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Robert Kane

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  • Picking A Winner In The Pfizer-Zoetis Divorce [View article]
    George

    Thks for the well thought out points.

    Rk
    Jun 18 09:33 AM | Likes Like |Link to Comment
  • Philip Fischer's 'Investing In Municipal Bonds' [View article]
    The painful truth is that as debt increases, so do the risks it will be politically, economically and financially worthwhile for borrowers to walk away from paying back their loans to bondholders. To see a real time list of the largest defaulted municipal bonds.

    http://bit.ly/O4JDeb

    Robert
    http://www.bondview.com
    Jan 27 09:06 PM | Likes Like |Link to Comment
  • Nearly Half Of All Municipal Bonds Are Bankruptcy Proof - For The Unlucky, Technicalities Become Important In Court [View article]
    The painful truth is that as debt increases, so do the risks it will be politically, economically and financially worthwhile for borrowers to walk away from paying back their loans to bondholders.

    To see a real time list of the largest defaulted municipal bonds.

    http://bit.ly/O4JDeb

    Robert Kane
    http://www.bondview.com
    Jan 27 09:05 PM | Likes Like |Link to Comment
  • Investors Need To Exercise Caution On Municipal Bond Exposure [View article]
    The main point is that the often quoted rating agency " studies" (from Moody's, S&P and Fitch ) claiming very low historical default rates are inaccurate because they ignore unrated bonds. These studies sometimes strangely even ignore each other's rated bonds. This explains why the authors of the study posted at the NY Fed web site are so far apart from the credit rating agencies.

    By any measure, unrated bonds qualify as municipal bonds. How else to explain to the SEC that here are several highly popular multi-billion dollar municipal bond funds that specialize in unrated municipal bonds. The Fed study was certainly correct in looking at including unrated bonds.

    I think it is surprising news that municipal bonds, widely seen as one of the safest investments, actually default more often than most people realize and 36 times more often than Moodys and S&P suggest.

    At my workplace we have a 1st hand view since we track daily real time muni bond default data - which is available free here. (http://bit.ly/O4JDeb).

    From our vantage point there certainly seem to be more bond defaults on a regular basis. We calculate that currently there are just under 6,915 cusips in various kinds of technical and monetary default out of 1.5 million total cusips. But thats the quantity count not the total dollar figure.

    In closing, all this expanded information is good news since municipal bond investor transparency just improved due to all this informed debate.

    Robert
    Bondview
    Aug 30 12:35 AM | 1 Like Like |Link to Comment
  • Navigating Rocky Municipal Bond Markets [View article]
    Hi Doug and Michael,

    Thanks for the excellent & informative post. I agree that essential service bonds (water and power) are generally low credit risks. But is it also possible for muni bond issuers to load up or even hide excess debt in water districts? For example, were any water districts were downgraded this year? (i.e., The City of Benicia's 2002 water revenue refunding bonds have been downgraded two notches, to A+ from AA, by Standard & Poor's.

    Thanks

    Robert Kane
    BondView.com
    Dec 10 10:38 AM | Likes Like |Link to Comment
  • Why Municipal Bonds Aren't Worth the Risk [View article]
    The market's nose for sniffing out trouble is usually correct. But the fog from "headline risk" is distorting reality and causing unnecessary selling of muni bonds. Lets check the facts:

    1) Most industry experts have been repeating the same mantra for months: Debt levels for U.S. local and state governments are relatively low & annual debt service represents a small part of budgets,” Fitch Ratings (11/16/10) that annual debt service per state is in the 3-5% range.

    If a corporation only had 5% debt it would be amazing! States are cash machines that earn X % on all business conducted there. Things have to be really bad for corporate bonds to yield higher than the muni bonds of the same state? Yet thats what we are starting to see again.

    2) Ask any Muni bond professional how is business and they all say its an excellent year "making more money than ever before" due to retail investors semi panic selling.

    So is the risk real or imagined? That depends on if you own safe sector bonds. History clearly shows that markets have the intelligence to predict bad news when measured by market price based rating systems. Lehman Brothers was top rated by Moody's just a month before they went bankrupt. The ratings experts were asleep at the wheel then as they are now.

    Whats really going on in the muni market? The main issue is the public's concern over digging out from budget deficits made worse by platinum public pension plans. Add to that the perfect storm of surging Treasury yields rattling the illiquid muni market; a flood of new supply from Build America Bonds and the related uncertainty over property taxes.

    To see Market Ratings for your muni bonds go to bondview.com a free analysis tools for muni bond investors.
    Jan 14 09:03 AM | 8 Likes Like |Link to Comment
  • Closed-End Fund Ideas for the Muni Meltdown [View article]
    Thanks for the thoughtful article on CEFs. Any idea how much leverage the funds mentioned use?

    The problem with muni bond funds is historically they get hit hard when interest rates rise causing fund prices to plummet. This is due to a combination of factors:

    1) high duration bonds loosing their value. Generally the value of longer dated bonds get hit when interest rates increase.

    2) The magnifying effect of fund leverage -sometimes 30% of a fund -meaning negative trends are magnified ,

    3) The selloff effect from investors redeeming shares.

