Muni Bond Update

The state of Muni's matters to a lot of investors. I have argued in Investing in Munis that the States will be loathe to damage their ability to go to the Muni market, so will cut everything else they can first before defaulting or delaying payment. That argument passed its first test in the last few days. 

July starts a new fiscal year for most State governments, and some of them (Ill, Cal, NY) are in dire straits with huge deficits, ebbing Federal stimulus, and disappointing tax revenues. Bloomberg reports that they are cutting pay and letting bills go unpaid to protect their Munis:

"States have taken all measures so far to make sure they keep capital markets open by honoring their debt payments,” said Richard Ciccarone, a managing director for McDonnell Investment Management LLC in Oak Brook, Illinois, which owns $7 billion of municipal bonds. “They are doing everything they can.” 

The story repeats the comforting history of Muni defaults: at 0.03%, much less than similar corporate bonds at 0.97%. Most Muni defaults have not been general obligation bonds, but bonds tied to specific projects. Hence investors in Munis need to read through to the party really at risk; a special industrial district, hospital or similar project is much riskier than the State itself.

The CDS spread between Munis and similar corporate bonds has been higher for Munis, which might seem odd given the default history above, but it reflects the differing positions: US corporations are sitting on record cash, and their bonds are one of the safe harbors right now, while States are in deep deficit for the most part. The good news for Munis is the spread is narrowing as the fears of Muni default begin to ebb.  

Comments

[Account Deleted]

BEAR FLAG - Dow jones 10 minutes chart
http://niftychartsandpatterns.blogspot.com/2010/07/bear-flag-in-dow-jones.html

[Mamma Boom Boom]

>States will be loathe to damage their ability to go to the Muni market, so will cut everything else they can first before defaulting or delaying payment.<

That certainly has valididty, so far. But, it could easily reverse, and investors 'need' to get beat up on this one. The first rule of prudent lending is that you don't loan money to people that are broke. But that is not happening. Illinois just floated a $900 million bond issue and there was $2 bil. in demand. The US has sold trillions in bonds in the past 2 years. Bond holders been getting bailed out on every deal.

I think it's time that came to an end. Every one of those bond buyers should get the cob.

[Chabazite]

Mama - 'The first rule of prudent lending is that you don't loan money to people that are broke'. So, why did the Chinese lend so much money to the US? Normally prudent people, these Chinese. Being good capitalists, maybe they just want to own you. Just think of that - the US of A of C.

[Hockthefarm]

Yelnick:

Seems to me the following is true:

The markets are being driven by good current earnings and the notion that P/E's are low based on 12 month forward earnings projections.

The opposing force is the weak economic conditions and the fact that the market is over valued using normalized earnings (Hussman says 40 % overvalued.

The initial drop in stocks should come when earnings projections fall and we print a weak GDP number.

Timing wise, I think this guy sounds pretty good and he has a good track record:

http://tinyurl.com/23szuyg

Hock

[Mamma Boom Boom]

>So, why did the Chinese lend so much money to the US?<

I don't know! But, they should be stiffed.

[Mamma Boom Boom]

Seems like 1071-1065 should come into play in the next day or so. That should allow us all plenty of time to 'back-up-the-truck'.

Cause we be fixin to have a summer rally. Wheee-haw! Hand me over dem beans, boy! I gots me a powerful appetite.

[Chabazite]

'I don't know! But, they should be stiffed' - probably the reason why they have buck teeth and slanted eyes.

[Les]

China and Japan dumped their holdings of government agency mortgage-backed securities in the spring of 2007. How'd that work out for ya?

[nspolar]

The end of day DOW candle stick pattern is quite interesting. Probably something rare.

50 dma crossed down over 200 dma about 7 sessions ago and has opened up a bit, as the slope of the 50 dma is of course steeper.

The candle if I am correct (not a candle expert) is near perfect hanging man, with almost no body.

Top of hanging man hits 200 dma.

Long empty stick below body hits 50 dma.

Bearish or bullish?

Biggest surprise for me of late is the dollar. Got hammered hard today. Yet oil and gold were down. Hard to figure that one.

ns

[Roger D.]

Just when I thought the market was technically bad,it get's worse. This broadening pattern will produce a mini crash,something like another 1000 down,would not surprise me.

