Regular readers know that we abhor muni bonds as much as anyone. But my interest has recently been piqued by calls for short-term rallies from sharp guys like David Rosenberg and Steve Sjuggerud, who have cited the market as oversold due to the abrupt end of the Build America Bonds program.
A somewhat misleading Bloomberg headline reads: Investors Pull Assets From Muni Bonds for 14th Straight Week. But diving into the article, we see the news is actually more bullish than bearish for munis:
The redemptions were the least that investors made since the week ended Dec. 8. Outflows have totaled $25.8 billion since mid-November, according to Lipper, a Denver-based research company.
“We see it headed in the right direction,” said Matt Dalton, chief executive officer of Belle Haven Investments Inc. in White Plains, New York, who oversees about $600 million in municipal assets. “The fact that you’re seeing it dwindle is a good sign.”
And the chart of good old MUB appears to concur that a short term bottom has been found:
The situation has gone from bad, to less bad in munis. (Source: StockCharts.com)
Going long munis would be a contrarian play if there ever was one. While the long term outlook is miserable, the short term could be bright as this situation goes from really bad, to less bad.