FMSbonds, Inc.’s Municipal Bond Forum is an exclusive opportunity for investors to submit questions and comments on the bond market or to respond to one of our articles.
To participate, just send us an e-mail. Be sure to include your name or initials and your state of residence. Posted e-mails may be edited for length and clarity. If you prefer a private response, please note that in your e-mail. Responses are provided by James A. Klotz, president and co-founder of FMSbonds, Inc., a municipal bond specialist for more than 35 years, and other members of the firm as noted.
Postings are listed by date. If you have any questions, please call us at 1-800-367-2663 or e-mail us.
I have recently inherited a large portfolio of municipal (mostly Texas) bonds and I have some questions, though they may seem elementary to you. Will the current administration change the federal tax structure so that it might affect the AMT? If so, how? Also, what book would you suggest I read in order to understand municipal bonds more completely? I am a retired secondary teacher (science and mathematics) and my current financial understanding is weak.
J.K.
I recently learned about some California munis that are represented as federally taxable, but AMT exempt. Is this combination possible?
M.H., California
I was recently laid off from Anheuser-Busch InBev after 27 years and now find myself trying to figure out what type of investment to roll my 401k into. My financial adviser recommends taxable municipal bonds as a long-term investment. That said, our friends and family think they are too risky and can’t believe we would consider this type of investment. Can you shed any light on this subject?
M.K.
My compliments on your excellent article, “Avoid Headline Hysteria.” I would add one supporting observation: An advisor with a nationally syndicated radio show, whom I otherwise respect, repeatedly advises his radio listeners to avoid long-term municipal bonds because their market value will decline when interest rates rise. At the same time, in the same broadcast, he will tout lifetime fixed annuities from insurance companies as a sound part of some retirement income strategies. Am I missing something here? A long-term muni bond fills the same place in the retirement portfolio as a fixed annuity, can be 100% tax free and can be sold if emergency lump-sum cash is needed or if the owner dies and leaves the bond to his heirs. A fixed annuity is entirely illiquid and is only partially tax-free. There are a menagerie of provisions for heirs, but they all reduce the return to annuitant. And those fixed annuity payments are no less vulnerable to inflation than are the bond coupon payments. AAA-rated long-term munis are available with better than 5% tax-free returns. It’s hard to find a fixed annuity that does as well, and none of them offer the full return of principal at maturity that the bond does. Do I have all this right? I can’t see any case where one would prefer a lifetime fixed annuity to a long-term muni bond.
D.L., Arizona
I have been reading your articles for the last two years and I enjoy the practical, no B.S. information you provide. I have an account with your company and Patrick Gonzalez does a fine job.
B.A., Indiana
I read an article more than a week ago in The Bond Buyer about plans by the IRS to audit many Build America Bond issues and the government’s push for issuers to track primary-market trading and pricing. Could this affect the bonds I bought in the secondary market?
E.L., Florida
We live in the Villages, Florida. Villages bonds have been issued as municipal and are now being questioned as to the legality of their municipal status. If these bonds are determined not to fit the requirements for municipal bonds, what will be the consequences for the bondholders?
G.M., Florida
I sold $1.2 million in various AAA munis in the last four months. I bought at the bottom and my capital gains equaled three to four years of interest. I had to take it before taxes rise; now I’m waiting to get back in. I’m less than thrilled with picks from my bank/brokerage and their lack of knowledge. They put me in high risk bonds without telling me. Is there a fee to open an account with you? Can I trade munis? Are you an order taker, or do you give advice? I am 46, and have never been more fearful about all markets.
B.A.
I’m not sure if you’ve specifically addressed this already, but I am interested in knowing which muni-bond categories are the safest. A recent article in Smart Money suggests General Obligation bonds are the safest, but then goes on to say “bonds backed by water or sewer fees” (revenue bonds) “are usually safe.” I’d like to know which categories to avoid.
S.D., Connecticut
I just read an article about how employees from the leading credit rating agencies knew about the dangers in subprime mortgages but gave them the seal of approval anyway. I find this distressing. They rate the bonds, and if they can’t be trusted, what good are their ratings?
D.W Phd., California
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