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FMSbonds, Inc.'s 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.
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I was reading your article, “Bernanke’s Message to Muni Investors” and the comment to “go long.” What exactly does that mean? I have Oregon munis.- C.M., Oregon
Some investors, to their detriment, attempt to predict the direction of interest rates and time their investment decisions accordingly. With the Fed’s announcement that interest rates would be kept extremely low through at least 2015, the guesswork for those trying to time the market has been effectively removed from the equation.
Trying to predict the market has been a futile and costly exercise, as evidenced by the disappointed investors who’ve parked funds in short-term money market instruments, waiting for interest rates to rise. Our philosophy has always been to “go long”; that is, buy long-term munis to maximize tax-free income. It’s worked for generations of investors who have profited handsomely while sleeping soundly at night. But for those holdouts still trying to read the market tea leaves, the Fed’s actions should, at least, release them from the burden of trying to be market prognosticators.
I read recently that both Gov. Romney and President Obama are trying to make tax-free muni interest taxable. I would assume that if it did happen, it would only affect new issues. Do you have anything you could tell me on the likelihood of this happening and if it would affect current issues?- W.A., California
Rather than eliminating tax exemption, President Obama's proposal would cap the value of the tax exemption at 28%. This was included in the administration's American Jobs Act, unveiled in September 2011.
We have not seen anything from the Romney camp endangering tax-free interest. Although Gov. Romney has discussed limiting tax deductions, municipal bonds are not considered tax deductions as they are purchased with after-tax dollars.
Regardless of who comes out on top on Election Day, any attempt to tamper with muni bond tax-exemption creates more problems than it cures. It would raise borrowing costs for already-strapped state and local governments, discourage capital investment and cost jobs. Ironically, public improvements would then require the federal government to subsidize municipalities, completely defeating what it is trying to accomplish.
I agree with your message in “Bernanke’s Message to Muni Investors.” I have ignored the "wait for better days" advice and bought munis on a regular basis for over 30 years. It's like having many small, clean oil wells in your backyard. Living and loving it!- R.D., Florida
Even better, your returns generated by munis have been tax free!
This report is produced solely for informational purposes and is not to be construed as a solicitation or an offer to buy or sell any securities or related financial instruments. This report is based on information obtained from sources believed to be reliable but no independent verification has been made, nor is its accuracy or completeness guaranteed.