Friday, December 22, 2006

High-Yield Munis 
For investing geeks only...

I thought the information in this interview was very interesting. I had no idea that the correlation coefficient of the S&P 500 vs. the high-yield municipal bond market was only 15%. That's terrific - and the explanation offered by Mr. Cummings makes sense.

Please note: I am NOT advocating the high-yield muni market going forward. The field is very tricky - the issues are so very thinly traded that valuation is often a matter of guesswork -- As many investors in the Heartland Funds found out some years ago when net asset values in one of their funds were reduced by 56% overnight.


That's not what most people expect from income investments.

So while the underlying securities may be doing ok, it's very difficult for any investor in these thinly traded issues to know what they have.

I have been quietly making a few rebalancing moves on the edges of my very meager portfolio; With the dollar back down near all-time lows against the Euro, I sold off some holdings in foreign stock funds (mostly European) and brought them back into US equities - effectively buying cheap US assets with (hopefully) overpriced Euros. Foreign stocks have had a beautiful run, relative to US equities, and I took a little money off the table.

Further, the expansion seems to be getting a little long in the tooth. I'm not bearish, but I think the economy will not continue to expand at the pace it has. I have moved some money from the Vanguard Total Stock Market index into a large-cap growth and income fund -- effectively selling a modest number of small- and mid-caps, which are more sensitive to slowing economies, as well as selling a few no-dividend large-cap growth stocks.

The bet I'm effectively making is that if the economy slows, dividends will play a comparatively greater role in future returns - as compared to earnings growth - than they had previously.

I'm also building a small margin of safety, as I see potential short-term losses in equities as greater than my expectations for economic growth this year.

P/E's seem fairly reasonable to me, still. Not cheap, but not psycho crazy, either.

Fair weather ahead, with a few scattered squalls.

Unloaded some REIT ballast, with foreclosures peaking up in key markets.

Trimming sails slightly.

Unloaded some REIT ballast, with foreclosures peaking up in key markets.

I'd enjoy hearing your best guesses.

My track record, like most, is mixed. I called the boom in emerging stocks accurately and rode it with real money in 2003 and 2004. But I left emerging markets too soon, and left a lot of gains on the table.

Lightened up on small-caps a year too soon as well, and counting. But I'd rather be too cautious than too crazy.

Splash, out


Comments: Post a Comment

This page is powered by Blogger. Isn't yours?

Site Meter

Prev | List | Random | Next
Powered by RingSurf!

Prev | List | Random | Next
Powered by RingSurf!