Posted by: stockscooter | August 16, 2012

The California Bear Has It’s Claws Out

My previous post was calling the top for the municipal bond market nationally, which is including all states.  This post will show you the leader in the municipal market and give support for my previous post of a bear market coming to a state municipality near you.

California is the leader in municipal debt.  The Californians need it, with such a high state tax bracket.  Unfortunately there is a great deal of suffering coming to California municipal bond holders.  As stated last post, Meredith Whitney showed the weakness of these markets back in 2010.  The bankruptcies didn’t occur then, because that was too early in the cycle.  As my chart points out, her comments came at the top of Wave B.  Indeed there were concerns then, but more time was needed (typically about 2 years of falling revenues) before the defaults should and will begin.  That’s where we are now, in this analysts view.  I would expect to hear talks about accelerating municipal defaults between now and the first quarter of 2013.  Perhaps the rhetoric will hit after the elections.

The chart shows the C wave bottom and the last bullish move for California municipal bonds that many of us will ever see again in our lifetime!  The owners of these bonds have just about forgotten the feeling of the adjustment they experienced a couple years ago.  They are about to see more than an adjustment.  My experience tells me even the highest quality California investment grade bonds will lose huge value.  The correction should take California bond prices to multi-decade lows.  That is…the ones that survive.  Many will become absolutely worthless, as this new bear market may last for the next 15-20 years!

The chart shows a great divergence.  Please look closely. The two black lines oppose each other.  Even the blue circles on the price chart climb higher, yet the cirlces on the indicator below fall lower…Divergence!  The numbers on the chart count out an ending 5 wave diagonal triangle.  It’s complete, as is a long run bull market in California Muni Bonds.  Remember, you heard it here first, because I’m just trying to save your hard earned dollars.  So, please, please, please, if you own California municipal bonds and your next statement falls 3, 4, or 5% in market value, consider THAT your warning signal,that losses much greater are coming your way.  You heard it hear first, because I’m just trying to help.

Click on the chart to enlarge


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