    These factors can sometimes cause a perfect storm for bond fund managers who must sell perfectly good bonds at a loss - which in turn means a loss to fund investors.

    So how does a bond buyer address interest rate risk? But bonds directly or select funds carefully. 1) Diversify with a ladder of with short, medium and long term bonds, 2) Buy Premium Bonds whose higher coupons soften the impact of rising rates. 3) Buy and Hold till maturity.

    If you think interest rates are headed up, check the duration of your bond or bond fund at Bondview.com, a free resource for bond investors.

    Good Luck

    Robert Kane
    Jan 7 07:45 AM | 1 Like Like |Link to Comment
  • Trading the Muni-Meltdown [View article]
    Interesting trades... The market's nose for sniffing out trouble is usually correct. But the fog from "headline risk" is distorting reality and causing unnecessary selling of muni bonds. Lets check the facts:

    1) Most industry experts have been repeating the same mantra for months: Debt levels for U.S. local and state governments are relatively low & annual debt service represents a small part of budgets,” Fitch Ratings (11/16/10) that annual debt service per state is in the 3-5% range.

    If a corporation only had 5% debt it would be amazing! States are cash machines that earn X % on all business conducted there. Things have to be really bad for corporate bonds to yield higher than the muni bonds of the same state? Yet thats what we are starting to see again.

    The debt level of most healthy municipalities, including California and Illinois is relatively low. Fitch says " The tax- supported debt of an average state is equal to just 3 percent - 4 percent of personal income, and local debt roughly 3 percent - 5 percent of property value. Debt service is generally less than 10 percent of a state or local government’s budget, and in many cases much less.” See the report here. (www.bondview.com/admin...)

    2) Ask any Muni bond professional how is business and they all say its an excellent year "making more money than ever before" due to retail investors semi panic selling.

    So is the risk real or imagined? That depends on if you own safe sector bonds. History clearly shows that markets have the intelligence to predict bad news when measured by market price based rating systems. Lehman Brothers was top rated by Moody's just a month before they went bankrupt. The ratings experts were asleep at the wheel then as they are now.

    Whats really going on in the muni market? The main issue is the public's concern over digging out from budget deficits made worse by platinum public pension plans. Add to that the perfect storm of surging Treasury yields rattling the illiquid muni market; a flood of new supply from Build America Bonds and the related uncertainty over property taxes.

    To see Market Ratings for your muni bonds go to www.bondview.com a free analysis tools for muni bond investors.

    Good Luck To All
    Dec 23 07:47 PM | 13 Likes Like |Link to Comment
  • Municipal Bonds: Are Dozens of State and Local Governments About to Default? [View article]
    The market's nose for sniffing out trouble is usually correct. But the fog from "headline risk" is distorting reality and causing unnecessary selling. Lets check the facts:

    1) Most industry experts have been repeating the same mantra for months: Debt levels for U.S. local and state governments are relatively low & annual debt service represents a small part of budgets,” Fitch Ratings (11/16/10) that annual debt service per state is in the 3-5% range.

    If corporations only had 5% debt it would be amazing! States are cash machines that earn X % on all business conducted there. Things have to be really bad for corporate bonds to yield higher than the muni bonds of the same state. Yet thats what we are starting to see.

    But even the debt level of most healthy municipalities, including California and Illinois is low. Fitch says " The tax- supported debt of an average state is equal to just 3 percent - 4 percent of personal income, and local debt roughly 3 percent - 5 percent of property value. Debt service is generally less than 10 percent of a state or local government’s budget, and in many cases much less.” See the report here. (www.bondview.com/admin...)

    2) Ask any Muni bond professional how is business and they all say its an excellent year "making more money than ever before" due to retail investors semi panic selling.

    So is the risk real or imagine? That depends on if you own safe sector bonds. History clearly shows that markets have the intelligence to predict bad news when measured by market price based rating systems. Lehman Brothers was top rated by Moody's just a month before they went bankrupt. The ratings experts were asleep at the wheel then as they are now.

    Whats really going on in the muni market? The main issue is the public's concern over digging out from the budget deficits made worse by platinum public pension plans. Add to that the perfect storm of surging Treasury yields rattling the illiquid muni market; a flood of new supply from Build America Bonds and the related uncertainty over property taxes.

    To see Market Ratings for your muni bonds go to www.bondview.com a free analysis tools for muni bond investors.

    Good Luck To All

    bondview.com
    Dec 22 09:33 AM | 5 Likes Like |Link to Comment
  • Municipal Debt: Got Local Knowledge? [View article]
    The market's nose for sniffing out trouble is usually correct. But the fog from "headline risk" is distorting reality and causing unnecessary selling. Lets check the facts:

    1) Most industry experts have been repeating the same mantra for months: Debt levels for U.S. local and state governments are relatively low & annual debt service represents a small part of budgets,” Fitch Ratings (11/16/10) that annual debt service per state is in the 3-5% range.

    If a corporation only had 5% debt it would be amazing! States are cash machine that earn a X % on all business conducted there. Things have to be really bad for corporate bonds to yield higher than the muni bonds of the same state? Yet thats what we are starting to see again.

