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Muni Exodus Confirmed As Investors Pull Money From Affected Funds
After a weeklong smackdown in muni securities of all kinds, both cash and synthetic (read CDO-like ETF time bombs), today for the first time we have seen confirmation that investors are starting to say enough. Reuters reports that for the first time since April 14, mutual fund investors withdrew a net $115 million from tax-exempt funds last week. "Funds are the largest players in the municipal market so to the extent there are outflows, that will put more upward pressure on rates[downward pressure on prices]? said Jack Bauer, managing director of fixed income at Manning & Napier, a money manager in Fairport, New York, who oversees $25 billion in assets. "It's been kind of ugly this week." See Jack Bauer is all confused - one would have though that 28 consecutive outflows from domestic stock funds may have put in just a little "downward pressure" on stocks. Wrong and wrong - in fact stocks have proven that they levitate best on fraud, mark-to-krazy klowns, and scammery precisely when redemptions and Fed-Citadel involvement is highest. Which is why we expect that once there is no money left in stock funds (a few weeks at this rate) and in muni funds soon, muni will actually surge to never before seen highs as the bizarro effect appears in full force, and whatever muni ETFs are out there will do an SRS circa November 2008.
Thought maybe he surge won't begin just yet. Here is some more on what the rout is doing to ETFs via Reuters:
The recent shift out of munis also hit exchange-traded funds this week. Volume has soared, spreads have widened and prices fell even more quickly than the drop in prices of the underlying bonds.
On Wednesday, for example, investors traded 1.3 million shares of the iShares S&P National AMT-Free Muni Bond ETF -- almost 10 times its average daily volume over the prior three months.
The fund's share price dropped to a low of $99.05 on Tuesday from over $105 on Nov. 9. It partially recovered to $100.52 in afternoon trading on the New York Stock Exchange on Thursday.
The ETF's price decline happened far more quickly than the drop in the prices of the bonds it owns, although the gap has narrowed during the week.
At the close on Nov. 10, the ETF was priced at a discount of about 0.61 percent to the net asset value of its portfolio. The discount widened to as much as 3 percent in midday trading on Monday and Tuesday, but has since narrowed to 0.71 percent at the close on Wednesday.
The gap narrowed largely because the bonds' value eventually declined close to the share price of the ETF.
Such gaps can crop up when ETFs own assets like municipal bonds that are less liquid, essentially more difficult to trade, than the funds themselves, explained Jerry Paul, chief investment officer of Essential Investment Partners in Denver."With some ETFs, we just think the asset is better suited to active management," he said.
Pressure on municipal prices has hurt shares of Eaton Vance Corp <EV.N>, a Boston-based money manager and a leading tax-exempt fund manager, one analyst who follows the company said.
Shares of Eaton Vance dropped from $31 to as low as $29.11 from Monday through Thursday's open. The shares rebounded on Thursday along with a slight rebound in municipal bond prices. The shares were at $29.74 in afternoon trading on the New York Stock Exchange.
And here is a video that explains everything for those who are still confused why QE3 better be a-comin' soon.
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I was wondering what Jack Bauer did after he left CTU.
"mark-to-krazy klowns" - I love it!
Yes. Well you see the Mark to Unicorn rule had to be abandoned before the serfs woke up. That, and the skittles were just piling up.
You've got me hooked on Diamond. Can you post that first installment link again? As well as the "Charity" one to refresh the meme.
The CTRL-S key will save those web pages for ya (once you find them, that is!)
As General Jim says, QE to infinity is your only alternative.
like a drug they've had way to many of, Just peace happiness and love
Muni crash = excuse for QE3. Or will it be one among many? (flagging new home sales, DOW plunge, another bank bailout, etc.)
I hear cannons!
War has started on a second front. Is Ben a good enough general to manage two theaters of operation? I guess we'll find out...
He's not managing one front very well. Which one of his mandates is he succeeding at?
Well, the Ben Bernank is succeeding at the "grow a really nice beard" mandate.
