Edward Harrison

The Imminent Collapse of Municipal Bonds

You make some fair points. Obviously, one reason Munis are attractive has to do with the tax free status for many investors and that gives it a yield pickup over Treasuries.

The question you ask which is most interesting has to do with the seniority of the bonds and the security of the income stream to investors. general obligation bonds are obviously of more dubious security than bonds funded by specific income streams. I would expect there to be a dichotomy in performance based on this factor.


On Nov 05 08:33 AM GlobalTrekker wrote:

> I guess I am starting to become the contrarian voice in the never
> ending tirades against public institutions and their funding. But
> I believe the intellectual thrust of this article is a tad facile,
> preaching to the choir, as it were, and ignores some distinct features
> of the municipal bond market. Municipal markets may not be able
> to print money, but they have many tools at their disposal to satisfy
> bond holders.
>
> Interest payments are usually very senior in the states' hierarchy,
> and revenue bonds continue to collect tolls, fuel taxes, and utility
> surcharges. These have fallen little. CA and others have risen
> the sales tax 1%, and that's a lot of money in the world's 8th largest
> economy.
>
> Many states actually are cutting back services, so much of what the
> old saws say in this article is untrue.
>
> Also, comparing expenses in 1955 versus nearly 2010 is really quite
> a mental stretch. This is not the same nation as 55 years ago, despite
> what perhaps many readers might wish.
>
> It's always a little surprising to me that people claim to be so
> patriotic but deride all those who work for the nation. Do you really
> have so little regard for the value and services of our nation's
> military, teachers, forest fire fighters, meat inspectors, police,
> firemen, park rangers, state university professors, flight controllers?
>
>
> Factually, the article also falls a bit short: "the investor gets
> only a slightly better return than in Treasuries." Uhm, on what
> planet have you been residing? My Vanguard muni funds have been
> yielding 4.3%, a double-tax-free equivalence of nearly 8%, not counting
> the huge appreciation I've enjoyed. The triple-A rating may be suspect,
> but I'll take my chances. In the CEF muni world I have funds paying
> out over 10% in tax equivalent yields, again, ignoring the far larger
> appreciation received since purchase in the spring.
>
> In all, the muni market is in trouble, like most of the economy,
> but the writers protest too much. The states comprise America, and
> America is filled with potential, creativity, and vigor -- throughout,
> not just in a few Silicon Valley start-ups.