Municipal Bond Quotes

Restructuring of federal income tax rates can have significant impacts on municipal bond assets.

At Mayflower-Plymouth, we treat municipal bond holding as both a path to profit and an investment into social progress.

From a municipal bond perspective, linear economies are less investable.

At Mayflower-Plymouth, we exist to help municipalities and their partners steward capital.

One of the major priorities for a municipality should be to cultivate the conditions for a thriving business community.

Every municipality in the world is ground zero for civilization-scale capital stewardship.

Municipalities should be prioritizing data in the same way that businesses are prioritizing data.

It’s very important that municipalities employ effective communication. Citizens deserve to be informed of the ROI they’re getting for their tax dollars.

An economy should be regenerative by design. That's what a permaculture economy is.

The quality of a Municipal Bond is partially determined by the quality of the issuing governments economy.

The quality of a Municipal Bond is partially determined by the quality of leadership responsible for the municipality.

Fiscal discipline is a vital element of well run city, especially in regard to outstanding municipal bonds.

Municipal Bond investment risk is substantially influenced by socio-politics.

Municipalities that cultivate conditions for business prosperity are better positioned to maximize tax revenue consistently and holistically and these are the municipalities that are most investable and most able to foster human prosperity.

Municipal bonds finance local government projects, such as schools, roads, and utilities. So there’s a public good aspect to investing in municipalities that isn’t antithetical to equity investing but it’s different.

Municipalities that invest in education position themselves to ensure future tax revenue.

Municipalities that have Permaculture Economies can issue more investable bonds.

Reliable tax revenue is vital to the fiscal wellbeing of municipalities.

Municipalities that foster thriving business ecosystems can issue more investable bonds.

Bond holders have to account for a variety of risks including interest rate risk and inflation risk.

From an investment perspective, every bond should be a green bond.

Urban decay is a thing. And the way to avoid urban decay is to actively plan for urban regeneration.

Municipalities that prioritize recreation infrastructure are In so doing prioritizing human well-being.

Biosolids integration presents one of the biggest opportunities for courageous municipal leadership.

Municipalities with permaculture economies experience greater economic growth through the increased revenues from circularity.

Human activity should not only protect the environment, but actively improve it.

Efficiency is as important to the management of a municipality as it is to the management of a business.

Every mayor of every city should work to ensure that businesses can thrive in their city.

Municipalities that struggle with emergency management present an added layer of risk in terms of their ability to repay loans. When we do our underwriting for bond issuance we consider how prepared a municipality is in terms of emergency management.

Cities should be leveraging technologies in service to residents as businesses do in service to customers.

A Thriving Society Is Partly Dependent on Each Individual and Corporate Citizen Paying Their Fair Share in Taxes.

Small Businesses bring cities to life.

When planning projects and issuing revenue bonds, cities should assess the projects total impact to the urban ecosystem.

Transportation systems are a major area of opportunity for cities seeking to issue sustainability bonds.

From an investment perspective, every bond should be a net value adder to social dynamics.

Bond issuers should have good systems in place for the management of proceeds.

For Cities, the presence of good leadership is a plus for the G in ESG, and it makes the city a better bond issuer.

For Cities, the ability to mitigate the effects of natural disasters is a plus for the E in ESG and an indictor of bond quality.

Bond issuers that prioritize ESG standards may improve their access to financing while lowering their cost of capital.

The cities that are managed more like businesses are the cities that prosper.

Cities where businesses can thrive are cities where people want to live.

There is a correlation between the fiscal wellbeing of municipality and the economic wellbeing of a municipality.

Economic growth should be paired with cycles of reciprocal production and consumption.

Having circularity in an economy allows municipalities to widen the margins between revenues and expenses.

Cities that exist in harmony with nature are also most welcoming to people.

Municipal bonds finance local government projects, such as schools, roads, and utilities.

High ESG standards are especially important in large municipal projects offering revenue bonds.

The guarantee of tax revenues can make city leaders complacent, and so city leaders must actively work to embrace a critical desire to serve tax payers the way business leaders desire to serve customers and with the same sense of urgency.