    The debt level of most healthy municipalities, including California and Illinois is lowish. Fitch says " The tax- supported debt of an average state is equal to just 3 percent - 4 percent of personal income, and local debt roughly 3 percent - 5 percent of property value. Debt service is generally less than 10 percent of a state or local government’s budget, and in many cases much less.” See the report here. (www.bondview.com/admin...)

    2) Ask any Muni bond professional how is business and they all say its an excellent year "making more money than ever before" due to retail investors semi panic selling.

    So is the risk real or imagine? That depends on if you own safe sector bonds. History clearly shows that markets have the intelligence to predict bad news when measured by market price based rating systems. Lehman Brothers was top rated by Moody's just a month before they went bankrupt. The ratings experts were asleep at the wheel then as they are now.

    Whats really going on in the muni market? The main issue is the public's concern over digging out from the budget deficits made worse by platinum public pension plans. Add to that the perfect storm of surging Treasury yields rattling the illiquid muni market; a flood of new supply from Build America Bonds and the related uncertainty over property taxes.

    To see Market Ratings for your muni bonds go to www.bondview.com a free analysis tools for muni bond investors.

    Good Luck To All
    Dec 22 09:21 AM | Likes Like |Link to Comment
  • More Signs of Dumb Money: This Time in Municipal Bonds? [View article]
    I also agree w/ Willydo. This was a case of the tail wagging the dog. Buy and hold investors didnt participate in the ETF meltdown. The SEC says retail investors own 70% of all muni bonds (directly and thru funds) and account for 81% of trading volume. The average retail investor will buy and hold till maturity and is not focused on daily price fluctuations.

    But did last weeks decline cause headline risk to retail investors? Sure. But did they sell? No in fact the reverse. The bondview Buy /Sell index shows 2:1 buys to sells of muni bonds for the last 30 days.

    The bottom line is that investors are concerned about higher income tax rates and see muni bonds as the last great tax shelter.”.”
    Nov 26 08:03 AM | 4 Likes Like |Link to Comment
  • More Signs of Dumb Money: This Time in Municipal Bonds? [View article]
    Hi Lawrence,

    Thanks for a good common sense based article.

    There is no single price source for the bonds. Instead muni bonds based ETFs and funds are supposed to re-price their bonds by using at least two independent pricing services (Interactive data, S&P, BondView, etc). There are some basic accounting regulations as to how assets like muni bonds are to be priced. The primary method is looking at recent trades. But since most muni bonds dont trade, comparable trades are used instead. This sometimes results in a new bond issue rated AAA having a wide ranging trickle down re-pricing effect on all bonds. Thats what happened when Harvard University issued bonds right a day before the muni bond meltdown started.

    This is clearly a flawed system as we saw a meltdown driven now by credit risks but by the tail wagging the dog.

    Thanks
    Robert Kane
    bondview.com
    Nov 25 07:49 AM | 1 Like Like |Link to Comment
  • Muni Bonds Are Not Collapsing, Demand Levels Remain High [View article]
    Thanks for your comments Alex.

    I agree that leverage can be a destroyer of value when the market runs in the opposite direction.

    When we look at what a lot of ETFs actually own, their portfolios can be quite different from the actual index component weightings. There's a heavy reliance on modeling and optimization, which of course increases the risk of tracking error.

    You make an excellent point about muni bond illiquidity. If you can sell it then its liquid. But there is too high a spread penalty for selling in the muni bond market due to lack of transparency. While an asset is worth what someone is willing to pay, stocks are very liquid while muni bonds are far from it.

    There are a few factors effecting an investors ability to sell muni's including how often the bond sellers sophistication, daily volume of the market and the specific bond, size for sale, rated or unrated, current yield verses current interest rates, and if the market is buying that day. Any of these can significantly effect the transaction price by a 5-20% penalty.

    At bondview.com, we track the daily trading spreads and we see that every day someone pays too much when selling & and buying. Its to the point now that regulatory industry monitors and fines dealers for abuse.

    Thanks
    Robert Kane
    bondview.com
    Nov 22 09:01 AM | Likes Like |Link to Comment
  • A Hiccup for Muni Bond ETFs [View article]
    thanks!
    Nov 22 07:26 AM | Likes Like |Link to Comment
  • A Hiccup for Muni Bond ETFs [View article]
    Hi Paul

    Thanks for the excellent insights about illiquidity and the clever Veterans Day example. Will remember that for next year.

    Muni bond ETFs are an odd animal in that they contain illiquid assets in a ETF package thats claims to be liquid. While ETFs may trade all day its generally not possible to buy a specific muni bond ( unless its a new issue) that makes up the ETF tracking index.

    Also worth noting that the value of all Muni ETFs is only about $8 bil which is less than 1% of the 2.8 trillion muni market. Isnt this just a one time strange coincidence of events rather than any credit driven event?

    Thanks & following you now on seekingalpha!

    Robert Kane
    Nov 21 04:23 PM | 1 Like Like |Link to Comment
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