Obamacare has been an economic and political nightmare.
It's inflicted enormous damage on the American economy and tens of millions of Americans whose medical care has been turned upside down in the name of providing another entitlement without asking anything in return of the recipients.
It's increased medical costs, deprived Americans of their chosen physicians and treatments, and contributed to a culture of dependency that has no place in a land of liberty.
Obamacare has been an economic and political nightmare.
It's inflicted enormous damage on the American economy and tens of millions of Americans whose medical care has been turned upside down in the name of providing another entitlement without asking anything in return of the recipients.
It's increased medical costs, deprived Americans of their chosen physicians and treatments, and contributed to a culture of dependency that has no place in a land of liberty.
And now, in 2016, it's about to gut municipal bonds.
Right now investors should be investing in mutual funds that provide stability - not ones that chase yield.
A case can be made for the Fed doves who want to see rates stay low for a while, or the Fed hawks who want rate hikes now.
The fallout from Detroit's bankruptcy filing has investors - and even ratings agencies - questioning the validity of the bond rating system.
Now investors need to know if it can be fixed in a way that actually helps those investing in general obligation (GO) bonds.
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Editor’s Note: Detroit is more than a sideshow. What’s at stake here is bigger than most investors realize. It could take a Supreme Court decision to determine the viability of many municipal bonds. Regardless of whether you’re a muni bond investor or not, what happens in Detroit will affect you. Shah Gilani has the whole story.
Detroit went bankrupt, but so what?
Its own decades-long gross political mismanagement, corruption and incompetence pushed the city over the cliff into bankruptcy.
Why should we care?
It could change the way investors look at muni bonds. And not for the better.
The largest Chapter 9 filing in U.S. history will reverberate well beyond this once-bustling city and its creditors.
What’s most threatening to muni bond investors, and in fact all investors, is whether the city’s general obligation bonds are secured or unsecured issues.
General obligation bonds, backed by a city’s ability to levy taxes to pay interest and principal, are thought to be the safest of all munis.
Detroit is putting this to the test. Read how this will affect all investors...
Now that Detroit is officially bankrupt, investors have one more reason to dump municipal bonds. Here’s why they should think twice before they do. Read more...
Everything runs on liquidity. Unless you know something I don't, that dollar bill in your pocket is just as likely to buy a can of Pabst Blue Ribbon today as it was yesterday, and will be tomorrow.
Or you could sell 1,000 lbs. of gold - if you have that lying around - without fear of completely scuttling the global gold market. Your bank has to have cash, liquidity, lying around somewhere in the back if it wants to stay in business.
And in many cases, it's easy to see or verify this liquidity. It helps everyone feel better about doing anything.
But there are markets where this liquidity is kept off the open exchanges, where it can be used to juice up huge deals. Or it can prevent these huge deals from having the impact that they "should" have, keeping the hands of large traders hidden.
These are the sinister-sounding dark pools of liquidity.
Dark liquidity is generated and stored in a variety of ways, most of which are possible due to the huge variety of trading venues, electronic and traditional.
With dark pools, neither the size of the order nor the entity making that order can be known until the order is completed. Rosenberg Securities Inc. estimates that fully 15% - trillions of dollars - of all trades occurring on American exchanges, every day, utilize dark pools.
And the markets, like nearly everything else, operate on the wide availability and transparency of good, reliable information. A poker game gets its lurid thrills from the partial presence of that information, or the possibility that the information could be faulty. You wouldn't want to play with all your cards face-up. You just don't know, and that's why it's fun to play poker.
But the markets, despite some inkling to the contrary, can't function with true optimum efficiency if good information isn't available to the widest possible group of participants.
It's not that a player has to have the information, but it should be available to the player if things are going to work the way they should. One is a vying, gambling game, and the other is a free market. We should be able to tell the difference.
And there are nowadays big incentives and compelling reasons for large traders, for high-frequency traders, to maintain this half-plentiful supply of good information. Why? It's simple. They're making a killing off of arbitraging market inefficiency.
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In 2010 Meredith Whitney made an earth shattering statement during a CBS's "60 Minutes" interview that rocked the municipal bond investment world.
"There is not a doubt in my mind that you will see a spate of municipal-bond defaults,"said Meredith Whitney on Dec 19. She continued, "You could see 50 sizable defaults, and 50 to 100 sizeable defaults, more. This will amount to hundreds of billions of dollars' worth of defaults."
The muni bond market fell far short of Whitney's prediction. But many today feel she was merely ahead of her time.
Recently Detroit has defaulted on its muni bonds leaving investors hoping to get 10% return on their original investment, but there are no guarantees.
As Detroit moves closer to bankruptcy California has 10 cities facing the same fate. The cities of Atwater, Azusa, Compton, Fresno, Hercules, Mammoth Lakes, Monrovia, Oakland, San Jose and Vernon are ready to file for bankruptcy following the now bankrupt Stockton's lead.
Money Morning's Shah Gilani recently talked to Whitney in an exclusive interview about her new book, The Fate Of The States:
The new Geography of American Prosperity
She believes that wealth and opportunity are moving away from the coasts and toward the central corridor. The states of California, Florida and Nevada benefited from the housing boom. However instead of budgeting wisely, local governments spent their windfall profits as fast as they came in on pay increases for public employees, pension increases and pay hikes.
When the housing boom ended, the money stream became just a trickle of new capital. The states were left with pensions they couldn't pay and employees they couldn't afford. They were forced to raise taxes for schools and essential public services.
In contrast a much different scenario was developing in the interior states: N. Dakota, Texas, Indiana. These states avoided the housing crisis. Because foreclosure was not a serious problem they found themselves rich in capital with money to offer tax incentives to companies to relocate and retrain new employees.
These central states are also positioned to reap the massive benefits of from the oil and natural gas boom.
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Given the unholy mess that is most local government finances, you would think municipal bond insurers are about to be washed away by a tsunami of defaults.
But legendary fund manager Bruce Berkowitz and other savvy investors have bet tens of millions of dollars that this view is wrong.
Companies that insure municipal bonds have been among the best-performing stocks so far this year and that outperformance seems likely to continue.
That's why Berkowitz has made a big bet on muni bond insurer MBIA Inc. (NYSE: MBI).
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If you're investing in bonds, Bill Gross just delivered you a serious warning.
Gross wrote in his February newsletter that the factors that contributed to last month's 1% loss for U.S. Treasuries - the biggest since March 2012 - aren't going away any time soon.
Total debt, which includes corporate, government and household, has expanded from $3 trillion in the 1970s to about $56 trillion today, explained Gross. He said that's left bond yields in the 1% - 2% range, instead of the historic level of 3% - 4%.
Gross said the staggering amount of debt in the United States has created a "credit supernova" that could crush the bond market as the global credit bubble "is running out of energy and time."
"Our credit-based financial markets and the economy it supports are levered, fragile and increasingly entropic," Gross wrote.
Gross warned that anyone investing in U.S. government bonds should evaluate their exposure.
And he isn't alone. Jim Rogers and Goldman Sachs have both been bearish on bonds.
"I'm short long-term government bonds," Rogers said Feb. 6 on Bloomberg Radio. "I plan to short more. That bull market, that's a bubble."
So what should bond investors who want yield do with their money?
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To understand the spiralling dangers muni-bond investors face, please read on...