The Bureau of Indian Affairs, without Indigenous peoples’ consent, invested Indigenous funds in railroad companies and various municipal and state bonds. For instance, the Cherokee national fund and the Muskogee Creek Orphan Fund were so invested. Indigenous leaders were well aware of these practices but were powerless to stop them.

Andy smiled and tapped the side of my head. “Not bad. There’s more up there than marshmallows, I guess. But we took care of the possibility that Jim might die while I was in the slam. The box is in the Peter Stevens name, and once a year the firm of lawyers that served as Jim’s executors sends a check to the Casco to cover the rental of the Stevens box. “Peter Stevens is inside that box, just waiting to get out. His birth certificate, his Social Security card, and his driver’s license. The license is six years out of date because Jim died six years ago, true, but it’s still perfectly renewable for a five-dollar fee. His stock certificates are there, the tax-free municipals, and about eighteen bearer bonds in the amount of ten thousand dollars each.” I whistled. “Peter Stevens is locked in a safe deposit box at the Casco Bank in Portland and Andy Dufresne is locked in a safe deposit box at Shawshank,” he said.

In Andhra, farmers fear Naidu’s land pool will sink their fortunes Prasad Nichenametla,Hindustan Times | 480 words The state festival tag added colour to Sankranti in Andhra Pradesh this time. But the hue of happiness was missing in 29 villages along river Krishna in Guntur district. The villagers knew it was their last Sankranti, a harvest festival celebrated to seek agricultural prosperity. For in two months, more than 30,000 acres of fertile farmland would be acquired for a brand new capital planned in collaboration with Singapore. The Nara Chandrababu Naidu government went about the capital project by setting aside the Centre’s land acquisition act and drawing up a compensation package for land-owning and tenant farmers and labourers. Many are opposed to it, and are not keen on snapping their centuries-old bond with their land and livelihood. In Penumaka village, Nageshwara Rao, 50, fears the future as he does not possess a tenancy certificate that could have brought some relief under the compensation package. “The entire village is against land-pooling but we hear the government is adamant,” Rao says, referring to municipal minister P Narayana’s alleged assertion that land would be taken with or without the farmers’ consent. Narayana is supervising the land-pooling process. “Naidu says he would give us Rs 50,000 per year in lieu of annual crops. We earn that much in a month here,” villager Meka Koti Reddy says. To drive home the point, locals in Undavalli village nearby have put up a board asking officials to keep off their lands that produce three crops a year. Unlike other parts of Andhra Pradesh, the water-rich land here is highly productive yielding 200 varieties of crops. Some farmers are also suspicious about the compensation because Naidu is yet to deliver on the loan-waiver promise. They are now weighing legal options besides seeking Prime Minister Narendra Modi’s intervention to retain their land. While the villagers opposing land-pooling are allegedly being backed by Jaganmohan Reddy’s YSR Congress Party, those belonging to the Kamma community — the support base for Naidu’s Telugu Desam Party — are said to be cooperative.  It is also believed that Naidu chose this location over others suggested by experts to primarily benefit the Kamma industrialists who own large swathes of land in Krishna and Guntur districts. But even the pro-project villagers cannot help feel insecure. “We are clueless about where our developed area would be. What if the project is not executed within Naidu’s tenure? Is there a legal recourse?” Idupulapati Rambabu of Mandadam says. This is despite Naidu’s assurance on January 1 at nearby Thulluru, where he launched the land-pooling process, asking farmers to give land without any apprehension. He said the deal in its present form would make them richer than him in a decade. “We are not building a mere city but a hub of economic activity loaded with superior infrastructure that is aimed at generating wealth. This would be a win-win situation for all,” Naidu tells HT. As of now, villages like Nelapadu struggling with low soil fertility seem to be winning from the package.

I’ll tell you one story. I had an idea for a fund in 2008 when oil was crashing at the end of the year. Stocks / funds that invested in municipal bonds in Texas were getting destroyed. Somehow, because oil was going down, everyone naturally assumed that Texas was going to simply disappear. I researched every municipal bond out there and found a good set of Texan cities that were being sold off with everyone else even though they had nothing to do with oil. I pitched it to a huge investor who had told me he wanted to back me on any idea I could come up with. He loved the idea. He loved it so much he told me, “You’re too late. We already have about $500 million in this strategy and we bought the very stocks you are recommending.” They went up over 100% in the next six months while the world was still in financial collapse. So he made a lot of money. As for me, I didn’t put a dime into my own strategy and made nothing.

