"In this game the market has to keep pitching, but you don't have to swing. You can stand there with the bat on your shoulder for six months until you get a fat pitch." –Warren Buffet

There are two sides to every rational argument. The real problems faced by a number of local governments have caused investors to flee the municipal bond market, as shown in this article. When one considers these issues with Meredith Whitney’s view that muni bonds are facing collapse, there is little wonder why there is so much nervousness among investors.

These views should be considered in the context of other opinions, including those of Bill Gross, who believes that the impact of a slower economy will not be as severe. Going one step further, Jeff Gundlach of DoubleLine Capital believes that muni bonds represent a better bet than the high yield sector, since the former has about the same after-tax yield and much less chance of default.

I think that investors already in munis should sit tight. There will likely be a chance of buying them at lower levels if investor sentiment continues trending lower. One way to track this is to monitor the NAV discounts of the tax-free bonds, which can be found at www.cefconnect.com. Currently, discounts on leveraged closed-end muni funds are around 4.5%, a level that does not indicate enough panic for the asset class to be compelling. I will alert readers when valuations become more interesting.

Disclosure — QES portfolios include the following mentioned investments:  DoubleLine Total Return Fund (DBLTX).