Tuesday, July 31, 2012

Debunking the Muni Bond

HIlarious---after the lead SEC Commissioner states that the muni-Bond market is illiquid, opaque, and huge, and "recommending" that investors deserve full disclosure like in other financial markets.

However, this plays out at the same time as the Economic Hit Man recommending that financial advisors be absolved of all liability in recommending muni-bonds.   Many muni-bonds income will be exempt from the new 3.8% Obama tax hike.

Individual investors hold 75% of all the Muni Bonds, aha!  I have discovered the true "retail" market. It is large too, a $3.7 trillion market


The powers that be want to consolidate power.   They have been taught that the current world set-up is a free for fall of power and corruption, and they might as well dance while the music is still playing.

After all, what is there to lose----if you get caught there are two options:
If Private....you resign from the board, take your $18M parachute and go chase some concubines around in Uruguay or whatever.

If Public, you go in front of a sham investigative committee, get them to create some additional withdrawal of public freedoms to "crack down", and then you resign so that you can be hired by the industry that you were formerly regulating and thus "go to heaven" as it is called in the corrupt world of government and nuclear cartel such as the TEPCO / Gov arena.

But I digress, after Commissioner Walter declared them illiquid and opaque, without protection of investor disclosure, then she jumps into the Kumbaiya land of wishful thinking (and responsibility avoidance)....

....not necessarily proposing extensive new federal regulations and that it couldn’t expand its authority over the market much more without action from Congress. She said the integrity of the market would be best served by having the participants in bond transactions “join hands” to improve their practices voluntarily

But these bonds are safe right?   Not so.

A handful of municipalities have recently tried to get out of their obligations to bondholders by declaring bankruptcy. And bankers have gone on trial for taking advantage of cities and states through bid rigging. 
 Beyond just these problems, financial firms charge big markups when investors buy and sell the bonds, and of course most of this is hidden in the details.

So next time your broker is pimping out some Muni's, think about saving 3.8% on income of say 5% on your principal.   So on 100k investment, $5000 income per year and you can save 3.8% of that or roughly $200.

So for a $200 savings, you can place $100,000 at risk.    And the Economic Hit Man is pushing things this direction.    Makes you say Hmmmmm

Its a win-win-win-win though   

1) Financial advisers continue to make huge money, thus helping to pump up the US GDP reports

2) Municipalities get to go back to spending money like drunken sailors getting the union guys off the bench and getting money to flow into union coffers which then flows in to campaign contributions thus also helping to consolidate power,

3) Retail money is brought off the sidelines and "into play" increasing the liquidity of these bonds like a melting bowl of jello that Lucy can pull the rug out form more easily, and let the HBB distribute their Muni bond holdings.

4) As Muni's go bankrupt, the Fed can jump into "saving" bond holders at 80cents on the dollars while extracting power and debt over the Municipalities to keep them in line, more power consolidation at the Federal level.    The New World Disorder Embryo.  


  1. on the same day, MarketWatch comes out recommending munis for retirees

    ... unsustainable state budgets and bankruptcies 

    MUB chart 
    massive, prolonged divergence of OBV with price (past 4 months)
    Volume by price shows most support is well below current levels

  2.  Hey, best comment ever!  Thanks.

    HIlarious, the average woman thinks that $250k is enough to retire on, and the average man thinks $400k is enough.   What a joke!!!

  3. I hope that without enough frugality and deleveraging $400K may one day be enough to live on for 25 years. This would require most of us to change our expectations of rising prices and conspicuous consumption.

    "Are there ways that we—well meaning, moral and informed people—unknowingly contribute to our nation's culture of inflation and excess spending?" 

    "Bad money corrupts a rational economic order, and ignoring this issue when voting makes one as responsible for inflation as those who actively promote such policies."

    "Inflation, then, confers no general social benefit; instead, it redistributes the wealth in favor of the first-comers and at the expense of the laggards in the race. And inflation is, in effect, a race--to see who can get the new money earliest. The latecomers--the ones stuck with the loss--are often called the fixed income groups. Ministers, teachers, people on salaries, lag notoriously behind other groups in acquiring the new money. Particular sufferers will be those depending on fixed money contracts--contracts made in the days before the inflationary rise in prices. Life insurance beneficiaries and annuitants, retired persons living off pensions, landlords with long term leases, bondholders and other creditors, those holding cash, all will bear the brunt of the inflation. They will be the ones who are taxed." http://mises.org/money/3s2.asp


Insightful and Useful Comment!