Roger D.

http://www.screencast.com/users/parisgnome/folders/Default/media/40dd7157-dd50-4607-b8a2-bf269500a8ec

[Mamma Boom Boom]

>Seems like 1071-1065 should come into play in the next day or so. That should allow us all plenty of time to 'back-up-the-truck'.<

The next leg up will probably be relentless. To get aboard will require chasing it.

[JT]

"Just when I thought the market was technically bad,it get's worse. This broadening pattern will produce a mini crash,something like another 1000 down,would not surprise me." - Roger

With Roger crying "Wolf" for the millionth time, I smell a HUGE RALLY coming. Thanks for the BUY SIGNAL, Rog!

[Mamma Boom Boom]

Here's something to ponder: Assuming I'm right and the market rallies into the Sept/Oct period, then starts it's long Japanese decline, do you think that will mark the beginning of a long rise in gold prices?

[Roger D.]

You guys just can't read charts,period. There is nothing bullish at all about what is taking place in this market right now. You have infinite idiotic traders running super computers passing this stock off to weaker and weaker hands.

You know I was the one and only person who forecast a mini crash out of the wedge and I was right.

Many stocks are so extended up here,making a double top or a irregular top by a few cents,is the most bearish thing that could happen.

Be my guest,but when it happens I expect this blog won't have a bull within ten miles. But that's ok I like it when I have this place to myself,lol.

You have been warned!

Be hedged and safe rather than sorry.

Roger D.

[Roger D.]

This is what I'm talking about. It's got panic written all over it.

Roger D.

http://www.screencast.com/users/parisgnome/folders/Default/media/b812b73f-3c1d-499e-9b70-5feb513d20c6

[DG]

You guys just can't read charts,period.

Says the guy who's been wrong with just about every freaking post he's ever made. You are a deluded idiot.

[DG]

You know I was the one and only person who forecast a mini crash out of the wedge and I was right.

Who gives a flying fig? You were "forecasting" that crash from the February low, which, since that's where the "crash" ended up, means you basically broke even on that trade. If in fact you even made a trade.

You want credit for "forecasting" something? Put down the specifics of the trade you made based on that forecast. Otherwise, it's just idle chatter to talk about it.

[Bird]

Funny Chab

[Bird]

Roger, I am anxious for your religious conviction to be proven right. At some point it will. Not sure when tho

[DG]

It's all just a bunch of :3s.

http://yfrog.com/3uspxdailyjuly3p

Same count as I've had for going on three weeks.

http://yelnick.typepad.com/yelnick/2010/06/tesla-ipo-building-momentum.html?cid=6a00d8341c563953ef01348518d70e970c#comment-6a00d8341c563953ef01348518d70e970c

Which itself is congruent with the count I've had since the May bottom, when I said wouldn't go below 1034.22, and it didn't.

http://yfrog.com/bcspxdailymay7p

Not as exciting as calling for the crash of the millennium every hour, but I'll take it.

[DG]

DG,

Hide and watch asshole.

Roger D.

Posted by: Roger D. | Tuesday, June 29, 2010 at 05:00 PM

Speaking of old predictions. Hey, Roger, you know what I've been watching? The market go up almost 10% since you told me I was wrong to be bullish.

Do you ever just sit back and wonder why you are wrong all the time? Are you even capable of self-reflection?

[Mr. Panic]

Shanghai,Nikkei,and HangSeng (although moderately so) are all currently down now. Dax Index had a nasty reversal candle yesterday so I don't see how that index can have a positive day on Friday.
It's amusing how all of the so-called good news comes out on a key cycle date.
And today was a hanging man candle and I have done a preliminary search to see if the market can gap up following such a candle but so far I haven't seen that type of hanging man candle with such a long wick. When they have been followed by dojis then the following day can be a big up day but I haven't seen any instances when preceded by a doji. I'll give an update if I find anything.

[nspolar]

Hey Rodger Dodger,

I probably live a long ways away.

I jus want to tell you to look at the Nikk, Shanghai and Hang Seng here this evening, as well as the futs. They have ingested too many beans it so apppears.

Aaar! Aaaar! Wolf howling. I hear it regular like. I can howl right with them.

Bears (and wolves) have to stick together a bit you know, even though bears do not possess herding or pack instincts.

Mamma and her bean appetite story, reminds me of Alex Karass in Blazing Saddles, cept in this case Mamma Bull Bull ain't gonna have enuff beans left for fart gas. Mamma Bull Bull farting ... it happens to all of us.

