Banging the drum-buy munis now!

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Dec 18, 2008 7:30 pm

We've got trouble


We've got trouble right here in River City


And that starts with T which rhymes with P


And that stands for PANIC!


Oh yeah we've got panic
 
Right here in River City.
 
 
And every place else too!
 
A fear driven technical supply demand imbalance has created a price dislocation in the municipal bond market of unprecedented magnitude.
 
Ah, in english please!
 
Muni bond prices are cheap!
 
And it make no sense. Rational behavior has left the market. It hasn't been seen around these parts in quite some time.
 
Bonds with exactly the same backing, muni/corporate/U.S., are trading at different levels with munis trading the cheapest. By a long shot! It makes no sense. A GNMA backed muni trading cheaper than the actual GNMA that backs it? Ah, hmmm? A corporate muni trading cheaper than its fully taxable sibling? Ah, hmmm?
 
Oh, we've got trouble!
 
Fear and panic have created a perfect storm in the muni markets. The supply demand imbalance on the sell side for munis has translated to a supply demand imbalance on the buy side for treasurys. They are over bought. At the 30 year level, muni bonds that usually trade at 85% of treasurys are today trading at over 200% of treasurys. That's unprecedented. Reversion to the historical mean will take place. It always does. It's 1981 all over again. What an opportunity!
 
You can opt to be part of the fear and panic crowd, or you can do your clients a favor and buy muni bonds today.
 
Buy long, as those bonds will have the largest swing to the upside.
 
Oh yeah we've got trouble!
 
But we're doing something about it!
 
Dec 18, 2008 8:34 pm
BondGuy:

We've got trouble


We've got trouble right here in River City


And that starts with T which rhymes with P


And that stands for PANIC!


Oh yeah we've got panic
 
Right here in River City.
 
 
And every place else too!
 
A fear driven technical supply demand imbalance has created a price dislocation in the municipal bond market of unprecedented magnitude.
 
Ah, in english please!
 
Muni bond prices are cheap!
 
And it make no sense. Rational behavior has left the market. It hasn't been seen around these parts in quite some time.
 
Bonds with exactly the same backing, muni/corporate/U.S., are trading at different levels with munis trading the cheapest. By a long shot! It makes no sense. A GNMA backed muni trading cheaper than the actual GNMA that backs it? Ah, hmmm? A corporate muni trading cheaper than its fully taxable sibling? Ah, hmmm?
 
Oh, we've got trouble!
 
Fear and panic have created a perfect storm in the muni markets. The supply demand imbalance on the sell side for munis has translated to a supply demand imbalance on the buy side for treasurys. They are over bought. At the 30 year level, muni bonds that usually trade at 85% of treasurys are today trading at over 200% of treasurys. That's unprecedented. Reversion to the historical mean will take place. It always does. It's 1981 all over again. What an opportunity!
 
You can opt to be part of the fear and panic crowd, or you can do your clients a favor and buy muni bonds today.
 
Buy long, as those bonds will have the largest swing to the upside.
 
Oh yeah we've got trouble!
 
But we're doing something about it!
 
 
Pick-a- little, buy-a-little,
Pick-a-little, buy-a-little,
Cheap, cheap, cheap,
They're so cheap, buy-a-little more.
 
Pick-a-little, own-a-lot,
Pick-a-little, own-a-lot,
Cheap, cheap, cheap,
Tax free love will soon be hot.
 
Pick-a-little, pay-so-little,
Pick-a-little, pay-so-little,
Cheap, cheap, cheap,
Deep discount, buy a little more.
 
Pick-a-little, buy-a-little,
Pick-a-little, own-a-lot,
Cheap, cheap, cheap, cheap, cheap, cheap, cheap, cheap....
 
Dec 18, 2008 9:11 pm

Beemer, very good!

 
Here we go:
 
Float like a butterfly
 
Sting like a bee
 
What bonds are the greatest
 
The long muni
 
 
Dec 18, 2008 9:43 pm

I agree that Muni's look very attractive. Right now, LPL has a North Texas Tollway Authority (insured) zero muni at like $.23 on the dollar for 22 years. That's almost a 7% YTM Tax-free for the next 22 years!!!  Both the insurance company AND the N TX Toll Roads would have to go bust to lose your money, very unlikely. Sounds too good to be true.


However, and here's the rub, what if we have rampant inflation over those 22 years like we did in the late 70's?  7% tax free would look pretty foolish if inflation is over 7%.  Any thoughts?
 
