01/14/2011
Municipal Bonds In Trouble
(This is an excerpt from Friday's blog for Decision Point subscribers.)
It has been a constant theme in the news for some time that state, county, and local governments are under severe pressure because revenue and revenue projections are falling far short of spending plans. Here in California we are facing a budget deficit of about 25%. Can you imagine? I have heard that some California bonds, I presume the most recently issued, are yielding over 8%. That's tax free . . . if you can collect. Yes, munis are insured, but the problem is nationwide, and the ability of insurers to meet their obligations must be coming into question.
The following is a chart of the Municipal Bond ETF. While it is down only about 8%, the perspective offered by the chart shows it has fallen off a cliff.
I am pleased to note that our Trend Model signaled an exit relatively early in the decline when the 20-EMA crossed down through the 50-EMA. A positive indication is that volume is contracting into the decline.
Bottom Line: I think MUB is a good indicator of the public's perception of the municipal bond market and the state of public finances in general. At present that perception is being severely stressed.
* * * * * * * * * * * * * * * * * * * * *
Technical analysis is a windsock, not a crystal ball.
* * * * * * * * * * * * * * * * * * * * *
Decision Point's Timer Digest Rankings
BIO: Carl Swenlin is a self-taught technical analyst, who has been involved in market analysis since 1981. A pioneer in the creation of online technical resources, he is president and founder of DecisionPoint.com, a premier technical analysis website specializing in stock market indicators, charting, and focused research reports. Mr. Swenlin is a Member of the Market Technicians Association.
* * * * * * * * * * * * * * * * * * * * *
* * * * * * * * * * * * * * * * * * * * *
* * * * * * * * * * * * * * * * * * * * *
Copyright 2010 Decision Point. Nothing herein should be construed as an offer or solicitation to buy or sell any security. Past performance does not indicate future results.
