Harrisburg, Pennsylvania, is defaulting; Half Moon Bay, California, is disincorporating; and the City of Miami, Florida, declared a “state of fiscal urgency,” then broke contracts with workers. Yet, Pennsylvania, California, and Florida municipal bond funds managed by Blackrock are trading at or near 52-week highs.
Short sales look timely. Still, there are advantages to a buy side study. First, when the time comes, the opportunities will be broader. Second, the decision to buy will be more a case of negation than attraction. Ruling out unsavory bonds when selecting what to buy will often replicate the process of choosing what to short.
Looking through the wreckage of the 1930s and of the 1970s, there was probably more money lost by premature investments than made by those who waited. This was on the short and long side. New York City is a case in point. Its bust in the 1970s was expected. The stock market had tumbled, a commercial real estate binge of unparalleled excess had desecrated the skyline (new commercial space constructed between 1968 and 1970 exceeded 100% of the city’s commercial building between the World Wars), and – this is as predictable as night following day – from 1968 to 1970, 18 of the largest U.S. corporations left the city and 14 more announced their departure. These included American Can, PepsiCo, General Foods, U.S Tobacco and Shell Oil. Over 1.1 million New Yorkers emigrated from the city in the early and mid-1970s.
In other words, it was so obvious that New York City could not pay its bills that it was too obvious. Anecdotally, there were more investors who shorted New York City too early than those who waited and made money.
By the mid-1970s all New York City bonds were trading for approximately $25 ($100 being par). This was 1933 again, when all City of Miami bonds (yields ranged from 4-3/4% to 5-1/2%, maturities from 1935 to 1955) were quoted at $26. In both cases, the market sulked; yet, in both cases, there were bargains for those who were willing to read legal documents. One such case will be discussed below.
All finance is a reenactment. In his seminal study, Municipal Bonds: A Century of Experience (1936), A. M. Hillhouse wrote: “The major portion of over-bonding by municipalities arises out of real estate booms.” As precedent, Hillhouse quoted H. C. Adams, who wrote in 1890 (Public Debts): “he bonding of a town, and the expenditure of the money procured in showy works, is the occasion of gain to those who speculate in real estate….” Hillhouse, having quoted Adams’ observations of a previous property-boom, municipal-bond bust, should have known better than to write: “There will be no justification for a city [in the future to use] the excuse… that its tax revenues have dried up in times of falling property values.” So, if you miss this one, your children will have the same opportunity.
As for the current wasteland, revenue bonds are a choicer flock to choose from than general obligation bonds. The following distinction between the two is extracted from my seminal study (The Coming Collapse of the Municipal Bond Market ): “Revenue bonds are repaid using the revenue generated by the specific project the bonds are issued to fund (fees from a public parking garage, for example).” General obligation bonds are thought to be safer, at least they are advertised as such, because “they are backed by the full faith and credit of the issuing municipality. This means that the municipality commits its full resources to paying bondholders, including general taxation and the ability to raise more funds through credit. The ability to back up bond payments with tax funds is what makes general obligation bonds distinct from revenue bonds.”
However, it is not possible to draw blood from a stone and we will soon see municipalities that can not meet their bond commitments unless they discover an oil field larger than BP’s folly. Half Moon Bay, California, may already meet this ignoble state. From recent reports, the budget and books are so unintelligible that the city is disincorporating and may become an appendage to San Mateo County. Half Moon Bay’s bonds and yawning deficit will presumably be the burden of San Mateo County.
As a side note, the depth of incompetence on display in this instance would not be tolerated in a grammar school Citizenship Day. Given the state of the country, there will be even more amazing feats of fiscal suicide. Another participant is Standard & Poor’s, which stamped a AA- rating on $18 million of Half Moon Bay debt issued in 2009. Bondholders note: do not expect logic to guide negotiated workouts.
