Munis

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Nov 25, 2008 6:14 pm

I see they got throttled again today. My assumption when I see that is "oh, another hedge fund selling" but at some point you gotta give me a break!  Anything that I am missing?

Nov 25, 2008 6:20 pm

Are we headed for massive muni defaults? At this point anything's possible. My guess (and money) is that the answer's no (on high-quality, which are additionally insured, issues). At this point, though......what would really, really shock you??

Nov 25, 2008 6:34 pm
YHWY:

Are we headed for massive muni defaults? At this point anything's possible. My guess (and money) is that the answer's no (on high-quality, which are additionally insured, issues). At this point, though......what would really, really shock you??



Do you tell your clients about the "inherent risk of default" of the insurers?

Nov 25, 2008 6:34 pm

ABSOLUTELY!

Nov 25, 2008 6:38 pm

In fact, hank, the scenario I always use is, "If the City, County and State of NY went bankrupt, do you honestly think MBIA (or whichever insurer) could cover that obligation?"
It makes a couple points simultaneously.

Nov 25, 2008 6:41 pm
YHWY:

In fact, hank, the scenario I always use is, "If the City, County and State of NY went bankrupt, do you honestly think MBIA (or whichever insurer) could cover that obligation?"
It makes a couple points simultaneously.



It means that the only time that you would need the insurance, it won't be there. Also, since the insurance won't cover you, you're a sucker if you forgo a higher rate in order to fall for the insurance gimmick.

Are those the points that you were thinking of?

Nov 25, 2008 6:49 pm

The points are that if the client really believes that a highly rated muni from the city, county or state of NY carries a legitimate default risk, that A) Yes, the insurance probably won't be there and B) If you really don't believe that there's a legitimate default risk, that we may, in fact want to choose a highly rated non-insured bond for a hiugher yield C) That if they do believe there is legitimate default risk and just want the insurance to "feel better" that that isn't a realistic point of view (as my scenario illustrated) and D) If they honestly believe that the risk of default of both the municipality and insurer, then we need to be looking for a more conservative investment for him or her. I know having investment alternatives flies in the face of everything you believe, but there you have it.

Nov 25, 2008 7:03 pm
YHWY:

The points are that if the client really believes that a highly rated muni from the city, county or state of NY carries a legitimate default risk, that A) Yes, the insurance probably won't be there and B) If you really don't believe that there's a legitimate default risk, that we may, in fact want to choose a highly rated non-insured bond for a hiugher yield C) That if they do believe there is legitimate default risk and just want the insurance to "feel better" that that isn't a realistic point of view (as my scenario illustrated) and D) If they honestly believe that the risk of default of both the municipality and insurer, then we need to be looking for a more conservative investment for him or her. I know having investment alternatives flies in the face of everything you believe, but there you have it.



I own you, broker010.

Nov 25, 2008 7:07 pm

Give me a fucking break, Bobby. Go sell an annuity or start a Regrep forum or something. You are making a fool of yourself here. Your retort is EXACTLY par for the course when you've been hammered. Call a name, type nonsense or say "none of your business". You have no knowledge, just sales ability, good for you. Bad for your clients.

Nov 25, 2008 7:07 pm

default rate for AAA munis over the past 10 years is >1%

Nov 25, 2008 7:09 pm

Greater than 1% or Less than 1%?

Nov 25, 2008 7:12 pm

Less than 1%...

Nov 25, 2008 7:12 pm

Oh, and Bobby, if you'd like to discuss your "ownership" claim further, I'm happy to give you my name, address and phone number so we can discuss it in more detail.

Nov 25, 2008 7:28 pm

People sure are testy these days! Maybe it has something to do with equities off 50% in a year and nothing working other than cash. This too will pass (the market correction, not brokers getting chippy).

Nov 25, 2008 7:31 pm

Guilty as charged, obviously. Man, GG, you couldn't have picked a more innocuous topic.....one would have thought.
 

Nov 25, 2008 7:36 pm

I have been comfortable buying Quality school and sewer types.  I do not expect to have credit problems but sure do look more carefully at the issues before buying them. Yields are very good and brackets will rise in the future and you will like them even more. If we have problems with these going forward then things went from very bad to worse. Also, not afraid of a little duration here.

Nov 25, 2008 7:41 pm

I think I could start a thread called "Thanksgiving" and within minutes the indy and wirehouse guys would be at each others' throats.

 
Went to a lunch a few weeks ago from MFS. Story was the same as the Eaton Vance lunch I went to back in March - defaults are low, values are huge relative to Treasuries, etc. At some point, I hope they are right. The EV manager said he would be disappointed if he did less that 10% total return this year. I haven't looked lately but I would guess he is down about 20%. Thanks credit crisis!
Nov 25, 2008 7:45 pm

I still strongly believe there's value in the muni market. I've been using them quite a bit over the past few months. I've always thought that municipalities (for the most part) represent one off the more stable issuers of any bonds, just by nature of their structures. Obviously, specific revenue bonds tied to stand-alone projects can be more dicey.

Nov 25, 2008 7:48 pm

I love GO bonds... two things we can count on; death and taxes...

Nov 25, 2008 7:49 pm

try .001% for high yield munis, the default rate for single A and higher is nil. Give me a break , two years from now we'll be heros for putting our clients in munis.