Tuesday, November 10, 2009

If Your Advisor/Broker Calls To Sell You Muni Bonds

Hang up the phone immediately and move your account.  We have found brokers/advisors from Raymond James, Wells Fargo/Wachovia, Bank of America/Merrill and RBS to be particularly pernicious.  As per the report linked from Barry Ritholtz's The Big Picture:
"For the year ending in June 2009, the period corresponding to most states’ fiscal years, total state tax collections declined by $63 billion or 8.2% from the previous year. That loss is also a record, and is roughly twice the amount states gained during the year in fiscal relief from the federal stimulus package."

Please read this article and study the charts, which show the plunging source of revenue used to repay muni debt:  LINK

To be sure, it is likely that the Fed/Treasury will ultimately be forced to print even more money in order to bail out our municipalities.   But in between, I guarantee you that your broker/advisor will be calling you often, as muni prices tank, to sell you more "great value" paper.  And at the end of the day, even with a bailout, you'll be left with nothing but paper that has even less value than it does now.


  1. Have you seen this?


  2. I had not seen that. But the guy does not have the mechanics of leasing laid out very well. There are lot of reasons the Fed does not want an independent audit and of course one of them could be the gold issue.

    But the way it works is that the Fed would lease out its gold to JPM and GS, who then turn around and dump the gold into the market and invest the proceeds in Treasuries or other securities that yield a lot more than the cost of the gold lease (usually in the area 1/2% or less. www.kitco.com tracks lease rates.

    I've seen some alternative theories on why India bought the IMF gold, but none of them come even remotely close to what economicpolicyjournal guys is throwing out there. His theory doesn't make any sense. India bought the IMF gold because it allowed the country to buy a nice chunk of gold at the market price and unload U.S dollars.

    Back to the leasing thing. It is likely that most of the U.S. Govt's gold is leased out in a massively long term gold price suppression scheme. However, it is the bullion banks (GS, JPM, etc) who would be on the hook for retrieving leased out gold. Unless this the citizens of this country take over and threaten to burn down GS and JPM, my best guess is that those lease obligations will ultimately be settled in worthless FRNs.