As for the bondholder, there are several difficulties here. Disincorporation has few if any legal precedents in California. (“It’s an option that hasn’t been tried in the state since 1972, when the tiny city of Cabazon (about 2,000 people) disincorporated.” – San Mateo County Times, August 27, 2010) The Cabazon precedent is not one to take on faith. Half Moon Bay and San Mateo County may have competing interests. A judge may have different ideas yet about how Half Moon Bay should resolve an $18 million lawsuit that the city lost related to development rights on a 24-acre property.
Just where do present circumstances leave the debt holder? That is, the owners of Half Moon Bay’s $18 million issue of Judgment Obligation bonds. And what of the free-for-all that follows? Propzero.com, jumping into the Half Moon Bay debate, suggests that disincorporation “may be the answer for many California cities struggling with too many spending commitments and not enough money. Digging out of budget holes may be harder than simply shutting things down.”
As goes Half Moon Bay, so goes the country, or so it seems. If San Mateo County is stuck with the Judgment Obligation bonds, and a large annual deficit, it is a sure bet the county will appeal to the state; Governor Schwarznegger will appeal to President Obama; and the president will appeal – to Congress?
It was easier to bottom fish among CDOs that were trading at $15 (as a group) in 2008 than to wager on these contingencies. Revenue bonds are comparatively easy to understand. In a large-scale, municipal-bond swoon, revenue bonds will sell off. That will be true even if these are water bonds, supported by the revenue that customers pay for services; even if these revenues cannot be touched by the grasping Yoga Instructors’ Union. (Half Moon Bay residents are distraught at the loss of municipal yoga instruction – San Mateo County Times.)
We return to New York City to note the lack of perceptiveness in a time of chaos. In April 1975, the city defaulted on a short-term note. It missed an interest payment (maybe more than one, it isn’t clear). The coupon was eventually paid, but the “New York City default” was highly publicized.
The Municipal Assistance Corporation (MAC) was formed. In The Bond Book, Annette Thau explained that MAC bonds were not obligations of New York City: “The revenues to pay debt service were backed, not by the taxing power of the city, but by the state of New York, and by a special lien on the city’s sales tax and… on a stock transfer tax.” These were revenue bonds that initially yielded “10% as compared to 8% for securities with comparable rating and maturity.”
Thau went on to tell her readers that the winning team does its homework: “This episode demonstrates why it pays, literally, to be very precise about exactly which revenue streams back debt service. In this instance, MAC bonds were tarred by the woes of the city, even though they were not obligations of the city….”
Revenues used to pay MAC bondholders could not flow to the city until the coupons were already met. This is true of services in different municipalities today. Utilities often fall in this category. Advanced critical reading skills are a prerequisite to distinguish a $25 from a $75 bond.
What of critical services in municipalities without predictable sources of revenue? In July, Indianapolis, Indiana, decided to sell its water and sewer utilities. In August, San Jose, California, discussed privatizing its water utility. There are many other such discussions. The media reported both the Indianapolis and San Jose decisions as sales. From precedent, the transactions may be more complicated than that.
It would be unusual for a local government to relinquish all control. There are many different possible arrangements with investors. At one end, there have been attempts to issue corporate stock in the municipality. This was proposed in Coral Gables, Florida, during the 1930s. It did not work but investment bankers are more inventive today. (Or, maybe not. Assets to be pledged by Coral Gables included “the municipal golf course and club house, the Venetian pool, the Coliseum….” Maybe not the one in Rome, but investment bankers are inventive.)
Probably the most likely arrangements are Public-Private Partnerships. In such partnerships, the investor, a “concessionaire,” steps in after bonds stand no chance of repayment. These might be for a vital service such as a water system, airport, or toll road. Concessionaires pay off all or a portion of the debt in exchange for the right to operate the asset for a negotiated return. Internal rates of return generally fall between 13% – 20%. This is a very simplified description.
There are many other investment approaches that haven’t been mentioned. Those mentioned are merely outlined. If it is not obvious, it must be emphasized how preliminary this discussion has been before making an investment. The most important advice here, on the short or long side, is to be patient, to understand the documents of the security, the laws and covenants that bind related parties, and to know the history of municipal bond defaults. This will open the investor’s imagination to the most improbable scenarios.
