Dying Into The Close

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A nice rally, after last week’s set back, pushed the Dow up almost 90 points yesterday in the early going. Around mid-day, upward momentum just about disappeared caused by weakness in the technology sector along with a selloff in bonds, which pushed interest rates higher.

Actually, the 10-year Treasury note is now yielding above 2.9% for the first time since August. Contributing to the sell off was a news report by an official at Moody’s questioning the high quality of the U.S. credit rating if the Bush tax cuts would be permanently extended. This report was later “softened,” but interest rate remained elevated.

The dollar was higher against the Euro in view of the latest concerns about the open ended question as to whether Ireland is really in need of a rescue package. Crude oil slipped while gold added $3.

As an aside, last Friday, I sold all of our holdings in PZA, a national/insured Muni fund. PZA has been very steady during the past 18 months, but it suddenly headed south and moved into bear market territory. While our position was fairly small, I found the sudden detour in trend surprising.

However, I have been opposing most muni investments for several years now, since I believe that budget/debt issues and cutbacks on every level of government, along with potentially rising rates, will push those prices lower. Some of that drop in value has already occurred as 41 out of 42 muni funds that I track, are in bearish territory.

While defaults in muni bonds/funds have been very rare historically, we have also entered a period of uncertainly where everything is possible.

Until proven otherwise, I continue to stick to my viewpoint that muni funds or muni bonds are not the place to be.

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