For the past 20 years, I have watched the Municipal Bond market through the eyes of my clients as they built beautiful laddered bond portfolios. And honestly for the past 20 years I have seen a huge number of positive benefits from this strategy. Not only were bonds simple, tax-free and easy to buy, but for my clients who made the choice to buy bonds, it allowed them a great deal of focus and freedom from the ups and downs of the market. And this may have been the greatest benefit of all – SIMPLICITY! Just not needing to worry about a portfolio.
But something has changed in the past couple of years. Those same clients are now calling me and asking what I think about Municipal Bonds. There is uncertainty in the air. We all feel it. What we thought was a sure thing, all of the sudden seems unclear. The bond markets are taking big hits and the Fed appears desperate to plug the holes with “Quantitatively Eased” money. California is back to issuing I.O.U.’s to government workers and there is talk of sovereign debt default in Europe.
What seemed an unreasonable, or even unthinkable, question just a couple of years ago is now a very serious one: “Are Municipal Bonds Really Safe?”
And while I can honestly say I don’t know the answer, what I can say is that I have found some really excellent questions. And so far very few people are able to answer them fully.
One person who has shed more light on the subject than anyone else I know is named Peter Campbell. Peter is truly understands Wall Street and the mentality that drives it. He spend 14 years at JP Morgan writing sophisticated trading software, and this past week I was fortunate enough to get a hour with him to talk about nothing but Municipal Bonds.
okay, so here goes another pundit, another genius. wasn’t it the wall street ‘insiders’ that got us into a lot of the trouble we’re currently in? so what exactly do we do now? 5 years ago they were pushing us into stocks and options. that’s dead in light of what wall street did to us. now munis are bad. so where do we go? banks? you said they’re incompetent crooks. no good! money markets? no interest! cash in shoe boxes? risk robbery! essentially, you’re saying that capitalism is a swindle and that we’re being raped and plundered by insiders on wall street, ponzi schemers and speculators. is this just a rouse to get your phone to ring, mr. lodmell? tell us exactly where we need to put our money where we’re not going to get devoured by the sharks? i don’t think such place exists any longer.
Martin. Your analysis is actually closer than you think. Basically I am saying that Wall Street and the banks are all in it together and the net loser is us. Where to go, well I can’t tell you where to go, but I can tell you where I go. I like Pictet bank in Switzerland. They don’t lend out your money. You can invest it in anything you wish without having to worry about if they will need a bailout. As far as the investment side, safety is the key. I wouldn’t worry so much about no return at this moment. I would be focusing on what will hedge against a true crisis, which I believe we are far closer to than the media, Wall Street and the government care to share with us. Not that one is imminent, but simply that the possibility is greater today than at any point in the history of financial markets since you or I have been around. As far as specifics, I can only say for myself, which is to say 70% in treasury (or its equivalent) in a basket of currencies which include the U.S. Dollar, Swiss Franc, New Zealand Dollar and the Singapore Dollar. The remaining 30% is hedged in a fund which trades futures and goes short just as easily as it goes long. And how exactly that works is the subject of another video, so please stay tuned as I will be sharing more and do think this is very important and highly relevant. Thanks for the comment, I appreciate it. – Doug
I agree on your analysis w/r/t munies….the writing was on the wall back in 2006. However making a personal recommendation to go all in to Treasuries as a U.S. dollar based safety zone is not in my opinion the way to go. With China and Russia repudiating the US dollar and starting to trade via their own basket of currencies, Europe collapsing like dominoes, and the US prommisory debt conservatively at 106 Trillion we are absolutely going to see devaluation and default of the US debt. A la the soviet experience. Dual tier currencies and default are a possibility but I’ll wager that this event will be quite fast when it happens. My overall strategy is foreign currency holdings ie. Canadian, Gold, Silver and Oil. As Gold and silver continue to climb the wall of worry I eventually will cash them in to purchase and hard assets like property that will generate income. But as you know the best laid plans of mice and men….etc. I agree that we are in for a very, very volatile time and there is a greater than 50% chance in my opinion that when the wheels really come off the wagon that the only way out is war. The sheeple gotta have their distractions to keep this 76% retail economy going….sad…very sad.
Dr. Mark. I feel the same, and unfortunately I do think some conflict is likely for the very reasons you imply. As far as debasing our currency, yes we are. The one point is that while devaluation is very, very likely as some point, from now until that point dollars may actually get much more valuable, not less. As they are removed from circulation via the deleveraging that is occurring now the supply of dollars is shrinking, not expanding. This is true notwithstanding all the “printing of money” via Quantitative Easing. And with supply down and debts still very real, dollars will find themselves in short supply. This means valuation of the dollar, which we are seeing with the Euro as we speak. As for Gold and Silver, I feel the counter may also hold true. We may see silver back down at $10 before we see it at $40. Personally, I think that is more likely. The short answer is that no one has that crystal ball and can tell you what’s going to happen. What we can be sure is that the past doesn’t tell us much about the future at this point. And the likely path is volatility. What that means for me is seek safety. Please see my reply to Martin’s comment for my personal philosophy. Thanks for commenting! – Doug