I feel we need to support films that send powerful messages to kids about courage, values, and being true to yourself.
If we don't get behind them and support them Hollywood won't make them.
Last summer I had the incredible opportunity to be a part of Rob Reiner's new film, Flipped. It's a story about two 13-year-olds in the early 1960s -- Bryce and Juli -- who live across the street from each other and how they find themselves and each other through the trials of love and friendship.
The story "flips" between the viewpoints of these young characters and, as they grow, their perceptions of each other "flip" as well.
I play Juli's mom in the film, alongside a fantastic ensemble of actors: Madeleine Carol & Callan McAuliffe (the kids), Aidan Quinn, John Mahoney, Rebecca De Mornay, and Anthony Edwards.
Flipped is not just about first love, but about how a young girl teaches a young boy about what's important in life. It's a movie about courage, character, and standing up for what you believe in.
Juli comes from a warm, tight-knit family that's low on money but rich on love while Bryce's family is wealthy but repressed. Bryce learns over time from Juli that life is not about where you come from but what you do and the choices that you make define who you are. Bryce really starts to grow into a young man of character because of Juli and her family.
Based on the beautiful novel of the same title by Wendelin Van Draanen, the film stays true to the story, humor, morals, and life lessons that made the book such a huge hit with adolescents. While the book takes place in present day, Rob chose to set the movie in the early 60's to capture that pre-Vietnam, pre-Twitter/Facebook time of innocence. It makes the film a very nostalgic experience for those who grew up in that period, as Rob did, remembering your first love and how it changed your life. It's also relatable to kids today who are experiencing that now.
Flipped was a real passion project for Rob and he was the perfect man to bring this story to the screen. He tells stories about human beings. You won't find explosions, aliens, or vampires in this movie.
From my experience working with him and counting him as a friend, Rob is a man that really appreciates and respects women and values the immense impact they have on men's lives.
I wanted to reach out through HuffPost's amazing network to all the mothers and grandmothers who want to take their children and grandchildren to see a movie this summer with a message that will surely inspire.
And if you love it, tweet about it!
Flipped is playing now in Los Angeles, Austin and Sacramento. On August 27th it will open in New York, Chicago, Boston, Toronto, and San Francisco. And then, hopefully, in theaters across the country.
This post originally appeared at The Women's Conference.
Panasonic Lumix DMC-GH2 announced and previewed: Digital <b>...</b>
Panasonic Lumix DMC-GH2 announced and previewed: Photokina 2010: Panasonic has announced the DMC-GH2 Micro Four Thirds camera. The successor to the GH1 continues with its 'hybrid' stills/video philosophy but adds a host of tweaks and ...
BillBoard - Blogs - The Buffalo <b>News</b>
The Buffalo News updated every day with news from Buffalo, New York. Links to national and business news, entertainment listings, recipes, sports teams, classified ads, death notices.
Newsy: The Story Behind its Innovative <b>News</b> App
Today we're starting a new interview series on ReadWriteWeb, focused on product innovation on the Web. I'll be interviewing a number of startup founders over the coming weeks, ...
robert shumake
Panasonic Lumix DMC-GH2 announced and previewed: Digital <b>...</b>
Panasonic Lumix DMC-GH2 announced and previewed: Photokina 2010: Panasonic has announced the DMC-GH2 Micro Four Thirds camera. The successor to the GH1 continues with its 'hybrid' stills/video philosophy but adds a host of tweaks and ...
BillBoard - Blogs - The Buffalo <b>News</b>
The Buffalo News updated every day with news from Buffalo, New York. Links to national and business news, entertainment listings, recipes, sports teams, classified ads, death notices.
Newsy: The Story Behind its Innovative <b>News</b> App
Today we're starting a new interview series on ReadWriteWeb, focused on product innovation on the Web. I'll be interviewing a number of startup founders over the coming weeks, ...