Hang in there.

DG and his congruent three's! Well how well has Neely done over the last weeks and months? Shite. We all know the answer to that story. The best current trend going is to fade Neely. The trend is yer friend is the old line.

Rough times for many, especially prognosticators.

Gotta go split some more wood man. Later.

ns

[nspolar]

The Hanging Man (or maybe this one is the Hanging Women in remembrance of Mamma who loaded up today), sandwiched between the 50 and 200 dma, both the latter heading down with the 50 dma leading.

Combined with a Harami Cross type of formation.

Bearish?

Then there is the old Nikk.

No 3's here. Just fives that beget more 5's. When will it end for the poor ole Nikk. Going to be one hell of a bottom.

http://ichart.finance.yahoo.com/w?s=%5EN225&lang=en-US&region=US

Time for a bear nap.

Listening to:

"
Slip sliding away, slip sliding away
You know the nearer your destination, the more you slip sliding away"

ns

[DG]

DG and his congruent three's! Well how well has Neely done over the last weeks and months? Shite. We all know the answer to that story. The best current trend going is to fade Neely. The trend is yer friend is the old line.

You'd have a point if my wave count were just a re-stating of Neely's, but it isn't.

More importantly, I have stated only about a dozen times that now is NOT a time to be following Neely's trading recommendations, except possibly the Weekly trades. He's not operating with the right logic at the right timeframe. So, he's in "capital preservation" mode and minimizing trades. Which is fine, because once the market becomes more predictable, I'm sure he'll start trading better. Meanwhile, I'm up 16%+ so far this year using a derivative of NeoWave that's actually built for the current environment.

For a guy who likes to think he's all analytical and stuff, you sure don't seem to know how to utilize data to discern the pros and cons of Neely's methods. I know it's easier to just throw around blanket statements, though.

So, if you're going to criticize me and you want those criticisms to stick, maybe you should base them on accurate facts.

[Account Deleted]

DOW JONES Futures before opening bell
http://niftychartsandpatterns.blogspot.com/2010/07/dow-jones-futures-before-opening-bell.html

[Roger D.]

I'm not going to say anything. The market will say enough and it will be crystal clear. This is the "great unification" wave down and it's just starting. No more bullshit 3 waves,just unmistakeable 5's and 3's. It will be a thing of beauty.

Roger D.

[Trader 123]

DG,

Hide and watch asshole.

Roger D.

Posted by: Roger D. | Tuesday, June 29, 2010 at 05:00 PM.

Watch exactly what Roger?
You and your "paper-trading" simulator account???

You never post a trade.
You never post a stop-loss for your predictions.

You conveniently ignore people who have asked you how much capital you are allegedly trading with and what percentage of it you have committed to a short-position.

If you were to actually POST SOME TRADES you might be taken somewhat seriously. But you don't. Why is that?

[Mamma Boom Boom]

Roger, isn't this exactly what I predicted? Remember, back the truck up, pass the beans, all that stuff?

[Roger D.]

Mamma,

The problem is we are now since the top impulsing down. Today's wave is 1 of 3 of 3,now when this counter is done,the market could really excellerate down, as the reality sets in with traders that they are trapped. We will see.

Roger D.

[Bored Guy]

I would prefer it if Roger not post trades beforehand and continue his 5s and 3s thing of beauty rants.

And I would you all to rant back at him.

Thank you.

[Aramis-]

GS up = FAZ up

wtf.

[twitter.com/DrBubb]

This could be big.
For the market historians here, I suggest you look back at Sep-Oct.1987. The action now has a fractal similarity with that period, right down to the Hanging Man on Oct. 6th, 1987.

So if that pattern continues, then today is Oct.7th, 1987, and you know what comes after that.

More Charts & Commentary : http://tinyurl.com/GEI-HM
(Starts with post #171)

[Roger D.]

Hi ns,

Your'e right Asia is ahead of us,and then Europe. We are the last to top,so we have some catching up to do.

[Chuck Cheese]

You must be 8 year olds, or at least no taller than an 8 year old.

Good luck Boom Boom.

[Bored Guy]

I am 41 but I have achondroplasia, so you're batting 500.

