Talking Stocks 2.0

[beshannon]

Originally Posted by superdog

for the last few weeks I have read a dozen articles that state a recession is coming, but likely in late 2023 or even later.

even the king makers at Goldman have said this.

now, after todays news, I am reading more articles saying it will be this year...

again, these folks truly have no idea.

I am starting to wonder why I dont simply put it all on a low fee fund. no one has any clue.

This is how I look at the big picture.

When do I need my money? What alternative investments are there? If I sell, then what? Am I really going to be affected by what happens next week, next month, next year?

My current time horizon is that I need to make it through 4 more years of passive income investing until the next life event.

All this meme stock investing, hype mania, opinions on this or that is just so much noise to me.

Good luck

[superdog]

Originally Posted by beshannon

This is how I look at the big picture.

When do I need my money? What alternative investments are there? If I sell, then what? Am I really going to be affected by what happens next week, next month, next year?

My current time horizon is that I need to make it through 4 more years of passive income investing until the next life event.

All this meme stock investing, hype mania, opinions on this or that is just so much noise to me.

Good luck

I wish I had your resolve. but I agree. and truly, I am getting there. but it is taking some time.

I feel much better given that I rebalanced and pulled some cash out. no concerns about leaving money on the table today. because I lose a lot less that I could have on Tuesday.

once I feel more comfortable about the world, I am going to redeploy it.

I realize I need to zoom out and stop looking at the day to day....but it is a challenge for me.

I too do not get involved in the hype stuff. I just don't have the risk tolerance for it.

[beshannon]

Originally Posted by superdog

I wish I had your resolve. but I agree. and truly, I am getting there. but it is taking some time.

I feel much better given that I rebalanced and pulled some cash out. no concerns about leaving money on the table today. because I lose a lot less that I could have on Tuesday.

once I feel more comfortable about the world, I am going to redeploy it.

I realize I need to zoom out and stop looking at the day to day....but it is a challenge for me.

I too do not get involved in the hype stuff. I just don't have the risk tolerance for it.

Nothing wrong with taking profits or raising cash. The markets have been very toppy and shaky (IMHO) since last November. There are many ways to hedge or simply take a step back and be patient.

There will be buying opportunities as always, earnings have been strong, the economy is doing well.

[7sins]

No one can call a market bottom. There will always be volatility, you DCA in your highest conviction names. The most money is made when there are no buyers and you can lower your cost basis. In the long run you will generate better total returns by navigating the volatility. Along with always having puts in portfolios when markets are at ATH which I covered a few months back.

There is an old saying in finance, going into the end of last year the market was expensive, expensive markets don't stay expensive forever. Markets (not all) are cheap today (there is a MASSIVE dislocation in muni bonds, especially CEFs (this is where I work)), cheap markets don't stay cheap forever.

Missing the best days in the market trying to time it is detrimental to your returns. Take a xanax and don't check your portfolio hour by hour.

[m j b]

Originally Posted by 7sins

Markets (not all) are cheap today

It's been a bit of a blood bath this week, but I'm not sure I'd agree that markets (not all) are cheap today.

Maybe munis, but I know nothing about those. If there is a muni fund or even a specific group of bonds that you'd recommend, I'm open to suggestions.

Otherwise, I'm steering clear of most bonds and buying equities, slowly, as the market continues to go down.

@7sins' advice is mostly spot-on. Not that I've not historically (and still do) try to time the market, despite miserable returns. I just can't help myself.

[Mifune]

in this and age we need to continue to tout the benefits of Dollar cost averaging over Arbitrage and swing trading... what is this world coming to.

[macrowatch]

If only we knew someone that had a Muni specialty in their skill set! Let me rummage through my rolodex here....someone in LA maybe...hmm...

[7sins]

Originally Posted by macrowatch

If only we knew someone that had a Muni specialty in their skill set! Let me rummage through my rolodex here....someone in LA maybe...hmm...

Good thing there is 13M people in LA.

Here is the short of it, as I have told this story to clients 1000x this month and am exhausted here at work. I am going to write it in bullets as I have no more patience at this point in time.

Here is what happened:
YTD munis had 45B in outflows due to fear of rising rates and inflation

Who owns muni bonds? Not pension funds and corporates. It is retail. Mom and pops. They own 70% of the muni market. They are the most skiddish and irrational investors out there. When they are down 2% they panic and 4% they firesell.