Sorry I don't have a cool rhyme.
Dec 19, 2008 8:40 am

Treasuries they buy with glee,

 
Safety they do seek,
 
For them the tax man cometh
Dec 19, 2008 8:54 am
BondGuy:

Treasuries they buy with glee,

 
Safety they do seek,
 
For them the tax man cometh
 
Ahhh, an inverse floater haiku, or ukiah.  Very impressive.  This hasn't been seen outside of theoretical verse thinktanks in years. Very, very brave....
Dec 19, 2008 8:57 am

Where am I ?

Dec 19, 2008 9:07 am
B24:

Where am I ?

 
"Hello, hello, hello,
Is there anybody in there?
Just nod if you can hear me,
Is there anyone at home?"
Dec 19, 2008 9:11 am
now_indy:

I agree that Muni's look very attractive. Right now, LPL has a North Texas Tollway Authority (insured) zero muni at like $.23 on the dollar for 22 years. That's almost a 7% YTM Tax-free for the next 22 years!!!  Both the insurance company AND the N TX Toll Roads would have to go bust to lose your money, very unlikely. Sounds too good to be true.


 

Not too good to be true. This exactly what i'm talking about. The world is upside down right now. it makes no sense. So much so that our primal defense systems says "wait a minute somthing's wrong here." Yet, nothing is wrong. The texas bonds do not have a fundemental problem. There is no credit problem. And they are double hexed. They are ebola infected leprosy carriers. Well, the next worst thing Insured municipal bonds. Insured bonds are trading at cheaper prices than their non insured cousins of the same backing. IT DOESN"T MAKE SENSE! BUY THE BONDS!!!   NOW!!!!!
 
 However, and here's the rub, what if we have rampant inflation over those 22 years like we did in the late 70's?  7% tax free would look pretty foolish if inflation is over 7%.  Any thoughts?
 
Inflation? Hmmm? OK, let me answer it this way: Have you ever heard a recording of a CVR, Cockpit Voice Recording, of a jetliner just as it augers into the ground? You can google them up on the web. Some will ruin your good mood, so not recommended. Still, if you listen to these tapes many times you will hear a warning siren interspaced with a computer generated voice commanding "PULL UP." The sequence goes likes this: WHOOP WHOOP "PULL UP" WHOOP WHOOP "PULL UP."  It keeps going until the obstacle triggering the alarm siren is no longer a threat or until the plane hits the object. Either even will stop the alarm and the alarm shows no deference.
 
Now i tell you that to tell you this. The WHOOP WHOOP siren is going off bigtime down at the Fed. The economy is in a steep deflationary dive that the Fed is trying to keep from becoming a deflationary death spiral. Thus the dramatic action this week. Picture a sweat dripping gritted teeth Bernacke behind the controls using all his strength to pull back on the control wheel with WHOOP WHOOP "PULL UP" WHOOP WHOOP "PULL UP" going off in the background. That's where we find ourselves. Surely, you see that? I do and don't call me Shirley again. OK, I had to sneak that in there.
 
Now that said, you are presented with a high quality tax free bond yielding 7% tax free. That's what, about 11% taxable equivalent? How much better do you think you'll do with stocks over the long haul? Personally,  I think not much better, if at all. And, if our economy does turn into a smoking hole in the ground tax frees are one of the best places to be.
 
Lastly something I almost always say to clients/prospects: I can't predict what interest rates will do in the future. I'm sure not smart enough to do that. But if 7% tax free is the worst thing we ever do together we're going to have a long successful relationship.
 
Sorry I don't have a cool rhyme.
 
 
Dec 19, 2008 9:37 am

BondGuy has just found his nirvana.  I believe it is accompanied by a massive release of endorphines into his system which completely overrides his otherwise demure demeanor.  It's completely natural, and I'm guessing that sometime next summer he'll come down off the high. 

 
It's either that, or Mrs. BondGuy has been making egg nog again. 
Dec 27, 2008 8:34 pm

BondGuy, from the context of some of your posts, I think we're in the same city--so we would deal with a lot of the same municipalities, etc.  FWIW, Princeton Twsp. 4.55 of 2021/2016 was selling at 94 cents on the dollar the other day, and Linwood, NJ could have been had for .89 on the dollar (my clients are very happy people). 
And there will be more to be had. 

Dec 28, 2008 6:57 pm

What's interesting is if you look at historic data, up to this year, muni's, even the high yield, have been the least volitile asset classes out there.  As with everything in life, a reversion to a mean will always occur.  Rates on AAA-muni's will fall back to the historic mean of around .9 of treasuries, and everyone will be happy again.  It will be the "It's different this time" crowd that will miss another opportunity.  I doubt we will see another opportunity of this magnitude in our lifetime.  Over 1/2 my business the last 2 months has been muni's, and yes, ORNAX is a steal right now.