Harrisburg, Pennsylvania, is defaulting; Half Moon Bay, California, is disincorporating; and the City of Miami, Florida, declared a “state of fiscal urgency,” then broke contracts with workers. Yet, Pennsylvania, California, and Florida municipal bond funds managed by Blackrock are trading at or near 52-week highs.
Short sales look timely. Still, there are advantages to a buy side study. First, when the time comes, the opportunities will be broader. Second, the decision to buy will be more a case of negation than attraction. Ruling out unsavory bonds when selecting what to buy will often replicate the process of choosing what to short.
Looking through the wreckage of the 1930s and of the 1970s, there was probably more money lost by premature investments than made by those who waited. This was on the short and long side. New York City is a case in point. Its bust in the 1970s was expected. The stock market had tumbled, a commercial real estate binge of unparalleled excess had desecrated the skyline (new commercial space constructed between 1968 and 1970 exceeded 100% of the city’s commercial building between the World Wars), and – this is as predictable as night following day – from 1968 to 1970, 18 of the largest U.S. corporations left the city and 14 more announced their departure. These included American Can, PepsiCo, General Foods, U.S Tobacco and Shell Oil. Over 1.1 million New Yorkers emigrated from the city in the early and mid-1970s.
In other words, it was so obvious that New York City could not pay its bills that it was too obvious. Anecdotally, there were more investors who shorted New York City too early than those who waited and made money.
By the mid-1970s all New York City bonds were trading for approximately $25 ($100 being par). This was 1933 again, when all City of Miami bonds (yields ranged from 4-3/4% to 5-1/2%, maturities from 1935 to 1955) were quoted at $26. In both cases, the market sulked; yet, in both cases, there were bargains for those who were willing to read legal documents. One such case will be discussed below.
All finance is a reenactment. In his seminal study, Municipal Bonds: A Century of Experience (1936), A. M. Hillhouse wrote: “The major portion of over-bonding by municipalities arises out of real estate booms.” As precedent, Hillhouse quoted H. C. Adams, who wrote in 1890 (Public Debts): “he bonding of a town, and the expenditure of the money procured in showy works, is the occasion of gain to those who speculate in real estate….” Hillhouse, having quoted Adams’ observations of a previous property-boom, municipal-bond bust, should have known better than to write: “There will be no justification for a city [in the future to use] the excuse… that its tax revenues have dried up in times of falling property values.” So, if you miss this one, your children will have the same opportunity.
As for the current wasteland, revenue bonds are a choicer flock to choose from than general obligation bonds. The following distinction between the two is extracted from my seminal study (The Coming Collapse of the Municipal Bond Market ): “Revenue bonds are repaid using the revenue generated by the specific project the bonds are issued to fund (fees from a public parking garage, for example).” General obligation bonds are thought to be safer, at least they are advertised as such, because “they are backed by the full faith and credit of the issuing municipality. This means that the municipality commits its full resources to paying bondholders, including general taxation and the ability to raise more funds through credit. The ability to back up bond payments with tax funds is what makes general obligation bonds distinct from revenue bonds.”
However, it is not possible to draw blood from a stone and we will soon see municipalities that can not meet their bond commitments unless they discover an oil field larger than BP’s folly. Half Moon Bay, California, may already meet this ignoble state. From recent reports, the budget and books are so unintelligible that the city is disincorporating and may become an appendage to San Mateo County. Half Moon Bay’s bonds and yawning deficit will presumably be the burden of San Mateo County.
As a side note, the depth of incompetence on display in this instance would not be tolerated in a grammar school Citizenship Day. Given the state of the country, there will be even more amazing feats of fiscal suicide. Another participant is Standard & Poor’s, which stamped a AA- rating on $18 million of Half Moon Bay debt issued in 2009. Bondholders note: do not expect logic to guide negotiated workouts.
