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http://www.talkpoint.com/viewer/presentation.asp

Hey guys, this is a webcast done by Doubleline which is the firm Jeffrey Gundlach (seeded by Oakmark) started.

Interesting firm, and what I thought was an interesting and balance summary of where we are today, and where the opportunities are (or aren't) at a high level for the bond market.

Slightly longer than an hour as an FYI.

Ben
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Jeffrey Gundlach (seeded by Oakmark) started

Should say OakTree; bad typo.

Ben
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Ben,

I could enjoy an hour video of Jon Stewart running his riff, but not some cowboy bond trader I’ve never heard of. However, Gundlach cannot be dismissed for two reasons: He has a clear action plan, and he is making it work. What he’s been doing with MBSs is impressive. But rather than suffer through the video (the link didn’t work anyway), a faster way to get a sense of his thinking is the Barron’s interview. http://online.barrons.com/article/SB500014240529702044422045...

I found these snippets interesting, because they parallel the prep work I’ve been doing for a couple months now, trying to learn the muni market, so I’ll be ready when the buying time comes.

He foresees a major collapse in the municipal-bond market, beyond the declines to date, given the parlous condition of both state and local government finances. He is preparing, he says, by having established a joint venture with the Chicago financial firm RiverNorth. Among other things, it expects to scoop up closed-end municipal-bond funds in the next year or so when the predicted apocalypse arrives, driving fund prices down, he says, to as little as 40% of net asset value.

What makes the $2.7 trillion muni market particularly vulnerable, Gundlach says, is its weak psychological underpinnings. Many investors in municipals are wealthy individuals who buy the securities purely because of their tax advantages and have little knowledge of the fundamentals of the paper they own. They tend to be "all-in" investors, owning little else, and thus will be prone to panic, he figures, in the face of surging defaults.

"Look, I don't know whether the market will suffer $10 billion or $30 billion in defaults, but the actual amount doesn't matter, Gundlach says. "There will be a panic at the margin, and muni bonds from the highest-rated on down will plummet, in part because other sorts of investors tend not to step in."
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Charlie said.....

"I found these snippets interesting, because they parallel the prep work I’ve been doing for a couple months now, trying to learn the muni market, so I’ll be ready when the buying time comes."

Then quotes from the article....

"Among other things, it expects to scoop up closed-end municipal-bond funds in the next year or so when the predicted apocalypse arrives, driving fund prices down, he says, to as little as 40% of net asset value."

If closed end muni funds sell for 40% of NAV...I'll be buying as well. I certainly wish for nothing bad to happen...but closed end muni funds selling for 40% of NAV would be a gift IMHO. Wonder what kind of CY that would equate to? Hard to know.

Hmmm...$2.7 trillion muni bond market....defaults of $10-$30 billion. That doesn't seem like enough defaults to cause a panic...even amoung weak handed individual investors and leveraged closed end muni funds. $30 billion in annual defaults in a $27 trillion market only equates to 1.11%.

If I kind find muni bonds of "solid" credit quality offering a 7.2% CY (10% taxable equivalent for a 28% federal tax bracket), I'll be investing all of my cash. If prices get even better, I might even consider a prudent amount of leverage (if there is such a thing).

Only time will tell....
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"If I kind find muni bonds of "solid" credit quality offering a 7.2% CY (10% taxable equivalent for a 28% federal tax bracket), I'll be investing all of my cash. If prices get even better, I might even consider a prudent amount of leverage (if there is such a thing)."

Prophet - will you be looking to solely GOs or also revenue bonds? Where do you think the hunting grounds might be?
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LONGREITS:

I'll be looking where ever I find the most attractive opportunites. I search by YTM range and maturity date range. You probably won't be suprised to hear that my muni bonds are almost all revenue bonds.

To borrow a phrase from Charlie, the really safe stuff is (almost) always richly priced.

IMHO, revenue bonds are where value can be found in munis. Revenue bonds are almost universally assumed to be riskier that GO bonds (and probably they are) and therefore they seem to typically offer much more attractive yields. IMHO, if your willing to do the research into the security of the revenue source for the bonds, some good opportunities can be found.

I have no particular insight into where the best opportunities will or will not materialize. As I alluded to earlier, I never search specifically for GO or revenue bonds, but sometimes GO bonds do show up in my screens.
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Thanks, Prophet. I'll do some research on etrade to see what I can dig up over time.
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Prophet43,

Since you mention closed-end muni funds, I'll say I fully agree that might be the better path than individual securities. Sometime, go back and look at the returns they offered coming off the 2008=2009 lows. Typically, the discounts didn't exceed those created in equities, but the spring-backs were definitely attractive.

Charlie
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