Weekend May 19 2013
In our previous post we noted that several closed end municipal bond funds were trading at discounts to their Net Asset Value NAV. In 2008 this occurred among closed end funds that bought stocks and wrote options against them. Recently this started happening with Central Fund CEF. CEF is now trading at a 5.3% discount to NAV.
Our point is that somehow the markets sense when such a fund is about to experience a loss in value. This adds a clue as to where interest rates might be headed. If bond prices are falling and we know more and more cities are in trouble, treasury rates are quickly rising, this may set the stage for Bill Gross to finally be right about a interest rate bottom.
This writer suggests higher stock prices the next few months as a result of excess FED liquidity. That is precisely the analog I was developing in the last post. The run up in 1987 was a true socionomic moment moment when many investors piled into stocks for the first time after a five year advance. The same thing is happening now as he notes, investors are shifting money from risk off, utilities and muni bonds, to risk on, stocks. In 1987 this finally resulted in a glaring disparity with bonds yielding 7-9% and stock dividends paying less than 3%. See the charts I posted for what happened that October.
Extreme expression of social mood occurs near the end of a move.
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