Last year, we highlighted a historic surge in municipal bond fund inflows
that we speculated would end badly (see: http://www.continentalca.com/home/March-12-2010).
The charts below show that the record inflows during 2009 have given way to
record outflows in recent months. In fact, outflows in December 2010 and January
2011 rival the largest annual outflows in any of the last 10 years. The recent
outflows come at a time when state and local government financial imbalances
are widely publicized, yet the record inflows occurred at a time when their
financial conditions were just as stressed.
Figure 1. Monthly Municipal Bond Fund Flows Source: ICI, Continental Capital Advisors
Figure 2. Annual Municipal Bond Fund Flows Source: ICI, Continental Capital Advisors
Municipal bond fund flows during the past year and a half demonstrate how
quickly trends can change and how fast market liquidity can evaporate. Similarly,
even though stock investor sentiment is at or near record highs, it too can
change at any moment. When prices are rising, investors believe that risk is
declining. However, the reality could not be further from the truth. Today,
after a 28% rally in the S&P 500 since last September, the downside risk
to equity markets is extremely high despite the perception that it is not.
We continue to believe that equities are in an ongoing bear market rally that
will eventually end terribly for most investors. Sovereign risks in Europe,
deficit reduction measures by US state and local governments, tepid job growth,
declining emerging economy stock markets, and civil unrest in the Middle East
are problems that stock investors cannot ignore forever.
Continental Capital Advisors, LLC was formed to offset the destruction of
wealth caused by the global devaluation of currencies by central banks. The
name Continental Capital symbolizes the 1775 US Currency, "the Continental",
which was backed by nothing and quickly became devalued.
Disclaimer: The above is a matter of opinion and is not intended as
investment advice. Comments within the text should not be construed as specific
recommendations to buy or sell securities. Individuals should consult with
their broker and personal financial advisors before engaging in any trading
activities. Certain statements included herein may constitute "forward-looking
statements" with the meaning of certain securities legislative measures. Such
forward-looking statements involve known and unknown risks, uncertainties and
other factors that may cause the actual results, performance or achievements
of the above mentioned companies, and / or industry results, to be materially
different from any future results, performance or achievements expressed or
implied by such forward-looking statements. Any action taken as a result of
reading this is solely the responsibility of the reader.
Continental Capital Advisors, LLC was formed to offset the destruction of
wealth caused by the global devaluation of currencies by central banks. The
name Continental Capital symbolizes the 1775 US Currency, "the Continental",
which was backed by nothing and quickly became devalued.
Disclaimer: The above is a matter of opinion and is not intended as
investment advice. Comments within the text should not be construed as specific
recommendations to buy or sell securities. Individuals should consult with
their broker and personal financial advisors before engaging in any trading
activities. Certain statements included herein may constitute "forward-looking
statements" with the meaning of certain securities legislative measures. Such
forward-looking statements involve known and unknown risks, uncertainties and
other factors that may cause the actual results, performance or achievements
of the above mentioned companies, and / or industry results, to be materially
different from any future results, performance or achievements expressed or
implied by such forward-looking statements. Any action taken as a result of
reading this is solely the responsibility of the reader.
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