Municipal Bond Forum
Mom can relax
Q
My 88-year-old mother has more than 90% of her assets in muni bonds of various states. The issues are laddered over the next 17 years and all are investment grade, with most rated “A” or higher. They are revenue (mostly) and General Obligation (GO) bonds. Mom is very worried over reports flooding the media quoting Meredith Whitney and her predictions on muni defaults. Her portfolio of munis is seven figures and provides for most of her annual expenses. I manage mom’s portfolio and want to do the right thing for her. What should I do?
A
James A. Klotz responds:
As we have stated on numerous occasions, the alarming, unsubstantiated statements by Meredith Whitney and other pundits are dramatically overstated.
Interestingly enough, on Jan. 12 on CNBC, Ms. Whitney was quoted as saying investors can still make money in munis, but need to be very careful about how they proceed. “You have to know what you own,” she said. “There are great municipal investments out there, but on a blanket basis you have to be really careful about knowing what cash flows are supporting your investments.”
Based on your description of your mother’s portfolio — “A” rated or higher, revenue and GO bonds” — we would guess she need not be overly concerned. Naturally, we cannot provide specific recommendations without a more detailed description of her securities. If you would like, we would be pleased to give our opinion on any of her specific holdings.
Tell mom that the vast majority of investment-grade bonds (“Baa” or better) are supported by specific revenue streams, and in the case of general obligations, are senior to almost all other municipal expenses, including wages and pension payments.
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