Biggest Bond Glut of ’14 Imperils Record Debt Rally – Bloomberg 09-18-14

Salient to Investors:

  • Adam Buchanan at Ziegler said the muni supply and the other rate pressures will have an effect, and buyers will try to get better rates.
  • Lipper US Fund Flows data show that individuals have poured $8.3 billion into muni mutual funds in 2014, the most since 2012.
  • Phil Fischer at Bank of America said that if we get a sustained period of issuance at this level, then we may see weakening in prices – there is an underlying demand for infrastructure that must be met.
  • Michael Zezas at Morgan Stanley said supply alone is unlikely to raise yields because of the inflows into mutual funds, and interest rates tend to move in fits and starts – at some point there will be a more disorderly move in rates and then munis will underperform.

Read the full article at  http://www.bloomberg.com/news/2014-09-18/biggest-bond-glut-of-14-imperils-record-debt-rally-muni-credit.html

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The 2014 Contrarian Investment Tour, From Rupees to Copper – Bloomberg 12-10-13

Salient to Investors:

Lewis Braham writes:

Contrarian funds can be a hedge of sorts, though a potentially volatile one as out-of-favor sectors tend to be cyclical and prone to booms and busts. Shorting is inherently dangerous as markets have been trending higher.

Brian Singer at William Blair Macro Allocation Fund said currencies help diversify portfolios because they behave very differently from stocks and bonds. Singer recently put 19 percent of the fund in the Indian rupee which he says is undervalued by as much as 70 percent and India’s new central bank governor has already taken actions to stabilize it by raising interest rates. Singer uses financial derivatives to earn a 6 percent yield on the equivalent of a bank deposit. Individual investors can buy currency CDs – a 3-month FDIC-insured rupee CD from Everbank yields 7.25 percent. Singer is short the iShares Russell 1000 Growth ETF and long the iShares Russell 1000 Value ETF  and says people believe the US is the only source of growth and stability in the world but will be surprised in 2014 at how volatile growth stocks can be.

Don Hodges at the Hodges Pure Contrarian Fund is betting on coal, iron and copper mining stocks and said a recovery in the sector will begin when the Chinese work off their commodity inventories and begin buying again.

Jason Hsu at Research Affiliates said emerging market stocks are at a tremendous discount to US stocks. Hsu said the Shiller PE ratio for the S&P 500 is 24 versus its 16.5 average, versus 13.5 for emerging markets. Hsu is buying TIPS – TIPS with maturities of more than 20 years are yielding 1.5 percent over inflation, and is betting on a decline in large US stocks as well as on improved prospects for high-yield and emerging market bonds.

The BlackRock Municipal Target Term Trust trades at an 11.5 percent discount to portfolio value and yields 6.73 percent on a tax-free basis.

Rudolph Riad-Younes at RSQ International Equity Fund does not like gold because it trades closer to 20 percent above its cost of production versus 10 percent to 15 percent historically, and that cost will fall in the next 5 years, further driving down gold prices.

Read the full article at http://www.bloomberg.com/news/2013-12-10/the-2014-contrarian-investment-tour-from-rupees-to-copper.html

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U.S. State Pension Underfunding Worsens With New Moody’s Formula – Bloomberg 06-26-13

Salient to Investors:

Moody’s Investors Service the total funded ratio – assets relative to liabilities – of state pensions fell to 48 percent under its new methodology from 74 percent before the changes. The ratio measures fund management and whether a state is keeping up with promises to retirees.

Moody’s said states with the largest relative pension liabilities have at least one thing in common: a history of contributing less to their pension plans than the actuarially required contributions.