Remember how bonds work. When you put an individual bond out to sale and last bid is $120, the next bid could be $105. If the client just says fcuk it and just wants to get out, they take the 105 bid. This creates a domino effect where you have a market, with really one buyer, who is only selling. So who is on the other end with bids for the market? No one. That causes muni yields to spike. 10yr aaa muni yield went from 1 to 2.75% in 4 months, the biggest rel % move in history. Record amount of outflows. This caused yields to oversell especially during April when you had a heavy issuance month.

The 2yr is a forward indicator of fed prime rate. FED is at 25bp, they want to be at 2.50. The 2yr is at 2.65, that tells you the entire yield curve has priced in the following FED rate hikes. Unless they plan to hike more than 2.5, but I bet by year end, inflation starts to unwind in certain areas and they CUT in 2023 which the FED dot plot suggests.

So you have a muni market that is oversold, yields went well past where they should be because of no bids. Now we enter summer season for munis, that is the lowest issuance for muni bonds of the year. Next three months is NEGATIVE $35B in net issuance, aka plenty of flow to stabilize muni yields.

There is NOTHING fundamentally broken in muni bonds, they are the healthiest they have been in 30 years, default rate is 0.16 and tax receipts across the country are up over 20%.

NOW, the REAL opportunity is in CLOSED END FUNDS. These are highly levered closed end mutual funds (fixed number of shares). They have a NAV and PRICE. Many of these muni CEFs have 40% leverage. This year they are down over 20%+ this year, with 5%+ distribution yield at 14% discount to NAV if not more. For freaking muni bonds. So what happens with a fixed number of shares, is people start panic selling the CEF. Thus the NAV, the value of all the bonds is X but the price could be at a 14% or higher discount. That is the dislocation today.

use cefconnnect.com to screen for CEFs you would want to buy, you want to took for a wide delta between current discount and avg discount then be mindful of fees and leverage. My rant being this is a dislocated market, disproportionately for no reason, for freaking muni bonds. The city of los angeles isn't defaulting. LA department of water and power is a monopoly. So you get massive tax free income at severe discounts. when there will eventually be a return to normalcy.

AA individual muni bonds yield MORE than some AA corps on a GROSS basis. That is INSANE and should NEVER happen. Again because there are no bids in the market.

If you go through individual muni bonds, you can get book yields at 3.5-4.5% tax free with a maturity date where you are guaranteed to get your money back.

CEFs are very volatile and leveraged. You can play it many ways. You aren't going to be up 40% in a day on this idea but bonds always have a finish line and this play works given where the current muni market resides. Remember you DO NOT PAY TAXES on muni income.

Even if the 10yr treasury goes to 4.25 which I can give a mirage of reasons why it wont, in 12 month you would break even in a normal muni fund. Point being you have some what limited downside risk with a chance to take advantage of a huge dislocated in the muni CEF space.

None of this is financial advice, it is what I personally see into the muni market. Rant over, no more bond talk.

[m j b]

Originally Posted by 7sins

Here is the short of it.. .

Awesome, thank you for the insight!

[huncho]

Originally Posted by 7sins

Good thing there is 13M people in LA.

Here is the short of it, as I have told this story to clients 1000x this month and am exhausted here at work. I am going to write it in bullets as I have no more patience at this point in time.

Here is what happened:
YTD munis had 45B in outflows due to fear of rising rates and inflation

Who owns muni bonds? Not pension funds and corporates. It is retail. Mom and pops. They own 70% of the muni market. They are the most skiddish and irrational investors out there. When they are down 2% they panic and 4% they firesell.

Remember how bonds work. When you put an individual bond out to sale and last bid is $120, the next bid could be $105. If the client just says fcuk it and just wants to get out, they take the 105 bid. This creates a domino effect where you have a market, with really one buyer, who is only selling. So who is on the other end with bids for the market? No one. That causes muni yields to spike. 10yr aaa muni yield went from 1 to 2.75% in 4 months, the biggest rel % move in history. Record amount of outflows. This caused yields to oversell especially during April when you had a heavy issuance month.

The 2yr is a forward indicator of fed prime rate. FED is at 25bp, they want to be at 2.50. The 2yr is at 2.65, that tells you the entire yield curve has priced in the following FED rate hikes. Unless they plan to hike more than 2.5, but I bet by year end, inflation starts to unwind in certain areas and they CUT in 2023 which the FED dot plot suggests.

