Going Long Muni Bonds and Chinese Equities: Knife Catchers/Contrarian Edition


Going Long Muni Bonds and Chinese Equities: Knife Catchers/Contrarian Edition

US Muni Bonds

Reasons that buying muni bonds now makes sense:

Qualivian Investment Partners 2Q22 Investor Letter

TD1655 Newsletter Placement 1Dear Friends of the Fund, Please find enclosed our Q2 2022 investor letter for your review.  Qualivian reached its four-year mark in December of 2021. We are actively weighing investment proposals. Please refer to our Q2 2022 investor letter for our performance and commentary on the second quarter of 2022. A fact sheet is 

  • The news wire/headlines are dominated by (a) “so and so bonds are down x%, haven’t been down this much since ___.” And (b) so and so funds are down y% in month of ___. and (c) so and so are trading at a discount to NAV, compared against deviation from NAV.
  • Some of the yields relative to taxable equivalents seem sensible, especially if one pursues a hedged approach (hedge out the rate risk).
  • The prevailing story/belief is that the recent selling is partially driven by ‘retail’ selling.

Reasons I remain cautious on muni bonds:

  • I’m not sure if the ‘retail is selling’ thesis is a sufficient one, especially seeing that munis investor base is retail (albeit more affluent retail).
  •  Unclear how the interest rate risk works here.
  • Would have to better understand what’s going on in “TOB” land.
  • x% discount to NAVs can turn into 3x% discount to NAV

Current view: I believe now is the time to start buying, or at least start evaluating/planning a “buy muni bonds” plan.


Reasons going long China makes sense:

  • SHIBOR this, “China’s Lehman moment that”, China’s 2008 this… you get the idea. That’s when to buy.
  • Both the current A shares level and the downward velocity seem predictive of positive return to risk, over longer duration.
  •  The bears thesis is widely known; markets are not the economy; it’s discounting some pretty bad outcomes.

Reasons to be cautious/wait:

  •  US 2008 preceded march 2009, i.e. if this is China’s 2008, why rush? We’d need a few events/failures.
  • A very smart China manager is very bullish China (in terms of the real economy), BUT he’s not bullish the A shares; he’s bullish private companies, though proper security selection/due diligence is critical. his rationale (in a nutshell) is that A shares are wealth distribution mechanism of the political class, whereas the private shares aren’t necessarily.
  • I don’t think these securities are worthless

Current view: Start buying and/or come up with a buy plan. Lest we forget, China is the world’s 2nd economy, blah blah blah.


No posts to display