Read the full article at  http://www.bloomberg.com/news/2013-06-27/u-s-state-pension-underfunding-worsens-with-new-moody-s-formula.html

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Biggest ETF at Record Discount Signals July Rally: Muni Credit – Bloomberg 06-24-13

Salient to Investors:

Matt Dalton at Belle Haven Investments said:

  • Demand for munis may rebound in July as investors deploy cash from principal and interest payments and this year’s outflows will push yields high enough.
  • The muni market has been brutal, but will turn around in the next few weeks.
  • When you apply a 39.6 percent federal tax rate to some of the yields, you forget how attractive they are.
  • No market trades in one direction forever. The opportunities will be quickly snapped up.

Dalton and Ebby Gerry at UBS Global Asset Mgmt are taking advantage of rising yields to buy at cheaper prices as the supply of debt in the secondary market has increased.

Bank of America Merrill Lynch data show investors have been dumping munis even though they have gained in 21 of the past 24 years in July.

Matt Fabian at Municipal Market Advisors said the move down in price has been so fast that the net asset values have not yet been able to catch up with it, and this year’s outflows will push yields high enough to bring investors back to munis.

For investors in the 39.6 percent tax bracket, the benchmark 10-year muni yield is equivalent to a taxable return of 4.4 percent, double the 2.2 percent dividend yield on the S&P 500.

Read the full article at http://www.bloomberg.com/news/2013-06-24/biggest-etf-at-steepest-discount-signals-july-rally-muni-credit.html

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San Francisco Boom Belied by Year’s Biggest Losses: Muni Credit – Bloomberg 06-18-13

Salient to Investors:

San Francisco added 300 tech companies since 2010, helping it earn its highest credit grade in more than a decade, amid the worst losses this year in municipal bonds and with interest rates on munis at a 15-month high.

San Francisco’s jobless rate is the lowest since 2008 and RealtyTrac said prices on non-distressed properties reached a median of $857,500 in May, higher than at the height of the housing bubble in 2006.

Individuals, who own 70 percent of munis directly or through funds, withdrew the most funds last week in 2013.

CBRE said San Francisco was home to 1,846 tech companies in Q3, 2012 versus 1,517 in Q4 2010.

The Working Group on California Earthquake Probabilities in 2008 estimated a 63 percent chance that one or more quakes of magnitude 6.7 or higher will strike the Bay Area before 2038.

Read the full article at http://www.bloomberg.com/news/2013-06-18/san-francisco-boom-belied-by-year-s-biggest-losses-muni-credit.html

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Pimco Joining Sellers Spurs Steepest Monthly Losses: Muni Credit – Bloomberg 06-13-13

Salient to Investors:

Bill Gross at Pimco cut his local-debt allocation in the Total Return Fund by 1 percent to 4 percent in May, the lowest since July, and reduced Treasuries to 37 percent of the fund’s assets in May, but says the Fed will not raise interest rates for years, making intermediate Treasuries a buy at 2+ percent.

Lipper US Fund Flows says individuals, who own 70 percent of munis directly or through funds, pulled $1.6 billion from US muni mutual funds in the past week, the most in 2013.

Matt Fabian at Municipal Market Advisors said investors are set to receive the 3-month wave of redemption funds but are still waiting for yields to climb higher before buying tax-exempts, while some are being drawn to stocks. Fabian said when yields on benchmark tax-exempt debt maturing in 10 years reach 2.4 percent to 2.5 percent, demand will increase.

Yields on 10-year munis have declined 8.3 percent on average in July in the past 4 years, trailing only April’s average drop of 9 percent.

Gary Pollack at Deutsche Bank said the bid side of the muni market is not as deep and broad as other fixed-income sectors, so selling pressure in the magnitude of billions will have a negative impact on munis, while 2.5 percent to 3 percent yields will attract individual investors.

George Friedlander et al at Citigroup said the increase in yields is enough to make some yield levels attractive relative to risk.

