The ratings agencies can, and will, act in capricious ways.

bantam inc jack duval municipal bonds aig earning miss - logo

Be careful what you wish for.

Just a quick update on two events from yesterday that relate to some of my writing on risk management: S&P downgraded $2.27 billion of outstanding Build Illinois Bonds from AA- to BBB, and; AIG reported a $0.34/share loss when the consensus estimate was for a $0.06/share gain. Build Illinois Bond Downgrade

The State of Illinois is in dire financial straights, with a BBB- credit rating.  It has issued over $2 billion in Build Illinois Bonds, which carve out sales tax revenues, and had been rated AA-.  Under S&P's new rating criteria, which caps the ratings of priority-lien tax revenue debt,…

Escrowed to maturity municipal bonds can be thought of as "tax-exempt" U.S. government bonds.

bantam inc jack duval de-risking municipal bond portfolios - new york certificate

New York State municipal bond certificate.

As I’ve written about here and here, environmental, pension, and healthcare costs are posing increasing risks to municipal bonds and their issuers.  Most investors, and their advisors, are unaware of these risks. Ways to De-Risk a Municipal Bond Portfolio Investors would be well served to de-risk their municipal bond holdings before these

risks manifest themselves in a systemic manner.  Some techniques to reduce risks include: Diversification: Buying Insured Bonds; Buying Escrowed to Maturity (“ETM”) Bonds. I’ll unpack each of these methods below. De-Risking with Municipal Bond Portfolio Diversification Since I’ve covered this in detail here, I won’t spend a lot…

Eighty-six percent of the proposed budget increase is due to employee benefits.

Maserati and Ford Bronco

Maserati v. Ford Bronco

I have a house near Rhinebeck, New York.  If you've never been to Rhinebeck, it's in New York's Hudson Valley, about two hours north of Manhattan.  Set in bucolic rolling hills, it is horse and farm country but has become increasingly popular with the ultra-high net worth Maserati set.  It

is also a setting for municipal bond tensions. I recently received the Rhinebeck Central School District 2018-19 Proposed Budget.  After review, it seemed emblematic of what is going on at municipalities across the country: Employee benefit costs are high and rising; Debt service costs are rising; Other services are being…

A municipal bond's Official Statement is a Kafkaesque nightmare of blind alleys and rabbit holes.

This blog post continues my series on municipal bond risks faced by ultra-high net worth investors in Manhattan.  My previous post can be found here. No individual investor I’ve met has possessed the capabilities needed to evaluate municipal bond risk.  Worse, very few advisors I have known have the capabilities to

evaluate municipal bond risk. Why? Because if you go one level deeper than the bond description, you’re in a Kafkaesque nightmare of blind alleys and rabbit holes otherwise known as the issues Official Statement. Because of this complexity, the heuristic of individuals and professionals alike quickly becomes: rely on…

Ultra high net worth investors in Manhattan should be diversifying their municipal bond portfolios away from New York City issuers.

state by state migration

Source: Business Insider

The risks to Manhattan municipal bonds are rising.  However, there's not much anyone can do about the causes of these risks.  Thus, attorneys and others living and working in or near Manhattan should eliminate those bonds from their portfolios and diversify elsewhere. Manhattan Municipal Bonds Municipal bonds have long been

a staple in the portfolios of ultra high net worth individuals and families.  Last year, I wrote a book about how risks are increasing for municipal bonds. While my book highlighted the increasing risk to municipal bonds generally, I believe those risks are rising for Manhattan residents in particular.  New…