Olivier writes in to say that he agrees with Gundlach’s assessment of the storm coming for the municipal bond market. He points out that the iShares S&P National AMT-Free Municipal Bond ETF (MUB) is exhibiting a rising wedge pattern:
Gundlach didn’t provide a numerical target but he used the word “plummet”. For me that would be more than a 10% decline. We’ve already seen that sort of move in 2008 and again, just recently. If MUB does fall and if it can’t hold the support line at around $90, then all hell will break loose.
As Gundlach observed in the Barron’s interview, it doesn’t take much of a decline to really frighten this market. After all, the participants are the most staid and conservative you could imagine. Any potential loss of principle would be unthinkable to them.
From my perspective, this scenario may well play out but that is far beyond my time frame. I’m happy to ride the wedge higher in a reaction from the decline that has made so many rush out of this market in sheer panic. If a larger decline is coming, akin to a waterfall, I hope to be long gone before it arrives.
You can follow Olivier’s other thoughts over at his blog: Tischendorf – well worth your attention.