It's only Wednesday, but so far we've seen this week's correction in the stock market driving increased demand for both muni and govt bonds while pushing yields lower than the 3% threshold. Is there something to learn here? Why would investors panic and seek safety in the very same debt instruments they had been told to abandon, and did abandon earlier this year? I can't help remember Dr. Seuss's story about the Star-Bellied Sneetches. If Mr. McMonkey McBean, the itinerant barker with his highly lucrative star-on and star-off machines ever decides to issue corporate bonds, and you just happen to be at the right place at the right time and hear about it before anybody else does, please, please, please save us all a place in line!
Paul Gof CA2:20PM June 15, 2011
During the Great Depression in the 1930s the only major class of investment to maintain it's value was municipal bonds. Over the entire span of the
Great Depression only about 3% of the municipal bonds defaulted. Sounds
pretty solid to me.
JUMBO DUMBOof 2:36PM May 21, 2011
In reports I've read/watched, Whitney asserts that pain will come later in the year, such as in June, when Congress cuts off funds to states, which, in turn, will cut off funds to municipalities.
To say defaults/layoffs/tax hikes/etc. will come on a scheduled basis--two to four each week, every week for the year--is not accurate.
fjof NY10:27PM January 15, 2011
So we are two weeks into 2011 which means according to Whitney's projections we should have seen 2 - 4 major defaults so far. So.....?
Bobof CT1:32PM January 14, 2011
to Jon Orr the above article. Jon Im new to bonds, I just bought a Porto Rico
Highway construction bond 5.25% among others wohat do u think about that and the steepener notes have you heard of them?
STEVE ANDEERSONof CT1:05AM January 14, 2011
I fully agree that this is a great opportunity for a savvy investor. I own a significant amount of California Muni Bonds but all of them are general obligation bonds for essential services. As an indicator of the overblown reaction to Meredith's article, 50% of my bonds are now showing a current value lower than my buy price. Of course that means that 50% are also showing a higher value. When market reaction to media hype forces bond prices down and yet a significant number of strong bonds show higher than face values, it is a clear indicator to me that there is no real impending meltdown.
Of course, uninformed buyers of Muni Bonds may face losses if they have speculated on high yield, longer term, non GO and non essential services bonds without sufficient liquidity. That however is simply the fault of the investor and should not be a reason for a smart to sell good bonds out of a balanced portfolio.
Given the predictions of slow growth and continued high unemployment, I am very confident that interest rates will remain low for the foreseeable future. As such strong muni bonds are the most attractive investment I can find for an individual in my tax bracket.
The tax free income that I have already derived and will continue to derive from the quality bonds that I own are a very strong offset to the current depressed market values. Given that my income from these bonds is an equivalent 8+% of a taxable investment and I have owned them for an average of 5 years, it would take a monumental default to negate my investment to anything similar to standard equity returns over the same period.
As I balance my investments with California income properties, real estate investments in Asia and a sizeable holding in precious metals, I am in a position to hold my bonds until it is favorable to sell. Sufficient liquidity is also a key to investing in Muni Bonds. If you are forced to liquidate in a down market you will of course pay a price for your over extension.
In summary, I am a buyer of California Muni bonds in 2011.
John Orrof CA8:03PM January 13, 2011
Thank you for the insights here.
Have you and/or any of the commentators cited done any analysis of the actual report (titled "The Tradegy of the Commons") by Meredith Whitney's firm?
If not, my guess is it would be valuable to your readers for you and/or sources to assess the report's veracity (rather than short interviews of Whitney by other news organizations).
Joe Mysak, the columnist you cite, is the only analyst I’ve read who admits he has not actually read it:
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Paul G of CA 2:20PM June 15, 2011
JUMBO DUMBO of 2:36PM May 21, 2011
fj of NY 10:27PM January 15, 2011
Bob of CT 1:32PM January 14, 2011
STEVE ANDEERSON of CT 1:05AM January 14, 2011
John Orr of CA 8:03PM January 13, 2011
dz of NJ 1:20PM January 13, 2011