Read the full article at http://www.bloomberg.com/news/2013-06-14/pimco-joining-sellers-spurs-steepest-monthly-losses-muni-credit.html

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BlackRock’s Hayes Says to Shun Riskier Munis on Rising Rates – Bloomberg 04-08-13

Salient to Investors:

Peter Hayes at BlackRock said:

  • Rising demand for munis is an opportunity to scale back on lower-rated municipal debt as a strengthening economy raises the prospect that interest rates will rise in 2013. When interest rates rise, investors will move back to higher-rated securities and away from speculative-grade munis.
  • Buy munis with a higher credit grade, from 4 to 6 levels below top-rated securities.
  • Market liquidity is still very good.
  • 10-year T-yields will rise to 2.2 percent by year-end.

The yield gap for 10-year tax-exempt munis rated BBB has fallen to 0.97 percent, near the least since September 2008.

Barclays said high-yield munis earned 14.6 percent in the past 12 months versus 6 percent for all munis.

From 1970 to 2011, an average of 7.9 percent of munis that were sold 10 years before or earlier and were rated junk by Moody’s defaulted, versus 0.08 percent for investment grade.

Read the full article at http://www.bloomberg.com/news/2013-04-08/blackrock-s-hayes-says-to-shun-riskier-munis-on-rising-rates.html

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April Best for Borrowing Shows T.S. Eliot Was Wrong: Muni Credit – Bloomberg 03-27-13

Salient to Investors:

April is the most rewarding for investors in the municipal market – since 2009, yields on benchmark 10-year debt have fallen more in April than any other month. April has shown gains in each of the past six years. Yields on 10-year benchmark munis have fallen in April by 9 percent on average in the past 5 years, the biggest monthly drop in yields. Munis have lost value in March for 5 straight years as investors sell tax-exempt debt or avoid buying the securities to make tax payments.

John Hallacy at Bank of America Merrill Lynch said bondholders receive the most cash from maturing debt and coupon payments in June, July and August, so start planning how to invest that money in April – once they know their April 15 tax bill, they can invest. Hallacy said it’s just a seasonally strong month for a lot of technical reasons, including investors getting bonuses or other first-quarter payments.

Chris Mauro at RBC Capital Markets said during the past 10 years, investors on average pulled cash from muni funds in the second week of April, after adding money each week in March, and muni fund flows generally have returned to positive territory after April 15. Mauro said given the early March outflows in 2013, this snap back pattern in 2013 may not happen.

Craig Brothers at Bel Air Investment Advisors said yields on Treasuries tend to drop at this time of year as investors switch from equities, while munis are not as cheap relative to Treasuries as in previous years.

Read the full article at http://www.bloomberg.com/news/2013-03-28/april-best-for-borrowing-shows-t-s-eliot-was-wrong-muni-credit.html

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Predicting the Future: How to Profit From the Coming Depression – Survive and Prosper 03-16-13

Salient to Investors:

Harry Dent and Rodney Johnson write:

  • We are entering the last stage of the 80-year New Economy Cycle
  • Commodities topped in 1920, 1951 and 1980.
  • The spending cycle is 39 years and the commodities cycle is 30 years.
  • Gold will fall to $750
  • The US economy will enter deflation
  • The Dow will fall to 3300 by late 2014
  • Unemployment will rise to 15%
  • House prices will fall 30%
  • Personal bankruptcies and foreclosures will soar because consumers have too much debt – $140,000 per capita,
  • State and municipal governments will default
  • The federal deficit will rise to $3 trillion due to revenue shortages.
  • The global credit crisis will continue. Spain is next.
  • Real estate and credit markets will under-perform for most of the next 13 to 14 years.

Read the full article at http://survive-prosper.com/

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Only Wall Street Wins in Detroit Crisis Reaping $474 Million Fee – Bloomberg 03-13-13

Salient to Investors:

The only winners in the financial crisis that brought Detroit to the brink of state takeover are Wall Street bankers who reaped more than $474 million from a city too poor to keep street lights working.

Detroit’s population peaked at 1.85 million in 1950 and now is 700,000.

Read the full article at  http://www.bloomberg.com/news/2013-03-14/only-wall-street-wins-in-detroit-crisis-reaping-474-million-fee.html  

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