So you have a muni market that is oversold, yields went well past where they should be because of no bids. Now we enter summer season for munis, that is the lowest issuance for muni bonds of the year. Next three months is NEGATIVE $35B in net issuance, aka plenty of flow to stabilize muni yields.

There is NOTHING fundamentally broken in muni bonds, they are the healthiest they have been in 30 years, default rate is 0.16 and tax receipts across the country are up over 20%.

NOW, the REAL opportunity is in CLOSED END FUNDS. These are highly levered closed end mutual funds (fixed number of shares). They have a NAV and PRICE. Many of these muni CEFs have 40% leverage. This year they are down over 20%+ this year, with 5%+ distribution yield at 14% discount to NAV if not more. For freaking muni bonds. So what happens with a fixed number of shares, is people start panic selling the CEF. Thus the NAV, the value of all the bonds is X but the price could be at a 14% or higher discount. That is the dislocation today.

use cefconnnect.com to screen for CEFs you would want to buy, you want to took for a wide delta between current discount and avg discount then be mindful of fees and leverage. My rant being this is a dislocated market, disproportionately for no reason, for freaking muni bonds. The city of los angeles isn't defaulting. LA department of water and power is a monopoly. So you get massive tax free income at severe discounts. when there will eventually be a return to normalcy.

AA individual muni bonds yield MORE than some AA corps on a GROSS basis. That is INSANE and should NEVER happen. Again because there are no bids in the market.

If you go through individual muni bonds, you can get book yields at 3.5-4.5% tax free with a maturity date where you are guaranteed to get your money back.

CEFs are very volatile and leveraged. You can play it many ways. You aren't going to be up 40% in a day on this idea but bonds always have a finish line and this play works given where the current muni market resides. Remember you DO NOT PAY TAXES on muni income.

Even if the 10yr treasury goes to 4.25 which I can give a mirage of reasons why it wont, in 12 month you would break even in a normal muni fund. Point being you have some what limited downside risk with a chance to take advantage of a huge dislocated in the muni CEF space.

None of this is financial advice, it is what I personally see into the muni market. Rant over, no more bond talk.

thanks for the write up. it seems like the fed hasn't handled this tapering well at all, at least to my limited economic knowledge. everyone knew they backed themselves into a corner but they continued to reassure the market that they would give a "soft landing" and instead have flip flopped all over the place for 4 months to the point where like you mentioned, we now have 2.65% priced in and it's only april. market is constantly in a state of uncertainty and every time we get out of a fed meeting where they say something somewhat concrete they hit us with the "well we might now want to..." 2 weeks later. correct me if i'm wrong with this rant of course lol

the damage at this point is near that of march 2020 in terms of % and that was a black swan event. nasdaq was trading like an illiquid crypto shitcoin this whole week with swings like i would've never imagined

[scarlet knight]

I will share an idea. Treasury I bonds are yielding over 9%. The only catch is that an individual can only buy up to $10,000 per year. A spouse and children can buy too. You buy them on the Treasury Direct web site.

[7sins]

Originally Posted by scarlet knight

I will share an idea. Treasury I bonds are yielding over 9%. The only catch is that an individual can only buy up to $10,000 per year. A spouse and children can buy too. You buy them on the Treasury Direct web site.

Just a note of clarity, they are 7% yield pre-tax. State tax free but you pay federal taxes. So your true yield is ~4.2% post tax. There are also liquidity constraints, you have to hold for at least one year and if you cashout prior to 5yr you lose the three prior months income. Still beats a CD!

[Junior1]

Originally Posted by 7sins

Just a note of clarity, they are 7% yield pre-tax. State tax free but you pay federal taxes. So your true yield is ~4.2% post tax. There are also liquidity constraints, you have to hold for at least one year and if you cashout prior to 5yr you lose the three prior months income. Still beats a CD!

Yep. spot on bro.

Basically 7 1/8% (7.12 for the newbies) up till yesterday. All indications point towards a 9 5/8% figure come Monday based on March's number.

Anyone that basically got into them in essence locked in about a guaranteed 8.4-8.5% average for the next 12 months. You could have spread $10k into each your personal accounts, wife's, family members, as well as your Corp/LLCs.

