Saturday, November 13, 2010

Bonds Muni Selling a Trend States Cities Manage or Not Debts Pensions Budgets

Tags: Municipal Bonds Shutters, Investors Temperament, Emotions without Knowledge Deadly, Markets

Tax exempt munis have been very popular because of a federal subsidy which will be reduced. Increased computerization of our markets with similar algorithms cause markets to go up or down more sharply than in the past and more subject to manipulation with high speed computer trading.

Many average investors have been scared out of the stock market with selling even occurring when the market was going up. Financial news has always been confusing to the average investor because experts on both sides of a question are interviewed with sound bites so we really don't know who to believe. Unfortunately for most investors, they do not have the time to really read and understand financial markets and tie in their investment choices to what is popular now, and not for long-term goals, but react with emotions not supported by knowledge.

Yes, information has to be stored in our brains and not on google for us to make sound decisions based our natural aggressiveness or conservatism. Both can do well enough if they stick to their approach and learn enough to use good judgement or buy mutual funds and let the professionals do what they do.

Excess short term costly trading by mutual funds lowers your profits so normally it is better to find a mutual fund which has a strategy you agree with and sticks to it for the long term. If you pay attention, you will know that all the experts cannot predict the future consistently. Diversify, diversify, and diversify worldwide. The market is lot like poker, it is based on luck, sound knowledge of people, and knowing the odds of winning or losing. Not so easy.

Think of stocks or bonds as a vehicle not to make a fortune, but to at least keep up with inflation better than a bank account. Know thyself.

Jim Kawakami, Nov 13, 2010,

Municipal Bond Market Shudders, Mary Williams Walsh, Nov 12, 2010, That is the question investors are asking after munis — those old faithfuls of investing — took their biggest hit since the financial collapse of 2008.

Concern over the increasingly strained finances of states and cities and a growing backlog of new bonds for sale overwhelmed the market last week. After performing so well for so long, munis and funds that invest in them fell hard. One big muni fund, the Pimco Municipal Income Fund II, for instance, lost 7.5 percent. The fund is still up 6.75 percent so far this year.

While the declines were relatively small given the remarkable gains in these bonds over the last two years, the slump was swift enough to leave investors wondering if this was a brief setback or the start of something worse. For months, some on Wall Street have warned that indebted states and cities might face a crisis akin to the one that brought Greece to its knees.

“I think it’s too early to say that it’s more than a correction,” said Richard A. Ciccarone, the chief research officer of McDonnell Investment Management.

“The facts just don’t support a serious conclusion that the whole market’s going downhill,” he said. “They could. We’ve got some serious liabilities out there.”

The causes of the week’s big decline are clouded by unusual factors like the looming end of the Build America Bonds program, which has prompted local governments to race new bonds to market before an attractive federal subsidy is reduced.

But the big question confronting this market is how state and local governments will manage their debts. Many are staggering under huge pension and health care obligations that seem unsustainable.

Certainties are impossible because governments do not have to disclose the pension payouts they will have to make in the coming years, as they do for bond payouts.

California, for example, will have to sell nearly $14 billion of debt into the falling market this month, because of its record delay in getting a budget signed this year. The warnings keep coming. On Friday, Fitch, the credit ratings agency, issued a report saying that ratings downgrades for municipal bonds outnumbered upgrades for the seventh consecutive quarter. ...

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