Wednesday, July 16, 2008

Trading Psychology, Tax-Free Bonds and Geography, and More


* Trading and Investing Podcasts
- Andrew Horowitz has assembled a nice collection of podcasts from a variety of market perspectives. Here's my recent interview with him on the psychology of recent markets, from real estate/housing to stocks.

* Continuing Market Weakness - Tuesday saw 351 new 20-day highs and 3649 lows across the NYSE, NASDAQ, and ASE. Of those 3649 lows, 2177 were also 52-week lows. Among NYSE common stocks, new annual lows expanded to 456, with 11 new highs. Meanwhile, we continue to see weakness in those sectors that have been leading the retreat, most notably bank/financial shares and housing-related issues. I will continue to update indicators via the Twitter posts.

* Sentiment Spike? - An alert reader reminded me of this post and pointed out that we are seeing the same pattern repeated at present. Indeed, equity put volume has now exceeded equity call volume for seven consecutive trading sessions, a situation that in the recent past has been associated with market bounces.

* Tax-Free Bond Pricing by Geography - I took a look at four Vanguard state-specific long-term, tax-free bond funds. Two are from formerly hot real estate regions, California (VCITX) and Florida (VFLTX), and two are from the northeast, Massachusetts (VMATX) and New York (VNYTX), which has experienced less boom/bust. Recall that I found bank performance weakest in the West and Southeast. Since July of 2007 (chart at top), we've seen the weakest price performance among the tax-free funds in California. Florida and California tax-free bonds in the funds are yielding about 20 basis points more than bonds from N.Y. and Massachusetts for bonds of similar duration. Should housing and economic slowdown progress to the point of threatening the budgets of municipalities, I would expect these divergences to widen.

* Changing Expectations - Note the rally of short-term Treasury note prices (SHY) to multi-week highs. We've seen two-year notes lose something on the order of 30 basis points in just the last two trading sessions, a huge move for that market. This suggests quite a shift in rates sentiment from inflationary concerns (and anticipation of Fed tightening) to recessionary concerns (and anticipation of growing economic weakness).
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1 comment:

Mark said...

Hi Brett,

Just wanted to add:
Municipality income from property taxes should be relatively less affected in CA than other states because of Prop 13, which essentially precludes a property value's re-assesment - the basis for property was "locked in" at the time the property was last sold.
Also, property values are directly correlated to specific geographic areas. SF is down 2%, across the bay in the Oakland area, they're down 15%+ in some areas.

What this means for muni bond buyers is that they need to do their homework.

Thanks for the insightful and thought provoking blog, Brett.

- Mark V