almost Willie Wonka like. This is not the reality. The reality is a completely imbalanced system that is fraught with corruption and ponzi style market propping across all sectors, from equities to bonds and into currency.