 
As a side note, time to load up on TBT (double short 20-30 year treasury).
Dec 28, 2008 9:13 pm

Rank - i agree with your reversion to the mean comment. But isnt it
possib le that they way the Muni Yield to Treasury Yield  ratio goes
from 1.25 to .9 is by Treasury yields going up, rather than muni yields
coming down?

A buy on TBT makes me think you believe that Treasury yields will go higher.

Dec 28, 2008 10:27 pm
Sportsfreakbob:

Rank - i agree with your reversion to the mean comment. But isnt it
possib le that they way the Muni Yield to Treasury Yield  ratio goes
from 1.25 to .9 is by Treasury yields going up, rather than muni yields
coming down?

A buy on TBT makes me think you believe that Treasury yields will go higher.



Are you a cfp?

Dec 29, 2008 12:48 pm
C_FA:

BondGuy, from the context of some of your posts, I think we're in the same city--so we would deal with a lot of the same municipalities, etc.  FWIW, Princeton Twsp. 4.55 of 2021/2016 was selling at 94 cents on the dollar the other day, and Linwood, NJ could have been had for .89 on the dollar (my clients are very happy people). 
And there will be more to be had. 

 
I'm in Philly. I built my book on Jersey and Pennsy muni bond clients. Then i figured out that there might be people in other parts of the country with M-O-N-E-Y ! So,I branched out. Turns out that's true. There are people all over this country who want to buy Tax Free bonds. And fortunately for me and others like me-few advisors who want to sell munis to them. Everybody wants to be a Wealth Manager. Go figure!
 
+1, ORNAX is a screaming buy. Lots of stupid stuff happening in muni land.
 
Treasuries are over bought, so yes, treas yields will go up. Still, mid to long term munis are over sold, ridiculously so on the long end. lots of room for upside. But for you analytical types, keep overthinking it. That gives me and others like Rank, more time to scoop up the bargins.
 
 
 
Dec 31, 2008 12:23 pm
BondGuy:
C_FA:

BondGuy, from the context of some of your posts, I think we're in the same city--so we would deal with a lot of the same municipalities, etc.  FWIW, Princeton Twsp. 4.55 of 2021/2016 was selling at 94 cents on the dollar the other day, and Linwood, NJ could have been had for .89 on the dollar (my clients are very happy people). 
And there will be more to be had. 

 
I'm in Philly. I built my book on Jersey and Pennsy muni bond clients. Then i figured out that there might be people in other parts of the country with M-O-N-E-Y ! So,I branched out. Turns out that's true. There are people all over this country who want to buy Tax Free bonds. And fortunately for me and others like me-few advisors who want to sell munis to them. Everybody wants to be a Wealth Manager. Go figure!
 
+1, ORNAX is a screaming buy. Lots of stupid stuff happening in muni land.
 
Treasuries are over bought, so yes, treas yields will go up. Still, mid to long term munis are over sold, ridiculously so on the long end. lots of room for upside. But for you analytical types, keep overthinking it. That gives me and others like Rank, more time to scoop up the bargins.
 
 
 
 
I am as well.  I do most of my business East of here, and north to about the 908 area code.  Haven't branched out as much yet.  Not much inventory this week, next week will be better. 
Jan 6, 2009 2:59 pm
BondGuy:
C_FA:

BondGuy, from the context of some of your posts, I think we're in the same city--so we would deal with a lot of the same municipalities, etc.  FWIW, Princeton Twsp. 4.55 of 2021/2016 was selling at 94 cents on the dollar the other day, and Linwood, NJ could have been had for .89 on the dollar (my clients are very happy people). 
And there will be more to be had. 

 
I'm in Philly. I built my book on Jersey and Pennsy muni bond clients. Then i figured out that there might be people in other parts of the country with M-O-N-E-Y ! So,I branched out. Turns out that's true. There are people all over this country who want to buy Tax Free bonds. And fortunately for me and others like me-few advisors who want to sell munis to them. Everybody wants to be a Wealth Manager. Go figure!
 
+1, ORNAX is a screaming buy. Lots of stupid stuff happening in muni land.
 
Treasuries are over bought, so yes, treas yields will go up. Still, mid to long term munis are over sold, ridiculously so on the long end. lots of room for upside. But for you analytical types, keep overthinking it. That gives me and others like Rank, more time to scoop up the bargins.
 
 
 



You guys are on to something here...