As for the bondholder, there are several difficulties here. Disincorporation has few if any legal precedents in California. (“It’s an option that hasn’t been tried in the state since 1972, when the tiny city of Cabazon (about 2,000 people) disincorporated.” – San Mateo County Times, August 27, 2010) The Cabazon precedent is not one to take on faith. Half Moon Bay and San Mateo County may have competing interests. A judge may have different ideas yet about how Half Moon Bay should resolve an $18 million lawsuit that the city lost related to development rights on a 24-acre property.
Just where do present circumstances leave the debt holder? That is, the owners of Half Moon Bay’s $18 million issue of Judgment Obligation bonds. And what of the free-for-all that follows? Propzero.com, jumping into the Half Moon Bay debate, suggests that disincorporation “may be the answer for many California cities struggling with too many spending commitments and not enough money. Digging out of budget holes may be harder than simply shutting things down.”
As goes Half Moon Bay, so goes the country, or so it seems. If San Mateo County is stuck with the Judgment Obligation bonds, and a large annual deficit, it is a sure bet the county will appeal to the state; Governor Schwarznegger will appeal to President Obama; and the president will appeal – to Congress?
It was easier to bottom fish among CDOs that were trading at $15 (as a group) in 2008 than to wager on these contingencies. Revenue bonds are comparatively easy to understand. In a large-scale, municipal-bond swoon, revenue bonds will sell off. That will be true even if these are water bonds, supported by the revenue that customers pay for services; even if these revenues cannot be touched by the grasping Yoga Instructors’ Union. (Half Moon Bay residents are distraught at the loss of municipal yoga instruction – San Mateo County Times.)
We return to New York City to note the lack of perceptiveness in a time of chaos. In April 1975, the city defaulted on a short-term note. It missed an interest payment (maybe more than one, it isn’t clear). The coupon was eventually paid, but the “New York City default” was highly publicized.
The Municipal Assistance Corporation (MAC) was formed. In The Bond Book, Annette Thau explained that MAC bonds were not obligations of New York City: “The revenues to pay debt service were backed, not by the taxing power of the city, but by the state of New York, and by a special lien on the city’s sales tax and… on a stock transfer tax.” These were revenue bonds that initially yielded “10% as compared to 8% for securities with comparable rating and maturity.”
Thau went on to tell her readers that the winning team does its homework: “This episode demonstrates why it pays, literally, to be very precise about exactly which revenue streams back debt service. In this instance, MAC bonds were tarred by the woes of the city, even though they were not obligations of the city….”
Revenues used to pay MAC bondholders could not flow to the city until the coupons were already met. This is true of services in different municipalities today. Utilities often fall in this category. Advanced critical reading skills are a prerequisite to distinguish a $25 from a $75 bond.
What of critical services in municipalities without predictable sources of revenue? In July, Indianapolis, Indiana, decided to sell its water and sewer utilities. In August, San Jose, California, discussed privatizing its water utility. There are many other such discussions. The media reported both the Indianapolis and San Jose decisions as sales. From precedent, the transactions may be more complicated than that.
It would be unusual for a local government to relinquish all control. There are many different possible arrangements with investors. At one end, there have been attempts to issue corporate stock in the municipality. This was proposed in Coral Gables, Florida, during the 1930s. It did not work but investment bankers are more inventive today. (Or, maybe not. Assets to be pledged by Coral Gables included “the municipal golf course and club house, the Venetian pool, the Coliseum….” Maybe not the one in Rome, but investment bankers are inventive.)
Probably the most likely arrangements are Public-Private Partnerships. In such partnerships, the investor, a “concessionaire,” steps in after bonds stand no chance of repayment. These might be for a vital service such as a water system, airport, or toll road. Concessionaires pay off all or a portion of the debt in exchange for the right to operate the asset for a negotiated return. Internal rates of return generally fall between 13% – 20%. This is a very simplified description.
There are many other investment approaches that haven’t been mentioned. Those mentioned are merely outlined. If it is not obvious, it must be emphasized how preliminary this discussion has been before making an investment. The most important advice here, on the short or long side, is to be patient, to understand the documents of the security, the laws and covenants that bind related parties, and to know the history of municipal bond defaults. This will open the investor’s imagination to the most improbable scenarios.