I would expect that inflation number to peak around here and taper off come years end so if you only get in from May on, you may see a lower figure when it resets come November.

Still better than any online savings except for staking some stablecoins but that comes with its own caveats.

[scarlet knight]

The interest rate will be going up to over 9% in May. Pretty good small hedge while stocks and bonds are plummeting.


Sent from my iPhone using Tapatalk

[7sins]

Originally Posted by scarlet knight

The interest rate will be going up to over 9% in May. Pretty good small hedge while stocks and bonds are plummeting.


Sent from my iPhone using Tapatalk

Not disagreeing, it’s an easy place to park cash. You still have to pay federal taxes and I bond are fixed yield plus inflation. If inflation unwinds, as such as the 5yr forward breakeven at 2.55 suggests then the yields in these could come back down.

Agreed it’s better than sitting in cash but the 10k cap tends to but a buffer on things.

An interesting idea nonetheless, not intentionally being counter argumentative lol

[scarlet knight]

It’s not a life changer, but at least it feels like a moderately effective inflation hedge for a moderate/small position that alot of people don’t know about.

[macrowatch]

@7sins That for sure is a one in 13M quality level analysis and explanation.

@scarletknight, seems like your suggestions would be right up there with the dystopian premise of that movie In Time.

[superdog]

https://www.marketwatch.com/story/st...?mod=home-page

An interesting article and very worth reading.

[Junior1]

The new I Bond rate came in today at 9.62% for the next 6 months.

Anyone that grabbed the 7.12% up until Friday will now have a guaranteed 8.37% average for 12 months.

Not too bad considering all else.

[superdog]

this made me laugh out loud.

how does this company, or any of them, even get away with it. big returns most of the time? not 10 days ago these guys were saying no recession risk until late 2023 or 2024.

that analogy of the weather folks appears to be about right in my opinion.

https://www.yahoo.com/finance/news/r...164051000.html

[huncho]

Originally Posted by superdog

this made me laugh out loud.

how does this company, or any of them, even get away with it. big returns most of the time? not 10 days ago these guys were saying no recession risk until late 2023 or 2024.

that analogy of the weather folks appears to be about right in my opinion.

https://www.yahoo.com/finance/news/r...164051000.html

they have their own agenda and interests in mind. if it'll benefit them they'll say it. wall street is the biggest game on this planet

[m j b]

Originally Posted by Junior1

The new I Bond rate came in today at 9.62% for the next 6 months.

Anyone that grabbed the 7.12% up until Friday will now have a guaranteed 8.37% average for 12 months.

Not too bad considering all else.

Yeah, I grabbed it Friday but it gave me some nonsense message about a 5/2 effective date, so I may have missed out on a point.

Still, a nice safe return.

[hkuo]

I’m glad I forced myself to take my cost out from my SABR Jan 2023 $7C a few weeks ago when it was above $5 an option. Trying to find out what was said on the earnings call to make the stock turn so red today.

[7sins]

Originally Posted by hkuo

I’m glad I forced myself to take my cost out from my SABR Jan 2023 $7C a few weeks ago when it was above $5 an option. Trying to find out what was said on the earnings call to make the stock turn so red today.

Nothing, it was a sector pull down amplified by a massive miss by expedia. SABR beat top and bottom and on the call said this is as bullish as they have been since 2019 along with seeing a return to corporate travel. They are also using cash to pay down their high debt load. I own a lot in the $7s so will see how this shakes out to see where to add.

[hkuo]

Thanks and glad to hear!

[spurwar]

Originally Posted by 7sins

Nothing, it was a sector pull down amplified by a massive miss by expedia. SABR beat top and bottom and on the call said this is as bullish as they have been since 2019 along with seeing a return to corporate travel. They are also using cash to pay down their high debt load. I own a lot in the $7s so will see how this shakes out to see where to add.

I have some Jan '23 $12s and $15s. Have been holding patiently through the ups and downs but wanted to see what the best strategy would be at this point. Is it worth rolling into Jan '24 calls or would you wait a little longer (~6 months until expiry) to see if the sector turns?

[SDGT3]

Originally Posted by 7sins

Good thing there is 13M people in LA.

Here is the short of it, as I have told this story to clients 1000x this month and am exhausted here at work. I am going to write it in bullets as I have no more patience at this point in time.

