Tuesday, December 14, 2010

Biscuits & Gravy

That's a fine Southern or Country style meal one can get in diners & truck stops in a swath across the southern & middle parts of the US. I admit it's not my favorite breakfast choice at those places [I usually order ham & eggs with home fries], but the metaphors one can draw from it are wonderful.

Hud, the lead character in the eponymous movie, said, "Let’s us put our bread in some of that gravy while it’s still hot!"

Often I modified that to this: "Let's stick our biscuit in that gravy while it's still hot."

Today, the fitting line is, "The gravy's getting warmer, reach for the biscuits."

Meaning, yields in municipal bonds are approaching or surpassing the 5% line of demarcation for buying them.

Why 5%? Because that's about how much one can draw from well-diversified retirement funds like Krypto Fund over the long term, yet maintain the fund balance and purchasing power. If you can invest the fixed income portions of the fund at 5% aftertax, you are locking in a fine retirement return that is equivalent to around 7% pretax.

For months I've been selling stocks, real estate, TIPs, and gold+silver (ETFs and stocks), taking profits as those rose and rose. I put all that money into money market funds to WAIT. Why buy bonds at 3% - that's locking in a loser. Cash balances in Krypto Fund have risen to 15% - a lot in a category that normally should be zero. I don't make crappy long term investments just because there are no good buys out there. The maxim is, Buy LOW, sell high. If you don't wait for the "Buy Low" part, you are being stupid and/or gullible and/or foolish. You are letting your emotions rule. You are listening to some foolish "perfect markets" theorist who says timing doesn't matter. Don't listen. WAIT for good investments in fixed income.

Now my waiting and patience is being rewarded. The wait was not long, just about a year. But waiting means I don't lose 10% of my investment on the recent large falls in bonds prices. With coupons in the 3-4% range, I'd lose 2-3 years of coupons by barging in to buy overpriced bonds with the money from the "Sell High" part of the maxim. Wait. Waiting pays. Buy LOW.

Now I see municipal bond offerings daily from Mrs. B's broker. We look them over, discuss them (yes, this is part of Mrs. B's investment education) and nibble. We stick our biscuits into the warming gravy.

This buying process will likely take months. I expect municipal bonds prices to be weak, as that boondoggle Federal program to stupidly subsidize "Build America Bonds" dies at year end. That program creates huge losses for taxpayers. The buyers of those taxable bonds were mostly tax exempt institutions, yet the Federal taxpayer gave the municipalities at 35% subsidy to lower their interest cost. Almost none of the subsidy is recovered in tax payments in taxable bonds. Why? The DC Ruling Class just wanted to shovel money to the Wall Street underwriters.

Mmmmm ... warm gravy, getting warmer. I have my biscuit ready.

Word of the Day

"Perspicuous" - adjective [$10]
Perspicuous means 1. easily understood, clearly expressed; 2. (or a person) expressing things clearly.
Sentence: "Buy Low, Sell High" and "Sell High, Buy Low" are perspicuous maxims for investment success once one recognizes the actions need NOT occur at the same time. "Wait" bridges the buying and sell actions to favorable times & prices.


Spin-em said...

that's a brutal movie to watch bunk.....lol

Spin-em said...

Bunk Volt..$1.50 a day to charge....can get that in the rubber machines

Bud said...

huh ?? muni bonds are the gravy ? or the biscuits ??

Bud said...

what is the name of the movie Bman ?

Bunkerman said...


Bunkerman said...

Muni bonds NOW are conjunction of the biscuit and hot gravy

Spin-em said...

handshake...thought you were talking about Hudsucker Proxy