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Tyler Durden's picture

via Mark J. Grant, author of Out of the Box,

For those of you that are centered on safety I would consider Municipal Bonds and especially the maturities of 12-20 years where there is a call around ten years. Forget the tax break and just focus on absolute yields and you will quickly come to the conclusion that this is one of the most attractive segments of the fixed-income markets now. This has only happened two or three times in my thirty-eight years on Wall Street and it has always been a good play when available. You can get outsized yields on many State credits and on other high quality and highly rated names which are now better than correspondingly rated corporate bonds and certainly than Agencies or other mortgage backed securities. I advise you to take a look at some of the options here as I think there is very good value in this sector of the market now.
 
The Chinese Stock Markets are returning to the lows of 2009 and the Europe is mired in a recession. The American Stock Markets are not far off their highs and I do not think this will continue. I am quite negative, for all kinds of reasons, about our equity markets now and I would be taking profits and returning to the more assured bets of getting yield from bonds and not from dividends. A dividend may be reduced or cancelled by the wave of some Boards’ hand one afternoon while senior debt cannot be cancelled without the company or the municipality going into bankruptcy so that the top of the capital structure is far safer than relying upon dividends for income. If I am correct and we are done with appreciation for the moment then a return to bonds is in order in my opinion.
 
In the next sixty days we are faced with Greece, Portugal, Spain, Italy and ECB issues that are quite serious both economically and politically. You may think what you like but there is a lot of risk on the table; of that you may be assured. The elections in the Netherlands are coming soon and here we may find one more government tossed out as the citizens of Europe turns from grand dreams of Federalism to the protection of their own country. Austria and some other countries have now proclaimed that they are done funding other nations and the groundswell of Nationalism should not be discounted. I think the days of the Three Musketeers “One for all and all for one” are now over on the Continent. September and October will mark the red flags on some very real decisions that can no longer be shoved down the road and I predict that some of these deciding moments will redefine the boundaries of what is possible and what is not possible in the European Union. Vacation is over and the angst will begin anew.
 
The American elections are coming and the candidates are about equal in the polls. Here is more risk on the playing field as the choices between the two candidates are stark and deeply rooted. I am not particularly political nor have I donated money to either side but I will state that I think our country is better off with Romney than with Obama. It is not that I agree with everything the Republicans tout but I frankly think Obama has done a lousy job leading the country both abroad and at home. I am decidedly not a Socialist and I have always felt that while there should be a safety net underneath all Americans that a redistribution of wealth was not in the best interests of the United States. I have always felt that one of the primary reasons America has prospered is that you can come from any country and with hard work, a few decent ideas and a little luck that you could stand on your own two feet and make a better life for yourself and your family and I continue to believe in this American tradition. I am firmly in favor of providing tax breaks and incentives to get people back to work and I am firmly opposed to providing handouts to people who can work and do not. In any event, America will make a choice and I think if Obama is re-elected it will be a significant negative for the financial markets as the guy has done nothing but bash both Wall Street and the banks. America also needs to face up to the economic reality that only so much can be afforded and make the tough choices necessary to bring our country back to a responsible economic position; of that much I am dead certain!
 
We face a Fall pock-marked with uncertainty and risk. Where ever I turn my gaze, to China and her economy’s grinding halt, to Europe and her deepening recession or to America and our elections this is a lot of risk on the table. For both the EU and the United States I think it is going to become quite apparent that someone has to pay for all of this and that there is going to be a severe pushback from the nations and from the people that are picking up the tab and a widening division between the people that are making the money and the people that are lined up for hand-outs. Real choices are going to be made in the upcoming quarter that will end the speculation and most likely end the bottomless pit of optimism that seems to be found in the equity markets these days. “Preservation of Capital,” I think, will not be a thing but the only thing of importance as we face the balance of the year and I continue to take a quite conservative approach to investing.
 
When someone says, “Buddy can you spare a dime” I would like to be the one being asked and not the one doing the asking. It is here where I stand and wait.