Someone call Drexion and have them create a 3X Bear Muni ETF RIGHT NOW!
Nice to see Jack Bauer landed a decent job after his TV series was canceled. Though it's sad to see he went from fighting terrorists to becoming a financial terrorist in training.
Such is life.
TD: promise!?
Goldsaks would buy the dip
I think they will start buying Muni´s also....by the back door...have the GS´s buy them and package them up somehow...then dump them on the Feds.....I hope not...I truly hope not...
Bingo. The path of least resistance, and allows no open debate or transparancy.
The Bernank says that he sees a slight slowdown in the muni market but it is contained. There is no danger from the muni crisis spilling over into the broader economy. The Bernank sees signs of moderate growth in the coming quarters.
Isn't that what he said in 2006 about housing prices?
of course stocks surge when retail fools leave. That leaves only FRBNY and skynet to trade. less participants and less volume + 100% bias to the upside = dow 36,000
This is such a given. Once again, The fed Bitchslaps all naysayers. Audit the fed bitchez.. Please, spare me. The owners have won.
MUB is hard to borrow, but there is always AGO to short. Like I said, I really wish we had a 3X Bear ETF for Munis.
The only caveat that may prevent Fed from buying munis is that most muni interest is Federal tax exempt, therefore the Fed would be supporting something that is not part of the existing Fed/Wall Street/Washington counterfeiting and wealth confiscation cartel. Otherwise I would say that it is 100% signed, sealed, and delivered.
BTW, It's good to see Jack Bauer has landed a nice job on fraud street after his traumatic experience in a Chinese jail.
A major freaking 'see I told you so' and there are two more shoes to drop. Both of which finish off the muni sector and it ties directly into the unemployment and real estate issue.
Municide bitchez....Can I interest you in a new school located in east LA? Or, how about investing in a new San Francisco homeless shelter?
I hear that Vulcan is warm this time of year (probably all year, but never mind!) :>D
GM is abt to break 34
Seriously who would trust CA to pay you back at any yield? If there is something that will be even more worthless than FRNs it is CA IOUs for FRNs!
California will send you a nice Christmas card with an IOU in it saying Thank You for investing in the Golden State....as they default on your Muni.....
Under the CA constitution, there's not much ahead of bonds in priority -- schools, I think and not much else. Bonds get paid BEFORE even payroll. So every State employee will be getting IOUs before bond holders.
California will send you a nice Christmas card with an IOU in it saying Thank You for investing in the Golden State....as they default on your Muni.....
I would think we are about to begin seeing what "hyperinflation" looks like in the proxy of CA (and IL, NY, MI, etc) munis. Who the f$$$ wants to own these things? If you had some drop in your lap from an inheritance, how fast would you sell?
It's funny but I was looking for a 1x, 2x or 3x inverse muni myself about a week ago (nothing).
Interesting take, I take a completely opposite view. In reference to an inverse ETF on munis, I can't think of a product more destructive. I hope they don't exist.
Let me know.
...hold'em high boys and girls:
"i'll raise you 20 munis, 3 Q.E.s, and one cali IOU."
Muni bonds now yield more than treasuries.... Whoops.
http://merrillovermatter.blogspot.com/2010/11/some-perspective-on-muni-bond-market.html
Last weeks news
Things are fast coming to ahead.
The real fun during times of dislocation is in the closed end funds. Look at the Nuveen and Eaton Vance tickers for some easy to find examples. Some of these funds saw seven percent ranges on Tuesday. Even ultra staid PRB got hammered for almost one percent over the last week or so. Lop of another and I'm moving some money market/cash in.
THIS ACCOUNT SHOULD BE IMMEDIATELY DE-ACTIVATED.
BTW, I happen to think the tax advantages of Muni's put them in a permanent bull market.
WRONG! What will Obama do next-tax Muni's of course! Combine that with a hard-ass Republican congress and you've got the 1970's (30's) on your hands.
Tough call, but if Muni's can keep their tax advantage, they might be a good spec on a more serious dip.
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