For those who follow municipal bonds, the first half of last week was quite startling. For those not familiar, municipal bonds are financial instruments used to finance the debt much less operations of a city or state. Many investors like to purchase these financial instruments because the gains are tax free with the returns a bit higher than that of owning government securities. The reason for this is the risk inherent with own the debt of municipalities is higher than that (theoretically) of owning debt of the federal government. For instance, the yield on 5-year Detroit muni bonds is hovering between 5.5% and 6% with the 5-year yield on U.S. Treasuries is around 1.5%. The extra yield for Detroit bonds is for the risk you’ll be taking at the Detroit can stay solvent for the next few years. In normal times- even extraordinary times- municipal bonds tend to stay steady as an asset class for the most part because there tends not to be a fear that many American cities could go bankrupt. This is beyond one of those extraordinary times. The MUB is a measure of S&P National Municipals. It’d been in a tight range of about 102.50 to 107.50 all year. Yet in the last week, it plunged from 105.50 to 99! So what’s going on in this usually staid asset sector? First, there is a pervasive fear that finances of many cities and states are worsening as rumors swirl about places like Harrisburg, PA. Second, there is a massive backlog of new bonds for sale in most bond markets right now particularly with the government pumping newly-created dollars into the system. For instance, California is going to have to sell almost $15 billion of debt this month because it hasn’t had a budget signed this year as yet. Next, credit agency ratings such as Fitch for the 7th quarter in a row downgraded more muni bonds than upgraded the bonds. Next, the Build America Bonds program- part of the original fiscal stimulus program- will expire at the end of the year. Finally, the huge downtick in government bonds recently has spooked the muni market as well. While the muni bond market declines are symptomatic of everything else going, it is crucially important to watch for things like the California bond auction results in the coming days because things like that truly hit home and may well have an impact on equities in time.
Markets in Asia were mixed overnight with Tokyo ahead 0.9% but Hong Kong was off 0.4%. While Tokyo was open, headlines began breaking in earnest that Ireland was going to accept an aggressive bailout package. Futures had a pop with Tokyo gaining as well at the time. But as the details have come out (murky at that) and the realization sets in as to how expensive this is going to be to implement, stocks became weighed down through Europe with London and Frankfurt off 0.8%. Bonds are a tinge higher with the dollar stronger against the euro. Gold and oil are quiet. Futures are down slightly. Overall, look for a quiet session pending a massive move in the euro and/or Irish stocks. The focus will likely be on the stocks rumored to be affected by the supposed SEC probe (GS for instance), the smaller biotechs in the news such as CLDX, and techs in the news such as NFLX and AMZN.
Reiterating-
If the whole story is not there -
If something is good, assume either a short thru unchanged or an A-B-A2 (preferably to the downside in a downside market and the upside in an upside market) based on direction of the market unless specified.
If something is bad, assume either a buy thru unchanged or an A-B-A2 (preferably to the downside in a downside market and the upside in an upside market) based on direction of the market unless specified-
Good- The following stocks have good news and/or a strong technical pattern
NOG- closed near a high after pricing a share offering
CRM- closed near a high after posting great earnings
CPWM- closed near a high after posting great earnings
HIBB- closed near a high after posting great earnings
ANR- closed near a high after expressing a desire to expand its metallurgical coal holdings
WLT- closed near a high
LNG- closed near a high
IOC- closed near a high
MCP- closed near a high
CNX- closed near a high
AH- closed near a high
JKS- closed near a high
WLP- closed near a high
FCX- closed near a high
LVS- closed near a high
GMCR- restating some accounting…but only by 4-5 a share total which was a lot better than some thought
APKT- closed near a high
CLH, AMRC- featured on “Mad Money” last night
CLDX- positive results from Rindopepimut phase II brain cancer study
REGN- reported positive top-line results of two phase III studies with VEGF Trap-Eye in Wet Age-related macular degeneration
MAGS- awarded $21.4 million contract for a comprehensive security system
AMZN- according to an AP report, AMZN will allow customers to give its Kindle e-books to others
TSN- decent earnings
SLXP- added to Conviction Buy list at Goldman Sachs
NFLX- unveiled U.S. subscription plan for streaming movies and TV shows over the Internet for $7.99/month
Bad-The following stocks have bad news and/or a weak technical pattern
KIRK- closed near a low after posting poor earnings
INTU- closed near a low after posting poor earnings
CVVT- closed near a low after announcing a share offering
VHC- closed near a low
GSIC- closed near a low
CTRN- poor earnings
GS- “WSJ’ reports U.S. authorities in vast insider trading probe
Earnings:
MON NOV 22 BEFORE
CTRN TECD TSN
MON NOV 22 AFTER
ADI BRCD FMCN
HPQ NUAN PSUN
Epiphany Trading, LLC
www.epiphanytrading.com
Erik R. Kolodny- Chief Markets Strategist
Brendan P. Byrne- President
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