| Bonds Online |
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| 5/10/2013Market Performance |
| Municipal Bonds |
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S&P National Bond Index
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3.00% |
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S&P California Bond Index
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2.96% |
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S&P New York Bond Index
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3.13% |
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S&P National 0-5 Year Municipal Bond Index
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0.70% |
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| S&P/BGCantor US Treasury Bond |
400.09 |
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| More |
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| Income Equities: |
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| Preferred Stocks |
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S&P U.S. Preferred Stock Index
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848.03 |
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S&P U.S. Preferred Stock Index (CAD)
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636.26 |
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S&P U.S. Preferred Stock Index (TR)
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1,701.05 |
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S&P U.S. Preferred Stock Index (TR) (CAD)
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1,276.26 |
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| REITs |
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S&P REIT Index
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174.07 |
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S&P REIT Index (TR)
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425.30 |
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| MLPs |
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S&P MLP Index
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2,469.58 |
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S&P MLP Index (TR)
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5,428.50 |
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See Data
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Muni Bond Flashpoint |
Forbes.com - Feb. 4, 2010 - by Marilyn Cohen
The new Great Depression is far from over, especially for municipalities.
Both high school chemistry and history students know the meaning of flashpoint. In chem lab, the flashpoint is the lowest temperature at which the vapor of a combustible liquid will ignite. To history students, flashpoint has another meaning entirely. It is the point at which mob action erupts into violence. With these concepts firmly in mind--chemical and historical--it seems to me that America's debt implosion is rapidly heading toward a flashpoint.
Greece's irresponsible debt will be papered over [saved] by the Germans and French. They have little choice. The U.S. is at the flashpoint with our weakest states, cities, school districts and communities. The largest vapor bubbles ready to explode are California, New York, New Jersey, Illinois, the New York MTA, the City of Los Angeles--the list continues. Twice now the governor of California, Arnold Schwarzenegger, has asked the Obama Administration for aid to a state that is federally mandated to educate, incarcerate and provide free health care to the illegals flooding in from Mexico across its open borders without federal monies.
Our state and local legislators do not have the courage to put on the spending brakes. So the Great Depression 2 continues to deepen in the public finance sector. Yet the disconnect between wobbly municipal finances vs. low municipal bond yields grows wider. This "flight to munis" has everything to do with the fright of higher taxes to bridge our huge deficits and low-yielding (actually, no-yielding) money markets and CDs.
Make certain the flashpoint doesn't ignite any of your municipal bond issues. "Investors who owned tax-backed and essential service munis," a Fitch Ratings study on defaults explained, "generally received full recovery in a default situation."
Cities and counties don't fold up shop when they file for Chapter 9 bankruptcy. They work out their problems and their debt remains in place. Real estate developments, ethanol plants, sports arenas, nursing homes all can fold. However, states can't file for protection under the bankruptcy laws.
A special Fitch report states that bankruptcy has rarely been used by full-service municipal entities. Bankruptcy filings have generally been avoided due to political, legislative and expense hurdles, not to mention how such a move would hinder access to capital markets.
You are probably thinking finances have never been so bad for the states, cities and counties. And you are right. Stay away from bonds that depend on lease revenue, hospital revenue and revenue from nursing homes or housing developments to repay bond holders. Stay away from bonds issued by nonprofit organizations like museums and universities or bonds issued by low-income housing projects. Stick with municipalities that have claims to taxes levied. Period.
Buy General Obligation bonds issued by the states of Tennessee (AA+), Minnesota (AAA), Georgia (AAA), Missouri (AAA), North Carolina (AAA), Virginia (AAA) and Oklahoma (AA+). If you stick with quality, your money will be safe. Yes, the yield will be low and that won't change unless rates increase and demand for munis declines.
There's no reason to purchase any esoteric municipal issues. At this stage of the economic cycle, follow these two rules: Stay short (five years and under) and stick to quality state GOs. Your money will stick with you.
Marilyn Cohen is president of Envision Capital Management, a Los Angeles fixed-income money manager. Visit her home page at www.forbes.com/cohen. Marilyn is also the editor of Forbes Tax Advantaged Investor.
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