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Chicago Gives Investors Another Reason To Rethink Municipal Bonds
There are poor/risky muni bond investments just as there are poor/risky equity investments.
To me these events sets the stage for restructuring a town, city or state with respect to their fiscal budgets. A well diversified and well managed Muni Bond fund should be able to weather a few underperfroming bonds. I don't see munis going away anytime soon and I do see an over reaction to all miunis due to these headline stories. Every State has their Detroit. Munis are much more than city bonds...they include infrastructure project, school districts, hospitals, and transportation systems to name a few.
A municipality just can't pick up and move to a right to work, business friendly, economically vibrant part of the country. Their stuck in the stew... so to speak. It's kinda like swimming in a pool of dirty water. Somehow, they have to open the fresh water spigot with some clean reform while, at the same time, crack the drain an equal amount so that over time the system rinses out while keeping the water level somewhat constant. This, to me, is one of the reason the Fed is still buying bonds and keeping interest rates low. It enables towns the opportunity to refinance this overhang (dirty water) affordably.
Unfortunately some cities, towns and states have gotten so deep into these overhangs that people just pick up and leave. It's very difficult to reverse that trend.
I own USATX in my taxable account which is an intermediate national muni.
Comments
To me these events sets the stage for restructuring a town, city or state with respect to their fiscal budgets. A well diversified and well managed Muni Bond fund should be able to weather a few underperfroming bonds. I don't see munis going away anytime soon and I do see an over reaction to all miunis due to these headline stories. Every State has their Detroit. Munis are much more than city bonds...they include infrastructure project, school districts, hospitals, and transportation systems to name a few.
A municipality just can't pick up and move to a right to work, business friendly, economically vibrant part of the country. Their stuck in the stew... so to speak. It's kinda like swimming in a pool of dirty water. Somehow, they have to open the fresh water spigot with some clean reform while, at the same time, crack the drain an equal amount so that over time the system rinses out while keeping the water level somewhat constant. This, to me, is one of the reason the Fed is still buying bonds and keeping interest rates low. It enables towns the opportunity to refinance this overhang (dirty water) affordably.
Unfortunately some cities, towns and states have gotten so deep into these overhangs that people just pick up and leave. It's very difficult to reverse that trend.
I own USATX in my taxable account which is an intermediate national muni.