Churchill made a point about the power of government: A National or Municipal Beef Trust, with the United States Treasury at its back, might indeed give more regular employment at higher wages to its servants, and might sell cleaner food to its customers—at a price. But if evil systems corrupt good men, it is no less true that base men will dishonor any system, and while no bond of duty more exacting than that of material recompense regulates the relations of man and man, while no motion more lofty than that of self-interest animates the exertions of every class, and no hope beyond the limits of this fleeting world lights the struggles of humanity, the most admirable systems will merely succeed in transferring, under different forms and pretexts, the burden of toil, misery, and injustice from one set of human shoulders to another.

is a good idea to check on the calls and what circumstances a bond can be called as most of the bonds are potentially subject to this type of call action.  This is especially true for premium bonds. If they are called early, it can affect the yield.

The crucial issue when a subsidy is proposed is the impact on the finances of the local government, known as fiscal impact. Unless the annual flows of tax revenues more than pay for the bonds being issued, then some other part of the municipal budget will suffer. Even then it will probably suffer because people’s budgets for recreation are limited. A dollar spent at the ballpark is a dollar not spent at a restaurant, bar, or other place of leisure time activity, thus transferring the jobs and economic effects from many businesses to a single sports team.

In 1986, Senator Daniel Patrick Moynihan sponsored a law banning the use of tax-free bonds to finance stadiums, exactly the financing being used by the Yankees and the Mets. So how did Steinbrenner and the Mets owners get around that law? How did they manage to benefit from triple tax-free municipal bonds that add to the burdens of federal, state, and city taxpayers? First, the Yankees and the Mets will not pay rent on their new stadiums, which the city will own. If they paid rent, the Moynihan law would prohibit the sale of tax-exempt bonds to finance the stadiums. But since the stadium bonds must be paid for, where will the money come from?

TAX-SAVVY IDEAS We suggest 14 tax-reducing ideas for tax-savvy investors. Most are easy to understand and to implement. We can think of no better way for most taxpayers to maximize their after-tax returns. Use tax-advantaged accounts (401(k), 403(b), IRAs, 529 tuition plans, etc.). Buy fund shares after the distribution date. Place tax-INefficent funds in retirement accounts, and tax-Efficient funds in taxable accounts. Use tax-managed or tax-efficient index funds in taxable accounts. Avoid balanced funds (stocks and bonds) in taxable accounts. Keep taxable fund turnover low to avoid capital-gains taxes. Avoid short-term gains by holding for more than 12 months. Sell losing shares before year-end (tax-loss harvest). Sell profitable shares after the new year (to delay tax payment). Determine the most favorable tax-basis method before selling fund shares. Consider municipal bonds and U.S. Savings Bonds for taxable accounts. During years of low income, consider converting to a Roth. Consider gifts to charities of securities with large capital gains. Appreciated holdings in taxable accounts are capital gains and income tax free if left to heirs.

sent evidence of all this to the Wall Street Journal over a dozen times. I sent it to their executive editors, their news editors and their most well-known reporters. They all refused to report on this alleged criminal organization. A financial newspaper that will not report the theft of trillions of dollars by Wall Street firms! I sent this information to the New York Times at least a dozen times. I contacted their news editors and public editors. I sent this information to the Bond Buyer, the largest municipal bond publication I am aware of. I also called them and emailed them. They did touch superficially on this in some articles but never told the whole story.

The shape of authority on the trading floor depends heavily on how much money a particular group is making. For the past several years, the most desirable jobs by far on Wall Street have been in derivatives groups, and those groups have usually ruled the floor. In general, if you aren’t in derivatives, the closer you are to government bond trading—the hub of the bond trading floor—the better. Surrounding the trading of government bonds, known as govvies, are the middle-tier jobs, including foreign exchange, mortgage trading, and corporate bonds. Less desirable jobs may not even be on the trading floor. Equity sales is bad. Private client sales may be worse. One of the worst jobs, for example, is selling money market instruments in Philadelphia, assuming the firm still has a Philadelphia office, which many do not. The worst jobs of all are in the municipal bond department. “Munis” are bonds, usually tax-exempt, that municipalities, states, or other local governmental entities issue to pay for roads, education, sewers, and so forth. Munis can be found in the backwaters of the trading floor and the wasteland of investment banking. Before I took the training examination at First Boston and was told, “You’d better do well on the exam…or else,” I knew very well what the “or else” meant: “or else you’ll end up in munis.

