Cart (0)
business newsGold on Hold; The New Play May Be in Munis
Right now, the only investment opportunities that are both relatively attractive (versus alternatives) and offer a likelihood of growing nominal capital are investment-grade municipal bonds.
PRINT
 |
|
After the Fed failed to meet expectations and issued a downbeat assessment of economic prospects, however, it was risk off with a vengeance in the DoctoRx financial environs. The Fed has kicked the economic problem to the administration and Congress, and to the business community at large (where it belongs, in my opinion). This sudden outbreak of financial prudence strikes me as a good thing. By selling short-dated maturities, it alleviates the (temporary ?) shortage of short-dated federal debt. And rather than shrinking the balance sheet or letting mortgage-backed securities run off their balance sheet to be replaced by yet more Treasurys, the status quo is maintained.
The Fed will have the advantage of surprise if and when QE 3 leaves port.
On a global basis, the Fed is probably also looking at the probability of money-printing out of Europe. It’s their turn to inflate. We’ve done our part.
The markets are signaling price declines all over the place. Platinum is trading about $40/ounce below gold. This is anomalous. MIT’s Billion Prices Project reported price declines in the U.S. in August (see final chart). The Economic Cycle Research Institute on Friday took the rare step of commenting in print that the stock market is at a significant risk for a further decline. Dangerously, Markit’s CMBX index (or, more precisely, some of their constituent indices) that tracks mortgage-backed securities broke Friday to yet another new multi-year low.
Right now, the only investment opportunities I see that are both relatively attractive versus the alternatives and offer a likelihood of growing nominal capital are investment grade municipal bonds. This could include some of the leveraged muni bond funds that yield over 6% tax-free as well as properly selected individual issues. The latter are generally buy and hold investments, though the larger muni issues have decent liquidity.
The above comment is predicated on the growing sense I have that the U.S. continues to go Japanese, financially speaking. This is not a new idea for me. This is what I wrote on January 6, 2009 in an article titled The Land of the Setting Sun:
We are Japan.
(Though with nukes and military bases in about 92 countries.)
Barack Obama made it more or less official today: trillion dollar deficits are here to stay.
“Potentially we’ve got trillion-dollar deficits for years to come, even with the economic recovery we are working on.”
The dead hand of government will provide tax cuts, either by printing money or borrowing from the savers of the US and the globe, to “stimulate” something by someone: probably by paying down private debt and purchasing necessities at low profit margins for the vendors. This shell game is, as we used to say in the '60s and '70s, played out. Or as they say in the rural South, this dog won’t hunt (any longer; he’s too old). Additionally, government will print and borrow money to build and rebuild roads and buildings. Perhaps even most of this money won’t be wasted or stolen, but based on Japan’s experience, I wouldn’t bet an economy on it.
Let’s consider: Japan lost WW II and set about rebuilding. Its banking system went bust in the 1960s. We helped them put it back together in a way we should have emulated last year, and they embarked on a quarter century of unbelievable growth.
Of course, we all like to quote from our best thoughts, and if you say enough things, some of them will look good in retrospect. I hope readers note that in typical fashion, the quote from Mr. Obama, who was not yet even President, showed that his view was that the economic recovery would come from Washington. He did not say, “the economic recovery that the American people and their businesses are going to make happen”.
In any case, this spring I argued that biflationary price risks had tilted to the deflationary side in Goldman Wrong on Rates, Zero Hedge Wrong on Oil as Deflationary Side of Biflation Begins Its Ascendancy when both interest rates and oil prices were much higher than today. Bond rates have gone lower than I foresaw relative to oil prices, which look to have room to decline more (perhaps much more). I exempted gold prices from my “risk off” recommendations then but as documented last week, gold is now off my buy list.
The information on this website solely reflects the analysis of or opinion about the performance of securities and financial markets by the writers whose articles appear on the site. The views expressed by the writers are not necessarily the views of Minyanville Media, Inc. or members of its management. Nothing contained on the website is intended to constitute a recommendation or advice addressed to an individual investor or category of investors to purchase, sell or hold any security, or to take any action with respect to the prospective movement of the securities markets or to solicit the purchase or sale of any security. Any investment decisions must be made by the reader either individually or in consultation with his or her investment professional. Minyanville writers and staff may trade or hold positions in securities that are discussed in articles appearing on the website. Writers of articles are required to disclose whether they have a position in any stock or fund discussed in an article, but are not permitted to disclose the size or direction of the position. Nothing on this website is intended to solicit business of any kind for a writer's business or fund. Minyanville management and staff as well as contributing writers will not respond to emails or other communications requesting investment advice.
Copyright 2011 Minyanville Media, Inc. All Rights Reserved.