I feel we need to support films that send powerful messages to kids about courage, values, and being true to yourself.
If we don't get behind them and support them Hollywood won't make them.
Last summer I had the incredible opportunity to be a part of Rob Reiner's new film, Flipped. It's a story about two 13-year-olds in the early 1960s -- Bryce and Juli -- who live across the street from each other and how they find themselves and each other through the trials of love and friendship.
The story "flips" between the viewpoints of these young characters and, as they grow, their perceptions of each other "flip" as well.
I play Juli's mom in the film, alongside a fantastic ensemble of actors: Madeleine Carol & Callan McAuliffe (the kids), Aidan Quinn, John Mahoney, Rebecca De Mornay, and Anthony Edwards.
Flipped is not just about first love, but about how a young girl teaches a young boy about what's important in life. It's a movie about courage, character, and standing up for what you believe in.
Juli comes from a warm, tight-knit family that's low on money but rich on love while Bryce's family is wealthy but repressed. Bryce learns over time from Juli that life is not about where you come from but what you do and the choices that you make define who you are. Bryce really starts to grow into a young man of character because of Juli and her family.
Based on the beautiful novel of the same title by Wendelin Van Draanen, the film stays true to the story, humor, morals, and life lessons that made the book such a huge hit with adolescents. While the book takes place in present day, Rob chose to set the movie in the early 60's to capture that pre-Vietnam, pre-Twitter/Facebook time of innocence. It makes the film a very nostalgic experience for those who grew up in that period, as Rob did, remembering your first love and how it changed your life. It's also relatable to kids today who are experiencing that now.
Flipped was a real passion project for Rob and he was the perfect man to bring this story to the screen. He tells stories about human beings. You won't find explosions, aliens, or vampires in this movie.
From my experience working with him and counting him as a friend, Rob is a man that really appreciates and respects women and values the immense impact they have on men's lives.
I wanted to reach out through HuffPost's amazing network to all the mothers and grandmothers who want to take their children and grandchildren to see a movie this summer with a message that will surely inspire.
And if you love it, tweet about it!
Flipped is playing now in Los Angeles, Austin and Sacramento. On August 27th it will open in New York, Chicago, Boston, Toronto, and San Francisco. And then, hopefully, in theaters across the country.
This post originally appeared at The Women's Conference.
robert shumake
Panasonic Lumix DMC-GH2 announced and previewed: Digital <b>...</b>
Panasonic Lumix DMC-GH2 announced and previewed: Photokina 2010: Panasonic has announced the DMC-GH2 Micro Four Thirds camera. The successor to the GH1 continues with its 'hybrid' stills/video philosophy but adds a host of tweaks and ...
BillBoard - Blogs - The Buffalo <b>News</b>
The Buffalo News updated every day with news from Buffalo, New York. Links to national and business news, entertainment listings, recipes, sports teams, classified ads, death notices.
Newsy: The Story Behind its Innovative <b>News</b> App
Today we're starting a new interview series on ReadWriteWeb, focused on product innovation on the Web. I'll be interviewing a number of startup founders over the coming weeks, ...
robert shumake
Panasonic Lumix DMC-GH2 announced and previewed: Digital <b>...</b>
Panasonic Lumix DMC-GH2 announced and previewed: Photokina 2010: Panasonic has announced the DMC-GH2 Micro Four Thirds camera. The successor to the GH1 continues with its 'hybrid' stills/video philosophy but adds a host of tweaks and ...
BillBoard - Blogs - The Buffalo <b>News</b>
The Buffalo News updated every day with news from Buffalo, New York. Links to national and business news, entertainment listings, recipes, sports teams, classified ads, death notices.
Newsy: The Story Behind its Innovative <b>News</b> App
Today we're starting a new interview series on ReadWriteWeb, focused on product innovation on the Web. I'll be interviewing a number of startup founders over the coming weeks, ...
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