Hence if the investor was in a maximum tax bracket higher than 30% he would have a net saving after taxes by choosing the municipal bonds; the opposite, if his maximum tax was less than 30%.

For most investors, bond funds beat individual bonds hands down (the main exceptions are Treasury securities and some municipal bonds). Major firms like Vanguard, Fidelity, Schwab, and T. Rowe Price offer a broad menu of bond funds at low cost.9

There’s no good reason ever to pay more than these levels of annual operating expenses, by fund category: Taxable and municipal bonds: 0.75% U.S. equities (large and mid-sized stocks): 1.0% High-yield (junk) bonds: 1.0% U.S. equities (small stocks): 1.25% Foreign stocks: 1.50%9

But there are hundreds of closed-end bond funds, with especially strong choices available in the municipal-bond area. When these funds trade at a discount, their yield is amplified and they can be attractive, so long as their annual expenses are below the thresholds listed above.

It is true that the interest from municipal bonds is free from federal tax, but it’s not always free from state tax. To avoid state tax, you have to buy a bond issued by the municipality in which you live.

Second, money distributed from a truly tax-free investment cannot count as provisional income. In other words, true tax-free investments do not contribute to the thresholds that determine whether your Social Security benefits get taxed. Not to pick on municipal bonds again, but interest on these bonds does count as provisional income and may cause a portion of your Social Security to be taxed. So, an investment vehicle widely touted as tax-free doesn’t even satisfy the two litmus tests required of a truly tax-free investment.

We know a very successful executive who, upon retirement, put all his investments into high-quality, diversified, municipal bonds. The income from the bonds is more than sufficient for his family’s lifestyle. This executive wants to spend his time traveling and on the golf course—not managing a complex portfolio of assorted securities. His simple portfolio may be unusual, but we think it’s probably a very suitable portfolio for him. However, most of us want a return greater than is available from savings, CDs, and bonds. This is why we use stocks to provide the growth and additional income needed to meet our goals. DESIGNING OUR PERSONAL ASSET ALLOCATION PLAN We have discussed the Efficient Market Theory and Modern Portfolio Theory.

A 360-day year also made the calculation of interest very convenient. Indeed, even today, the calculation for corporate and municipal bond interest accruals is based on a 360-day year. It is tempting to think of the Sumerian administrative year as a kind of idealized, cleaner, improved year—a year as mathematicians and administrators might like it, as opposed to time as defined by astronomical reality. In short, the Sumerians invented a model of time that would serve well as a framework for analyzing periodic economic phenomena. It was also a development of remarkable hubris; the assertion of human’s time over natural time.

When interest rates decline, local governments will often refinance their debt, just as an individual might refinance their home mortgage. The municipality will issue new municipal bonds at lower interest rates. At the same time, they buy Treasurys and place them in a trust to pay the outstanding bond issue. The municipality matches the cash flows of the outstanding municipal bond issue with cash flows of the Treasurys.

Rehypothecation is not risky in large Repo markets like U.S. Treasurys, but it becomes a potential problem in small securities markets. Think of small corporate or municipal bond issues. What happens if one of the counterparties defaults? Think of it like a break in the collateral chain. When one party defaults, the two counterparties on either side must liquidate their securities. One counterparty sells the collateral and the other one buys the collateral, but not necessarily to each other. For highly liquid and large issue securities, like U.S. Treasurys, this is easy. Problems arise when the collateral is non-fungible, a private-label issuer, or a small issue size. In these cases, when the entity in the middle goes bust, it’s hard for the original seller to get back their securities.

The following is a list of the most common sources of provisional income: One-half of your Social Security income Any distributions taken out of your tax-deferred bucket (IRAs, 401(k)s, etc.) Any 1099 or interest generated from your taxable-bucket investments Any employment income Any rental income Interest from municipal bonds The IRS adds up all your provisional income and, based on that total and your marital status, determines what percentage of your Social Security benefits will become taxed. That percentage of your Social Security benefits is then taxed at your highest marginal tax rate. The provisional income thresholds are outlined below.

