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Hi,

I have been rethinking what is considered a "safe" investment these days. I have a number of NY, NJ, & CT Muni bonds with mostly AA rated bonds (some higher with insurance). I did start to think about if banks tend to be underwriters & no one wants to part with their cash, how will Municipalities continue to put bonds together without banks being willing to help.

I then started thinking more about with states having less income & property taxes being reduced due to house values dropping, how will they continue to get money? I suppose raising taxes is a possiblity but things are tight as is for most people.

Anyway, how safe are Muni's these days? How does refinancing work for them if they cant get the support of banks?

As a separate question, in the GD1 (great depression 1.0) did Municipalities pay on their bonds, or just default?

Seeing how common & prefered shareholders in public companies that need bailouts tend to get wiped out, how likely is that if Municipalities need bailouts from the US government?

How is it possible that Muni's come out unscathed while the rest of Rome burns.

Do you think theres a good chance of a loss of principal (I think theres a good shot of muni's missing payments) if it gets bad enough.

It seems the only safe investment these days is Hookers & Blow.

Thanks,
Rich

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RichTJ99 said: It seems the only safe investment these days is Hookers & Blow.

Don't forget MTRSS!

I pretty much have the same question. I own two NC muni etfs. I purchased them both back in July because I was looking for something "safe"
NII - I am down (25%) since July
NNO - I am down (15%) since July

both of these funds were doing fine, until about 3 days ago (10/6/08) when both tanked...obviously, somebody knows something I don't!

RichTJ99 said: I have been rethinking what is considered a "safe" investment these days. I have a number of NY, NJ, & CT Muni bonds with mostly AA rated bonds (some higher with insurance). Are you buying individual bonds or bond funds/ETF's? If you're buying individual bonds, stick with general obligation or water and wastewater revenue bonds, those are about as safe as you can get. Where you run into trouble are revenue bonds for parking garages, hospitals, airports, and things like that, which could be impacted by the economy.

mkwinters said: I pretty much have the same question. I own two NC muni etfs. I purchased them both back in July because I was looking for something "safe"
NII - I am down (25%) since July
NNO - I am down (15%) since July

both of these funds were doing fine, until about 3 days ago (10/6/08) when both tanked...obviously, somebody knows something I don't!


Note that these are leveraged funds meaning they borrow extra money via preferred shares. When the rate on those shares is low, the common shareholders (you) get a benefit. The most recent rate for the preferreds was near 7.5% (see link). If those rates don't decline, there will be little left over for common shareholders.

It seems to me (and I honestly don't know) that if the preferred rates stay high the fund will essentially be forced to de-leverage (i.e. sell some bonds and use the proceeds to buy back at least some of the preferreds). This is not a good market to be forced to sell anything.

Hi,

In my case I am buying high quality individual bonds (GO's, Dorms, etc). Nothing like a parking lot bond, or housing bond. The intention is to have income (buy & hold until maturity). My biggest concern is keeping principal. I would hate to have a muni bond not pay its semi annual interest, but more important is what would happen if they went bankrupt.

A NYC GO was a safe haven in the past, but who knows these days. NYC has lost a ton of taxable income by all the lost jobs, etc from wall street.

Rich

If the state government of California is an indicator than you should not be buying any municipal paper from that state.

Bankgeek said: If the state government of California is an indicator than you should not be buying any municipal paper from that state.

but the state of CA is too big to be allowed to fail/default

frugalpete said: Bankgeek said: If the state government of California is an indicator than you should not be buying any municipal paper from that state.

but the state of CA is too big to be allowed to fail/default



They won't default or fail IMHO, but as the debt load goes up they will have to pay higher rates of interest, that will drive down the price of bonds that California has already issued. If you own those bonds you lose if you sell them. But you could hold them to maturity. That might be a very long time.

The Governator has been on the news encouraging Californians to buy bonds. Any good deals out there?

2stepsbehind said: The Governator has been on the news encouraging Californians to buy bonds. Any good deals out there? because California should raise money to pay monthly bills, otherwise the credit will be dowgraded!

Here is the news:
http://www.bloomberg.com/apps/news?pid=20601087&sid=aAVvkSCr3R_E&refer=home

I think now is a great time to but muni bonds, as long as your intent is to hold til maturity.

If anything, I'd avoid the 'unique' areas such as LA or NYC, where if they default the rest of the country would just say "Well, it serves them right". But if main street USA munis start defaulting, it will be the end of America and it wont matter what you've invested in. Thus it will never be allowed to happen.

I found some great AAA insured Revenue and GO bonds through TD Ameritrade that are State, Federal, and AMT tax free yielding over 5%...

The better part is that they are callable at par value in 10 years while they are selling at depressed rates right now..

OK, somebody explain this. Looking at a muni bond fund (closed end), insured, liquidating at the end of the year. It's trading at over a 2% discount to NAV. Are people worried the bonds will default in the next two months and the insurer won't cover it?



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