There have been only a scattering of stories regarding negative conditions in the muni bond market; but, finally with the collapse in prices news of troubles are now taking on tsunami conditions. Meredith Whitney brought this story out a few weeks ago and did so again on
while governors like NJ Governor
also discuss the same problem. I know something about this since cutting my teeth as muni-bond salesman and trader during NYC's problems in the mid-1970s. The crux of the matter revolves around unrealistic pension benefits for public employee unions. Greece comes to Sacramento?
Meanwhile, back at Wall & Broad stocks just cruised along well-managed by those looking to keep things in place until year-end. The negative stories making news revolved around American Express (transaction fees) and Boeing (more delays in the Dreamliner).
Economic news was lacking while the Fed conducted two more
actions totaling $15 billion. This should keep trading desks flush with enough ammo to keep markets propped.
In the meantime, volume remains holiday light while breadth was flat overall.
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is a market breadth indicator that is based on the difference between the number of advancing and declining issues on the NYSE. When readings are +60/-60 markets are extended short-term.
McClellan Summation Index
is a long-term version of the McClellan Oscillator. It is a market breadth indicator, and interpretation is similar to that of the McClellan Oscillator, except that it is more suited to major trends. I believe readings of +1000/-1000 reveal markets as much extended.
is a widely used measure of market risk and is often referred to as the "investor fear gauge". Our own interpretation is highlighted in the chart above. The VIX measures the level of put option activity over a 30-day period. Greater buying of put options (protection) causes the index to rise.
Continue to Concluding Remarks
I haven't seen the VIX this low since the spring just before the previous sell-off. A warning? It could be as complacency is high and volume remains low.
The muni market troubles are like a lot of problems out there that drip on us from afar until they are presented front and center. It's no different than euro zone issues that bob to surface now and again. As mentioned I was a muni bond salesman and trader in the mid-70s when the NYC bond contagion rippled throughout the northeast. Each day I'd come to the office and NYC Mayor Abe Beame would be facing a crisis with budgets and public employee union demands. I remember one day coming owning a large lot of NYC general obligation bonds with 3 year maturities yielding 25%. That was unusual but many bonds traded with yields in the teens for a few years. Then Carter came in and bailed the city out and a deeper crisis was put off once again. But now the contagion of public employee benefits has spread to all states. So the problem is larger than ever.
There won't be much in the way of economic news domestically until Wednesday perhaps making for continued dull activity.
Let's see what happens. You can follow our pithy comments on
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