[quote=livinincali][quote=henrysd]I have owned Vanguard long term CA muni bond fund since 2009. The fund is so called long term, but it is actually in high spectrum of intermediate term bond fund as the average duration is only 6.4 years. There were many good times to buy it like any time from 2009-2012. The best time was when “star analyst” Whitney called for massive default in muni bond which never happened. True star manager like Bill Gross added massive position in muni bond after Whitney made the call which causeed big selloff in muni bond. My entry point was about 4% YTM and with the yield down to 1.8% now, there is significant risk of losing value when interest goes up. I personally feel it is too late to jump into the boat. Be careful when tempted to the 1.8% yield using bank saving rate as reference.
I am still holding the position, and if Fed raise fed fund rate to 1% (likely in 3 baby steps), I’ll dump the fund and change position to CA muni money fund.[/quote]
The math says that eventually some muni bonds will be defaulted on. The problem is when and where. That’s what Whitney got wrong, the timing. It’s obvious that at some point Chicago is going to default on their muni bonds. They are currently paying the bond holders and defaulting on their contractors. CA sort of did the same thing with IOUs in the depths of the recession. You do have somewhat of a cushion because cities seems to value paying the bond holders before some of their other bills.[/quote]
[quote=mercatus.org]
A new study for the Mercatus Center at George Mason University ranks each US state’s financial health based on short- and long-term debt and other key fiscal obligations, such as unfunded pensions and healthcare benefits.
#44 California
#45 Hawaii
#46 Kentucky
#47 Illinois
#48 New Jersey
#49 Massachusetts
#50 Connecticut
#51 Puerto Rico
[quote=flu]
Also, I think you’re glossing over all types of CA muni bonds…..There’s many different ones, and unlikely all will be defaulting all at the same time….
[/quote]
i’ll admit i’ve got ZERO formal education in economics or finance, and because of that fact instead have to rely on common sense (AND knowledge of math) to try and make sense of the complex economic forces that produced the bubble(s) w/ internet stocks and “housing”
perhaps not having formal education in economics or finance may actually be an advantage because conventional wisdom missed all the various warnings of “crazy shit” that went down before the crash!
WRT the housing bubble, in the opening scenes of the movie “the big short” the point was made that at the time people always pay mortgages… so it made sense when Lewis Ranieri of Salomon Brothers began packaging mortgage loans into mortgage-backed securities, BUT as we know these BONDS “mutated into a monstrosity that collapsed the world’s economy”
no doubt you’ve heard the expression “a rising tide lifts all boats” when describing the economy,… well my reading of the tea leaves and using common sense math, tells me the public pension system is unsustainable and eventually will result in something akin to a receding tide in the muni bond market
using a building analogy, imagine a crap building foundation onto which a big ass sky scraper is built with fancy inlaid wood floored work spaces and marble floored bathrooms w/ gold plated bathroom fixtures, etc.
what I’m trying to point out is as long as the structure (i.e. system supporting the “muni bond”) isn’t too stressed, its possible for the structure to remain standing, but if a structure becomes too top heavy for a weak foundation, the whole thing comes crashing down!
so looking at a “real world” example, we see some parts of the local government are diligently building infrastructure to deal with the problem(s) associated w/ the drought, (like investing 3+ billion for a DeSal plant, building more space for water storage, etc.)
BUT there is also a reported 2+ billion unfunded public pension debt, which is the akin to a “crap” economic foundation onto which a “solid” water infrastructure is built!
[quote=damfailures.org] Case Study: St. Francis Dam (California, 1928)
…Multiple instances of poor judgment by Mulholland and several of his subordinates significantly contributed to the cause of the failure of St. Francis Dam.
I don’t have any muni bond funds w/ in my own portfolio, but given the fractal nature (i.e. patterns repeat at ALL levels) of things like, governments fiscal/political corruption/(mis)management
(here at the local level for example…)
[quote=kpbs.org] City’s Development System A Major Fraud Risk, Says Auditor
[quote=nbcsandiego.com] Lawsuit Opposes Destruction of Old San Diego City Hall Emails
On Feb. 27, 2014, interim Mayor Todd Gloria announced the adoption of a policy, known as “AR 90.67,” that would authorize the destruction of city emails that are more than one year old…
“Had someone not leaked the interim mayor’s announcement to the press, the public would not have found out about AR 90.67 until long after the email communications had been destroyed,”
[quote=sandiegouniontribune.com] Azano’s son charged in campaign donations case
SAN DIEGO — The prosecution of Mexican businessman José Susumo Azano Matsura, accused of orchestrating illegal donations to the campaigns of San Diego politicians, has widened to include his son.
and god only know what other “political” horse$hit is out there
so given the uncertainty I’d think it prudent to investigate “investment yield alternatives” along with a hedge strategy against the risk of systemic economic failure (i.e. TSHTF) before “investing” in CA muni bonds,… because a voice (seemly everywhere) that tells me…
