Archive for the ‘Municipal Market Letter’ Category

Our Plan Continues To Come Together

June 14th, 2016 by Kurt L. Smith

There has been no letup in the municipal bond market this year. Yields are low, prices high and firm. Yet we continue to find worthwhile bonds which I believe is a testament to our approach.

Thankfully, the municipal bond market provides a tremendous amount of variety. We have fifty states plus Puerto Rico, Virgin Islands and Guam. We have general obligations, revenue bonds of an almost endless variety, along with debt secured by countless types of assets. All this variety and that’s before we throw on the essentials for fixed income: a coupon rate and maturity.

This variety, the anti-generic, is a crucial component of our approach. It is unique in the investment world and this is tremendously important as the world of investing has largely become one big, high-priced, low yielding world in which returns are piddling, that is when values aren’t plunging.

Asset classes, across the spectrum, are struggling, some plunge and pop, but overall it is downright tough to have a plan to diversify a portfolio and feel comfortable that you are making progress with your investments. Traditional thinking has failed to work, or just plain failed, while unconventional thinking seems to be …conventional. Where are the ideas that work? (more…)

Over The Top

May 16th, 2016 by Kurt L. Smith

For the past several months we have discussed the manic moves of municipal bonds. As one of the best performing asset classes last year, it looked like we would be poised to experience follow-through this year with additional new money flowing into municipal bonds.

Indeed this has been the case. Money flows into tax free municipal bond funds continues week after week. Not only are new deals like the one’s presented at the bottom of each month’s newsletter selling well in the marketplace, we are also seeing intense competition for bonds in the secondary market. In a word, the market in my opinion is “hot”. But after several months of “hot”, the market seems to me to be “over the top”. (more…)

Blessed Are Municipals

April 11th, 2016 by Kurt L. Smith

Rare is my newsletter with good things to say. How about “it is good to be an investor in municipal bonds!” As I wrote several months back, municipals were one of the top performing sectors last year. Now we are going to discover how long the ride may be.

I am not recanting my position that Bonds peaked in price (bottomed in yield) way back in 2012. I stand by my position. But after a quick swoon in 2013, municipal bond prices have been rising and have remained quite firm (low volatility) as they have made their way back towards the highs of 2012.

Low volatility and rising prices…in this market!? This is certainly a recipe for those not familiar with municipal bonds to get acquainted. Municipals appear to be a bright spot, not only in the fixed income markets, but in investing in general. (more…)

Another Step Closer

March 3rd, 2016 by Kurt L. Smith

Markets go up and markets go down. We all know this. We should also know that we are fortunate to live in an era in which markets have trended higher for decades. Unfortunately we now live in an age of asset bubbles with the largest bubbles of all, Stocks and Bonds, on the verge of a massive popping.

We have watched the popping of two asset bubbles over the past several years: According to Bloomberg, Precious Metals (Gold & Silver) and Oil. Gold peaked in September 2011 at $1920 an ounce, falling 45% over the following four years to a $1046 low. Silver almost touched $50 an ounce for the second time in its history and sold off to below $14. Oil peaked at $147 in 2008 but sold at $107 just nineteen months ago and below $27 last month. Markets do go up and down, but in today’s age of asset bubbles, one must be ever mindful of the tremendous downside risks that exist. (more…)

We Have Top Men Working On It

February 10th, 2016 by Kurt L. Smith

In late January the Federal Reserve’s Open Market Committee voted to do nothing. Unfortunately they had to say something and it was that something that reminded me “we have top men working on it.” Here the top man is a woman, Chairman Janet Yellen.

The Fed’s luster was destined to pale from the days in 2000 when Chairman Alan Greenspan was dubbed Maestro for his deft maneuverings. Chairman Ben Bernanke was Time Magazine’s Person of the Year in 2009, having saved the world, or at least us, from certain financial ruin.

So from Chairman Yellen we ask “what have you done for us lately?” Stocks swooned in August but recovered by December only to have the Federal Reserve vote to hike interest rates for the first time in ten years. Now that stocks have swooned again to begin 2016 we find the Fed to be hesitant in its plans to normalize, I mean raise, short-term interest rates. (more…)

What? Municipals on Top?!

January 15th, 2016 by Kurt L. Smith

Happy New Year! Municipal bonds were one of the best performing asset classes for 2015*. That doesn’t happen often (ever?)! Municipal bonds didn’t post stellar returns but compared to the sub-par performance of almost every other asset class, municipal bonds came out on top.

Obviously we don’t invest in municipal bonds because we think they will be the top performing asset class each year. We like the income, particularly tax-free income. Municipal bonds may not have the sex appeal of other, perhaps higher yielding investments but they also do not have some of the risks. In this era of low (to no) interest rates we have seen others chasing yields in all kinds of asset classes from master limited partnerships (MLPs) to high yield junk bonds and even in higher dividend stocks.

2015 saw some investments for yield really take it on the chin. According to The Alerian MLP Index, Master Limited Partnerships (MLPs) as an asset class lost about forty percent of their value last year.** Forty percent is enough to whack off many years of projected income and price fluctuation is but one of the risks associated with MLPs. Sure the yield (income) investors were hoping to grab is still there…unless the MLP cuts the dividend rate, another risk associated with MLPs. No doubt MLPs performed well for many years prior to 2015, but then, bam, the trend moves in another direction leaving MLP investors to try and salvage their investment. (more…)

High Prices Good!

December 16th, 2015 by Kurt L. Smith

One of the lasting lessons learned from the financial crisis is how much better the world seems to be when asset prices are high(er). Balance sheets are strong when prices are strong. Loans look better when collateral prices are higher. As we saw in 1999 and again in 2007, higher prices make for a wonderful investor world. (more…)

The Trend Is Not Your Friend

November 11th, 2015 by Kurt L. Smith

Investors look to the Federal Reserve for economic leadership. Looking backward, one might say the Fed helped get the economy back on track with lower interest rates, higher asset prices and lower unemployment. Looking forward, the Fed continues to feed us the line that next month or next quarter will be better. (more…)

Markets Move; Fed Does Not

October 5th, 2015 by Kurt L. Smith

We have witnessed a reversal from the slow and steady rise of the stock market to greater volatility including a twelve percent decline in the Dow in a mere four days back in August. Stocks recovered going into the Federal Reserve’s interest rate announcement September 17^th, yet the Fed chose not to move on interest rates. (more…)

We Live In Interesting Times

September 1st, 2015 by Kurt L. Smith

While waiting for the next move higher in long-term interest rates, the Dow decided to shed 1000+ points. And that was only in the first eight trading days following the publication of the August Letter. (more…)

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