Here is what happened:
YTD munis had 45B in outflows due to fear of rising rates and inflation

Who owns muni bonds? Not pension funds and corporates. It is retail. Mom and pops. They own 70% of the muni market. They are the most skiddish and irrational investors out there. When they are down 2% they panic and 4% they firesell.

Remember how bonds work. When you put an individual bond out to sale and last bid is $120, the next bid could be $105. If the client just says fcuk it and just wants to get out, they take the 105 bid. This creates a domino effect where you have a market, with really one buyer, who is only selling. So who is on the other end with bids for the market? No one. That causes muni yields to spike. 10yr aaa muni yield went from 1 to 2.75% in 4 months, the biggest rel % move in history. Record amount of outflows. This caused yields to oversell especially during April when you had a heavy issuance month.

The 2yr is a forward indicator of fed prime rate. FED is at 25bp, they want to be at 2.50. The 2yr is at 2.65, that tells you the entire yield curve has priced in the following FED rate hikes. Unless they plan to hike more than 2.5, but I bet by year end, inflation starts to unwind in certain areas and they CUT in 2023 which the FED dot plot suggests.

So you have a muni market that is oversold, yields went well past where they should be because of no bids. Now we enter summer season for munis, that is the lowest issuance for muni bonds of the year. Next three months is NEGATIVE $35B in net issuance, aka plenty of flow to stabilize muni yields.

There is NOTHING fundamentally broken in muni bonds, they are the healthiest they have been in 30 years, default rate is 0.16 and tax receipts across the country are up over 20%.

NOW, the REAL opportunity is in CLOSED END FUNDS. These are highly levered closed end mutual funds (fixed number of shares). They have a NAV and PRICE. Many of these muni CEFs have 40% leverage. This year they are down over 20%+ this year, with 5%+ distribution yield at 14% discount to NAV if not more. For freaking muni bonds. So what happens with a fixed number of shares, is people start panic selling the CEF. Thus the NAV, the value of all the bonds is X but the price could be at a 14% or higher discount. That is the dislocation today.

use cefconnnect.com to screen for CEFs you would want to buy, you want to took for a wide delta between current discount and avg discount then be mindful of fees and leverage. My rant being this is a dislocated market, disproportionately for no reason, for freaking muni bonds. The city of los angeles isn't defaulting. LA department of water and power is a monopoly. So you get massive tax free income at severe discounts. when there will eventually be a return to normalcy.

AA individual muni bonds yield MORE than some AA corps on a GROSS basis. That is INSANE and should NEVER happen. Again because there are no bids in the market.

If you go through individual muni bonds, you can get book yields at 3.5-4.5% tax free with a maturity date where you are guaranteed to get your money back.

CEFs are very volatile and leveraged. You can play it many ways. You aren't going to be up 40% in a day on this idea but bonds always have a finish line and this play works given where the current muni market resides. Remember you DO NOT PAY TAXES on muni income.

Even if the 10yr treasury goes to 4.25 which I can give a mirage of reasons why it wont, in 12 month you would break even in a normal muni fund. Point being you have some what limited downside risk with a chance to take advantage of a huge dislocated in the muni CEF space.

None of this is financial advice, it is what I personally see into the muni market. Rant over, no more bond talk.

Great explanation - thank you! What are AA muni's at par yielding right now?

With regard to a recession, who knows when it will happen, but I still think there's inflation on the horizon. The US still hasn't spent any of the $1.2T infrastructure money passed and still hasn't spent $$ from previous relief bills. The Fed will shave some demand with their hikes, but they can't do anything about the supply side such as chip issues, opening ports or drilling for more oil. Just my .02.

[Mifune]

'75 bips is NOT something that the committee is considering!' J. Powell

Boom, Headshot!

[Plai]

Originally Posted by Mifune

'75 bips is NOT something that the committee is considering!' J. Powell

Boom, Headshot!

Unless inflation continues to run hotter, never say never.

[scarlet knight]

We own municipal bonds as part of our portfolio. Our advisor is now pursuing tax loss swaps for us. We are going to sell older bonds that yield a lower rate, such as 2.5%, generate a capital loss, then replace that bond with a higher yielding bond at 4%.

Our advisor gets multiple transactions, we get a higher yielding portfolio and some capital losses to offset other gains.