Pitchers & Catchers
- Wednesday, 02/15/2012
- The "real" season for munis has yet to begin
- Pull back in current prices is not unexpected
- Patience often pays off for those looking for their pitch
Anticipating another season of "America's favorite pastime," I cannot help but feel that the past two months of strong performance for municipals will likely level out into a more traditional pattern, much like when reality meets expectations with spring baseball. I think demand-generated performance will very likely be met with an elevated supply of new muni bonds. This in turn may bring on a slew of news headlines that are likely to moderate the current environment of positive sentiment and, in my view, cause the muni market to correct.
What's more — while the municipal market is used to legislative challenges — this is a presidential election year. We will likely receive more than our share of negative press — much like spring training when reporters and scouts travel from park to park reporting on the strengths and weaknesses of players and teams.
March and April have traditionally been challenging months for the muni market. The April 15 tax deadline forces liquidations and increases supply from issuers. I foresee any pull back from current price levels as an opportunity to deploy cash in what, in my view, will likely be a more diverse secondary market. Just like general managers pour over spring rosters in search of the best players, investors should view the continuing fundamentals of the municipal market as constructive. It is my opinion that they should let the sharp breaking curve of price adjustment pass and wait for the fastball (in this case, better valuations) that may follow.
Ted Williams could "smell" the horsehide coming off his bat. Will you?
Watch my latest video: Muni Health Check 1Q'12 >>