Capital--will go where it's wanted.

"Capital, both money and ideas, will go where it is wanted and stay where it is well treated."--Walter Wriston

Walter Wriston was the last great CEO of Citibank, where he served from 1967-1984, he understood capital. I've always thought that this business of money management was really rather simple. Sure we try and make it seem very complex and mysterious at times, but the simple fact is that if you follow the money you will probably be successful. Follow the capital and the talent and you will be able to predict the fortunes of companies, cities, states, and countries.
Just ask this simple question, do organizations attract money and talent, or do they repel them?
Why do our brightest want to work for Google or Apple, and not Xerox or Kodak?
In the early days of America we attracted talent from all over the globe. Why? Because we gave them freedom to pursue their dreams, we treated them fairly and we welcomed all kinds. Today we still attract the worlds brightest to our university's but then we turn them away after graduation.
Luckily in the 1930's the Nazi's initially rejected nuclear physics as "Jewish science".
Is our country striving to attract capital, or are our tax policies driving more and more of it to friendlier foreign shores?
Is your local community attracting new businesses or driving them away?
Is the firm you work for attracting the best and brightest?
Keep things simple; when you vote, vote for capital friendly politicians. And when you invest, invest where the capital is being welcomed and well treated.

Dark Vision for Muni Bond Holders

Sometimes I feel like all I do is find reasons to worry, (it's not usually that tough to do), and as I'm often reminded, "that's what I'm paid to do." Anyway, the following article is an excellent piece on the totally dire outlook for many municipalities. With shrinking revenue streams, and ballooning expenditures, we are in for a rather stressful period as bond holders of Municipal debt. I know it caused me to take a harder look at my personal holdings and start to think about potential exit strategies if the proverbial (you-know-what) hits the fan.
Read it and think.


Dark Vision
The Coming Collapse of the Municipal Bond Market
PDF  

By Frederick J. Sheehan

Municipal bondholder can weave a case supporting a personal municipal portfolio or municipal bond fund today. At what gain? At what risk?

The gains are well known. Municipal bonds pay a steady, known income. It is known because municipal bonds are presumed never to default. Municipal bonds pay out yields that may exceed the inflation rate.  Even if the yield is short of inflation, it is better than 1-2%, about what one can expect to receive on the most popular safe, fixed-income investment: a money-market fund. There is very little gain by an income-conscious bondholder: Betting against the odds and being right does not pay.

The central risk is the assumption of safety. Top rated municipal bonds offer little chance for a capital gain. (The most plausible possibility for gains today is if taxes are raised. The value of a tax-exempt security would rise.) Therefore, the best case is no negative developments.  If municipal bonds default, stop paying coupon obligations or simply delay payments, the premises upon which they are owned are shattered.

Today, the balance between gain and risk is tilted towards risk. The probabilities weigh against the bondholder. Municipal bondholders should satisfy themselves with answers to the following questions:

Will revenues - assessed house values, incomes, personal spending (sales tax) - recover quickly to previous levels?

Will municipalities refuse to pay for federally mandated programs? (There is hope here. Several towns in California have announced they will stop funding federal mandates.)

Will police, teachers, etc., accept lower retirement benefits without going to court?

Will courts force municipalities to "levy taxes sufficient to pay debt." 

For a municipality that has no other means to acquire revenue, will the federal government offer a blank check?

If the federal government lends money, will bondholders be paid in full?

Gloom, Boom, and Doom

I've been a long time subscriber and fan of Marc Faber's "Gloom, Boom, and Doom Report", and while I don't always believe in what he has to say he usually makes you think and he is often right. Please check out the following video interview.

Marc Faber is gloomy

Back to Work...Back to Play

Welcome to my first blog. Over the years I've probably written over a hundred newsletters, shareholder letters and other missives, but never a blog. I'm really looking forward to sharing my views on the markets, investing, and just about anything else that trips my trigger. And I'm really looking forward to the interactive nature of blogging, and the freedom to share my thoughts without big brothers censorship.
Hopefully you'll enjoy it as much as me.