[Chuck Cheese]

Sorry, but it doesn't appear to be affecting your attitude so clearly not directed at you

[da bear]

'F' wave?

da bear

[www.google.com/accounts/o8/id?id=AItOawmv5FT0nGt2EOWVMM5O6W8Y3ktxtMZWdPM]

Interesting chart suggesting we might have seen or be close to a top in the market -

http://gi61et.blogspot.com/2010/07/902-bst-options-equity-putcall-ratio.html

[Mamma Boom Boom]

Chunky Cheese, why do you have this obsession with children, are you a pedophile?

[nspolar]

Roger, I may tweek my Dow count, to have today as the start of the iii .... I want to make it clear however that for me this will be the iii of 1 of C. In no way have we started Wave 3, for me.

I have to give it a few days to decide.

But as I noted yesterday I had the BKX in all liklihood starting a iii'rd of 5 or C down a few days ago. It is pretty clean.

Well what is leading the charge here? The BKX off nearly 5 % today so far. C stunk up the joint today. My BKX target bottom is ~ 7, meaning your FAZ to 60 is a no brainer if that happens.

Everything is folding here Roger, most important index I wanted to see fold is the HUI. A bit early to call that one, but it is slip slip slipping away in a C down. My HUI target is 60. The future money is going to be big in the miners but is going to require some work and an open mind.

As I have stated more than once, this is going to be an opportunity of a life time ... short the back side and hit the bottom. Sounds easy, but we got a long ways to go and a lot of work to do.

Patience. Have Patience and use those trendlines. Later, a nice day here, in more ways than one. Lot of howling last night.

ns

[Chuck Cheese]

Ouch, kinda proving my point aren't you? And I was wishing you luck with your call for beans.

[Roger D.]

ns, yes by my count 3 started yesterday,but some started today. If this present action is the small w2 c flattening out,this market will be down big today.

Roger D.

[Eventhorizon]

Mr Panic,

Not usre if I am interpreting correctly, and I had to make some assumptions, but I found in the S&P500 futures 15 year series that there were:

106 Hanging Man candles (where close < open and tail was at least 2/3 of the candle)

123 gaps (where the low of the day was higher than yesterday's close and todays close was higher than todays open)

but only 5 occasions where a gap as defined above followed a hanging man as defined above.

Correct any of my assumptions and I will re-run if you like.

[Roger D.]

This is a "abc" running wave 2. Once this ends wave 3 will begin.

Roger D.

[Mr. Panic]

I believe yesterday's action was the equivalent of October 13,1987 and today's action October 14,1987. I think the October 6 scenario played out at the June 18/21 top and it took 8 days to do what 1 day accomplished on October 13. But there is a pattern match with the doji followed by the hanging man. But I don't expect this decline to end in 3 days so October 6 is definitely applicable. I think this decline will follow the June 1930 scenario better. Or this could be mishmash of 1987,1929, and 1930.

[nspolar]

Panic Man or Roger,

Either of you have a good chart of June 1930 scenario I could save?

Starting to smell a little uglier eh? iii'rds or 3'rds should start with some emphasis. We have some emphasis today. This one is going to be a meat grinder imo. It keeps on going and going and going ....

TIA.

ns

[Mr. Panic]

Thanks for the insight Event Horizon.

I couldn't really discern anything worthwhile when I did my investigation. There was a similar pattern on April 22,2010 but the hanging man's wick was smaller and the body was bigger. It led to a one and half day rally into the April top. Then going back to 2008, these type of hanging mans were more common and they generally preceded an immediate drop in the markets even if they occured what looked the end of declines. (I vaguely recall seeing this and an e-wave/tech analyst(who I am sure will infuriate all the e-wave purists with his counts) Anthony Allyn who has public charts over at stock charts recalled seeing these candles quite frequently during the 2008 meltdown.

When I found out the Goldman Sachs settlement had been leaked an hour before the close and saw the factory orders news during the Asian session along with the action overseas, I stopped worrying about a gap up. The so-called good news of the GS settlement had already been discounted by the market.

[Mamma Boom Boom]

The most important question is, "Do we form a consolidated bottom, or is it a 'V' bottom?" Hopefully, it's the former as I have to be out of the office a good part of Monday, I don't want it running away leaving me in the dust.

[Mr. Panic]

The 1930 chart I look at was posted over at Danerics on May 15 in his weekend post. I usually just do a yahoo search for the chart.