Tuesday, October 14th, 2008...1:05 am
Muni Money vs. (NZD, NZ$ or Kiwi)
Chuck (not real name) is a muni guy. He does something attorneyish with municipal bonds. He is so tight-lipped about what he does, most members of his high school graduating class think that he deals in bail bonds. The nearest he’s been to something like that was his involvement in a jail bond for a city (wouldn’t tell me the name of the state or the city).
While discussing economic conditions with him over the phone this evening, I mentioned that equities were out-migrating from the U.S. markets. Then I asked if he had noted anything similar in the muni markets. He patiently explained that tax benefits were the primary motivations for owning municipal bonds and asked me why I thought munis would be attractive to international investors. The first thing that came to mind was infrastructure security.
Here are some thoughts I’ve had since:
From a top-down analysis,
a) the U.S. has comparatively low political risk
b) States with the most corporate-friendly taxes have the strongest tax base
c) Municipalities within the above will have the lowest default risk
If I had to choose between a bet on the Kiwi (pays 8.25% but has fallen 20% in value during the past four quarters) and a municipal bond with a commodity-driven economy that pays 4%-6% (but has low liquidity), I’m sure I’d think long and hard about the choices.
What would be ideal, would be to fund a new municipality that has all of the natural resources for a self-sufficient population. A place that deploys the new micro-industrial revolution growth model. An economy within an economy which is independent yet contributes to the stability of the state and nation. I think I know where to find something like that…
