We hear that some financial advisors at UBS Puerto Rico, Santander Securities and Popular Securities in Guaynabo, Puerto Rico are calling their best clients and telling them that the Puerto Rico bond market hit its lows in September and that now is the time to buy. Not only are they telling their clients to buy, but to use margin and speculate on the bond market recovery. It's true that most of the Net Asset Values (NAVs) on the UBS Puerto Rico Closed-End Bond Funds are off their September lows:
Name of the Fund - NAV
•· Tax-Free Puerto Rico Fund: 5.238
•· Tax-Free Puerto Rico Fund II: 4.622
•· Tax-Free Puerto Rico Target Maturity Fund: 4.425
•· Puerto Rico AAA Portfolio Target Maturity Fund: 7.903
•· Puerto Rico AAA Portfolio Bond Fund: 7.380
•· Puerto Rico AAA Portfolio Bond Fund II: 8.260
•· Puerto Rico GNMA & US Govmt. Target Maturity Fund: 8.165
•· P.R. Mortgage-Backed & US Govmt. Securities Fund: 6.164
•· Puerto Rico Fixed Income Fund: 3.628
•· Puerto Rico Fixed Income Fund II: 4.280
•· Puerto Rico Fixed Income Fund III: 4.075
•· Puerto Rico Fixed Income Fund IV: 5.230
•· Puerto Rico Fixed Income Fund V: 4.678
•· Puerto Rico Fixed Income Fund VI: 5.605
However, unless you are a hedge fund manager and speculation is your only objective, you better not buy into that story and make any big bets on a Puerto Rico bond market recovery.
Former U.S. Treasury Secretary Lawrence Summers has said financial markets still show a lack of confidence in Puerto Rico's economy, with its bonds trading as the "junkiest of the junk." Other financial analysts are questioning whether Puerto Rico is the next Greece? The unemployment rate of 14.6% is almost double that of any state in the United States. The island's 3.7 million residents owe over $70 billion in debt and now have a $2.2 billion budget deficit. The economy's productivity has dropped 16% since 2004, tourism revenue is down 15% since 2007 and the budget deficit problem has persisted for over 10 years. What has changed to make UBS Puerto Rico, Santander Securities and Popular Securities financial advisors so sure the market hit its bottom? Nothing!
Think back Guaynabo, Puerto Rico investors and remember what they were telling you last year as the market started to decline. These advisors are only looking for investors to swap out Puerto Rico closed-end bond funds and Puerto Rico bond investments with other investors who have threatened to sue (and rightfully so) for the misrepresentations, unsuitable recommendations, the use of margin or non-purpose loans to buy the bond funds, and/or excessive concentration of their retirement nest eggs in junk bonds.
The most important of investors' rights is the right to be informed! This Investors' Rights blog post is by the Law Offices of Robert Wayne Pearce, P.A., located in Boca Raton, Florida. Please see our Instablog profile (left column) for ways to contact us and get answers to any of your questions about this blog post and/or any related matter.