Quote from ByLoSellHi:
makloda, I am in cash and thinking deeply about committing to muni bonds right now.
When I ask myself what asset classes are investable now, I struggle mightily. That either portends a basic common sense or a unwarranted risk-aversion.
I have never been more confident that things will get much worse long term.
If that's your view, you should be long US government bonds, because if you are right then we will see deflation and a humdinger recession. Stocks, commodities, and real estate may well get hit for another 25-50% fall even from these depressed levels under that scenario.
Munis are totally contradictory to your view. In a deflation/depression, you want to own only the most low-risk secure paper i.e. US Treasuries. Treasuries are expensive, but then powerful bull markets usually look expensive during their momentum phase. Japanese bonds looked expensive in the 1990s and 2000s, but eventually reached the 145 handle.
You should be looking at US govt bonds, Japanese Yen, T-bills, and maybe a bit in physical gold as a disaster hedge. Gold could easily fall to $500 though in a deflation.
Personally I am having similar views to your own right now, which is kind of different to what I thought only a few months ago. But when I look at the fundamentals, sentiment, and most importantly the price action, it is saying one thing - deflation & prolonged recession. Bonds and Yen (and to a lesser extent dollars) are the only long positions that are really working.
Of course the other option is to trade. My long/short book has done quite well in the last 2 months of meltdown - long stuff that is low-cost, bargain basement, necessary, attractive to retrenching consumers e.g. WMT, MCD; short stuff that is luxury, or a discretionary purchase (e.g. TIF, short anything reliant on finance (e.g. autos, domestic white goods), short anything at an aspirational price point or market segment. That "long bargains, short luxury" has been a home run so far, and I think it could go further.
