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HomeNew Jersey’s State Pension? Fuhgeddaboutit!!
Posted by Larry Doyle on August 19th, 2010 7:35 AM |
In a state that has a reputation for putting the ‘organized’ in ‘organized activities,’ is anybody surprised that New Jersey has been charged with misrepresenting the health of its state pensions? (The state has already settled). How do you think politicians get elected? Line the pockets of the unions with lavish pensions and perks, then stick it to future generations. This scam has been played for years. What’s new now?
The Wall Street Journal provides further details on this story in reporting, SEC Sues New Jersey as States’ Finances Stir Fears:
The Securities and Exchange Commission, in its first securities-fraud case against a state, accused New Jersey of misleading investors about the health of its two largest state pensions while selling billions of dollars in bonds.
State authorities settled the case without admitting or denying wrongdoing.
While it singled out New Jersey, the SEC is conducting several investigations into what other states disclosed about their weakened finances. (more…)
Municipal Bond Fund ‘Swan Dive’
Posted by Larry Doyle on October 13th, 2009 12:08 PM |
Investors have traditionally bought municipal bond funds for income purposes. The tax-exempt status provides real appeal and the default rate on municipals has always been exceptionally low. Against that backdrop, ‘munis’ have always proven to be less volatile than equities and many other sectors of the bond market . . . until now.
If a picture tells a thousand words, this graph of a Nuveen National Municipal Closed End Fund (ticker NXR) is more than a short story. From the Sense on Cents link to The Wall Street Journal‘s Market Data page, we learn:
That cliff-like drop on the right side of the graph represents approximately a 7% decline in the value of this specific fund culminating in a precipitous 5% drop just yesterday. Part of the decline is explained by the fact that yesterday this fund traded “ex-dividend,” meaning that investors who purchased the fund yesterday are not in line to receive the October dividend. That dividend represents a minor part of the overall decline in the value of this fund.
What does the decline truly represent? The fact that bonds in this $185 million fund declined in value. Why would that happen? The municipalities which had issued these bonds are likely having problems refinancing their debt. What does that mean? Those municipalities will be forced to pay higher rates. And what does that mean? Their outstanding bonds, such as those in this national fund, decline in value. Additionally, the higher rates mean the municipalities will remain hard pressed not to cut services and employees.
Keep your brokers and financial planners honest and compel them to fully explore the credit quality of investments (whether bonds or equities) prior to investing. Otherwise, picture yourself as having invested in this fund a month ago and now eating a 7% loss as you take a ‘swan dive’ off the right side of the above graph.
LD
Municipal Finance: Will Uncle Sam Post Bail?
Posted by Larry Doyle on May 26th, 2009 3:09 PM |
Is every village, town, city, and state in our country poised to receive a “get out of jail” free card from Uncle Sam? I linked to The New York Times article, Localities Want U.S. to Support Muni Bonds, in the Newsworthy section of Sense on Cents. Upon further review, it deserves comment.
In my opinion, this support of the municipal market may very well represent the greatest violation of a moral hazard to date. Why? Municipalities are by edict required to balance their budgets. A municipal budget which is able to obviate the tough decisions and choices in the budgetary process will lose that rigor.
Politicians of all stripes will make the case that the municipal default rate is extremely low and, as such, a federal backstop in the form of bond insurance is truly a very low risk proposition. Please allow me to opine that the same argument was made in the quasi-guarantee provided to Freddie Mac and Fannie Mae. Those two giants are now wards of the state having been utilized by politicians from both sides of the aisle as campaign “piggy banks” for the better part of twenty years.
The New York Times highlights that the federal guarantee of municipal debt is not all that Uncle Sam may be asked to bail:
“All kinds of municipal borrowers are facing revenue shortfalls,” said Mr. Decker. “California is the largest example. Some states are better off than others. But all outstanding debt is backed by tax revenues. And municipalities are facing a greater or lesser level of distress.”
Also clamoring for help is a group of municipalities that purchased Lehman debt, which is now nearly worthless. Legislation authorizing the use of relief money to make these purchases was introduced by two California Democratic representatives, Jackie Speier and Anna Eshoo. If approved, this would be more like a bailout than a guarantee, because the federal government would be paying face value for debt that otherwise has little value.
The price tag on that proposal is around $1.6 billion. The argument promoted by the two congresswomen is that the Treasury and Fed allowed Lehman to fail, causing governmental bodies to lose money.
Whether a price tag is $1.6 billion, $1.6 million or $1.6 trillion a potential federal bailout of a poor investment decision is the antithesis of free market capitalism. Where does it end? (more…)
Midday Market Update . . . U-G-L-Y
Posted by Larry Doyle on March 5th, 2009 12:45 PM |
I had written that yesterday’s 2-3% upward move in the market was very likely a Dead Cat Bounce. Well, that cat is burrowing further into the ground as markets have more than fully retraced yesterday’s upward move and are making new lows. This type of price action, known as lower highs and lower lows, confirms bearish trends.
I hope our readers know that all financial information you could possibly want is on the Market Data tab on the Sense on Cents header. That resource provided by the Wall Street Journal is not only a great way to get a quick and comprehensive snapshot of all sectors of the market, but also a great way to keep your brokers and financial planners on their toes and working for you!!
Let’s take a quick look at the markets and then I will offer some commentary. (more…)
February 2009 Market Review
Posted by Larry Doyle on February 28th, 2009 10:13 AM |
Prior to going to the comments section of my son’s report card, human nature dictates that I first look at the grades. In that same vein, let’s see how the markets performed for the month of February:
Let’s review my specific projections from the January 2009 Recap: (more…)
