Comments on: Are Municipal Bonds the Next Big Unknown Unknown? http://www.biggerpockets.com/renewsblog/2008/10/07/are-municipal-bonds-the-next-big-unknown-unknown/ Learn, Network, Invest Mon, 23 Nov 2009 15:55:06 -0500 http://wordpress.org/?v=2.8.5 hourly 1 By: Bob R. http://www.biggerpockets.com/renewsblog/2008/10/07/are-municipal-bonds-the-next-big-unknown-unknown/comment-page-1/#comment-60532 Bob R. Thu, 09 Oct 2008 22:46:30 +0000 http://www.biggerpockets.com/renewsblog/?p=1702#comment-60532 California is asking for a $7 Billion federal bailout now - instead of solving their problems thru taxation. Nuveen bond funds - one of my favorite investments (past investment, thankfully) is headed for the basement as I write this note. It's sure making the yields look terrific though. California is asking for a $7 Billion federal bailout now – instead of solving their problems thru taxation.

Nuveen bond funds – one of my favorite investments (past investment, thankfully) is headed for the basement as I write this note. It’s sure making the yields look terrific though.

]]> By: George Kennan http://www.biggerpockets.com/renewsblog/2008/10/07/are-municipal-bonds-the-next-big-unknown-unknown/comment-page-1/#comment-60469 George Kennan Wed, 08 Oct 2008 13:19:36 +0000 http://www.biggerpockets.com/renewsblog/?p=1702#comment-60469 Next to US government Treasury bills, municipal bonds are just about the safest investment around. What your article fails to note is that states have a power that no corporation or private entity can possibly have -- -- the tax power. In other words, if a state has any prospect of default, it can raise taxes to pay off its bonds. In fact, in major states like California, the state constitution absolutely requires this. In a sense, municipal bonds are safer than Treasury bonds, because of a power the state lacks -- -- the power to print money. If the U.S. Treasury comes anywhere near the need to default on its debt, it has a choice of either raising taxes or printing money. Which do you think it will do in times like? We do need to make one important distinction, however. I am referring to what are called "general obligation" bonds. You would want to stick to these only, as opposed to municipal bonds backed by revenues, e.g., a hospital or sewer system. Any competent municipal bond broker can steer you to these. If you keep this in mind, you can have a long-term investment that is paying 5 1/2 percent tax-free right now, which is approaching the long-term expected returns from the stock market even in good times -- -- with the added plus of allowing you to sleep at night. Next to US government Treasury bills, municipal bonds are just about the safest investment around. What your article fails to note is that states have a power that no corporation or private entity can possibly have — – the tax power. In other words, if a state has any prospect of default, it can raise taxes to pay off its bonds. In fact, in major states like California, the state constitution absolutely requires this. In a sense, municipal bonds are safer than Treasury bonds, because of a power the state lacks — – the power to print money. If the U.S. Treasury comes anywhere near the need to default on its debt, it has a choice of either raising taxes or printing money. Which do you think it will do in times like? We do need to make one important distinction, however. I am referring to what are called “general obligation” bonds. You would want to stick to these only, as opposed to municipal bonds backed by revenues, e.g., a hospital or sewer system. Any competent municipal bond broker can steer you to these. If you keep this in mind, you can have a long-term investment that is paying 5 1/2 percent tax-free right now, which is approaching the long-term expected returns from the stock market even in good times — – with the added plus of allowing you to sleep at night.

]]>