| 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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| 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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The Municipal Bond Pitch: “What You’re Giving Me is Pure Bulls**t" |
THE DAILY RECKONING - Dec. 8, 2010 - By Frederick Sheehan
12/08/10 North Weymouth, Massachusetts – Undaunted by falling municipal bond prices, rising yields, and withdrawal of funds, research reports by large brokerage firms still mollify the majority of clients and fund managers with numbers and assertions: “General obligation bonds do not default.” “The general obligation default rate is 0.01%.” “Most states are required by law to balance their budgets.” To these and other airtight arguments in the muni marketing kit, the proper articulation of doubt may be expressed as: “Yeah, Yeah, Yeah.” Or, one might read “Possible Misunderstandings by Municipalities and Their Bonds.”
This précis was written in April 2010. It is a sign of the times that market-making brokerage houses and fund companies still roll out the same phrases and avuncular charm, dismissing critics, but with nothing new to add. Meredith Whitney, an Oppenheimer bank analyst (at the time), told an uncomprehending world in 2007 that banks were going bust. In September 2010, she issued a 600-page report that projected the same for mendicant states and municipalities. One expert replied that he was “somewhat skeptical about Ms. Whitney’s sensational hypothesis and [felt] that she might be trying to hit a ‘home run’ like she did with the banking crisis.”
Of course she was trying to hit a homerun! Why else would she write a 600-page report on municipal finance? That has nothing to do with her argument that California, New Jersey, Illinois and Ohio may either default or need a federal bailout in the next twelve months. (Ten months from now, since she stated the warning on September 30, 2010, via Bloomberg TV.)
It has become clear that the states and municipalities facing the greatest financial difficulties will default. This applies to their general obligations and probably many revenue projects, too. This forecast is a synthesis of observation. Those in hock cannot tie their own shoelaces. For investors who hold the municipal bonds of localities where evening news coverage from state houses and town halls could be mistaken for an episode of the Bowery Boys, there is no reason to expose your net worth as an air-raid shelter over the pathologies of American excess.
During the course of nearly two decades setting investment policy and asset allocation with companies, municipalities, and unions, it became clear to me there were organizations (companies, municipalities, and unions) that understood what needed to be done and did it. There were also those that avoided any sort of unpleasantness by delaying, forgetting, or concentrating on minutiae. It was rare for a pension plan’s committee to hop from one of these categories to the other. Those that delayed turned manageable situations into quagmires. (A comparison to Washington is apt.)
And so we see, despite the extended period during which municipalities were granted to right their wrongs (the Federal government filled financial gaps), the general tendency among the damned and the dead is, still, to borrow more money. Nearly $42 billion of municipal bonds were issued in November 2010, according to the December 1, 2010; issue of the Bond Buyer. That is nearly one-quarter of the $177 billion municipal volume for all of 2006, a year when property taxes were rising faster than money could be spent, at least among the more sober-minded. The dysfunctional cities and towns managed to build high school gymnasiums that could house the Baths of Caracalla while others started – but never completed – baseball stadiums, renewable energy incinerators, and “tunnels to nowhere.” The last is in Pittsburgh, a city apparently yearning for a Municipal Darwin Award. The city counsel is incapable of selling its parking garages for a bid of $423 million, money that is badly needed. The “tunnel to nowhere” is a $500 million public transit project, already $125 million over budget, a clogged artery symbolic of the minds that rule Pittsburgh and those in dozens of cities and states across the United States.
Read more: The Municipal Bond Pitch: "What You're Giving Me is Pure Bulls**t" http://dailyreckoning.com/the-municipal-bond-pitch-what-youre-giving-me-is-pure-bullst/#ixzz17eKBKICU
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