Credit Writedowns - Latest Comments in The coming collapse of the municipal bond market

Re: The coming collapse of the municipal bond market

Anonymous — Thu, 05 Nov 2009 14:15:00 -0000

Ed,

I've seen this public pension collision coming for some time. Is there anything that the rest of us (who aren't planning on a fat public pension) can do to protect ourselves from being devoured buy it?

For example, any way to find out if any states have laws that enable state and local governments to change pension payouts to reflect realistic investment returns? The Legislature here in Washington State just chose to ignore the recent report from their analyst that they can't expect to get 8% on their capital, so I don't see good things on that front.

Got any ideas about

Re: The coming collapse of the municipal bond market

Edward Harrison — Thu, 05 Nov 2009 11:19:00 -0000

My general take here is not so much one of shorting an index (as I don't give specific investment advice) but of being aware of what you have in your portfolio.

For example, are the munis in your portfolio general revenue bonds or ones secured with income streams from specific projects? And what does that mean about likely cash flow in a period of distress?

As I see it, not all bonds are equal and that should lead to a relative value play if and when muni distress occurs.

Re: The coming collapse of the municipal bond market

Anonymous — Thu, 05 Nov 2009 10:58:00 -0000

Edward, do you have any ideas on how to capitalize on this theme by shorting a muni bond index, and what indexes would you focus on in this space? I read the report and thought it was pretty good. Thanks.