The book doesn't have to be all about U.S. Treasurys, but that's mostly what it’s about. U.S. Treasuries are the foundation of the Repo market. However, these days there are Repo transactions in just about any financial instrument: federal agencies, municipal bonds, corporate bonds, foreign government bonds, emerging markets bonds, mortgage loans, etc.

As interest rates began to rise in the post-war period, leaving your cash at a bank that paid near zero percent interest was not such a good investment. Corporations and municipalities had millions of dollars to invest, but could not get a decent return on the short-term cash. They wanted a rate, because any rate was better than nothing. At the same time, securities dealers on Wall Street began holding trading positions. Previously the role of the broker-dealer was as a pure middleman. That’s the broker part of broker-dealer. When a client wanted to sell a bond, the firm’s salesmen scoured the market to find a buyer. If they could find a buyer, the trade was done: end-user seller to end-user buyer, and the Wall Street firm just stood in the middle. That changed in the 1950s. Some broker-dealers, like Bear Stearns and Salomon Brothers, realized they could make money buying bonds for their own trading account. And, they could even make money betting on the direction of interest rates.

The lightly regulated system lasted for many years, but eventually abuses began to surface. The municipal bond market was the first to suffer from the effects. In 1975, after the SEC brought several cases against municipal bond firms for excessive mark-ups, misrepresentations, high-pressure sales techniques, and churning customer accounts, the industry set up the Municipal Securities Rule Making Board (MSRB) as a solution through self-regulation. The municipal bond market was finally under rules, albeit rules they made for themselves.

It’s importance, however, is bigger than that. Treasury securities are the risk-free yield curve for all of the financial markets. That’s right, the yields of Treasury Bills, Notes, and Bonds from overnight to 30 years make up a yield curve that is used to price all other fixed-income securities. The Treasury market is the reference rate for interest rates. Treasurys are a tool for pricing corporate bonds, municipal bonds, emerging market bonds, federal agencies, mortgage-backed securities, and other dollar assets. On top of that, they’re also a tool for speculation and hedging risk.

Beginning in 2001, there was another shift in the Repo market. The CFTC changed their margin investment rules, allowing for FCMs (Futures Commission Merchants) to invest their cash in federal agencies, municipal bonds, and corporate bonds, instead of just Treasurys. The premium that U.S. Treasury collateral enjoyed narrowed. Before the rule change in 2000, GC was averaging around 7 basis points below fed funds. Beginning in 2001, GC was averaging almost flat to fed funds. When there’s less demand for Treasurys, there’s a smaller premium.

In these uncertain days, bond funds are an especially important option for investors. Unlike stock funds, they have high predictability in at least these five ways: (1) The current yields (on longer-term issues) are an excellent—if imperfect—predictor of future returns. (2) The range of gross returns earned by bond managers clusters in an inevitably narrow range that is established by the current level of interest rates in each sector of the market. (3) The choices are wide. As the maturity date lengthens, volatility of principal increases, but volatility of income declines. (4) Whether taxable or municipal, bond fund returns are highly correlated with one another. Municipal bond funds are fine choices for investors in high tax brackets, and inflation-protected bond funds are a sound option for those who believe that much higher living costs will result from the huge federal government deficits of this era. (5) The greatest constant of all is that—given equivalent portfolio quality and maturity—lower costs mean higher returns. (Don’t forget that index bond funds—or their equivalent—carry the lowest costs of all.)

The term stray refers to dogs and cats, animals traditionally viewed as pet animals, that are homeless and thus devoid of human companionship and protection. Stray animals are often perceived by individual residents as “pests” and by societal officials (specifically with respect to municipal and county animal control policies) as “nuisance animals/throwaways,” especially in the context of disease control (rabies, etc.). They are particularly vulnerable to the vagaries of existence on the street and are viewed by many people as being throwaway animals; millions of them are destroyed at animal shelters and animal control facilities in the United States each year. Four of the five violent subjects who reported acts of cruelty against stray animals reported frequent acts. Stray animals, genetically coded to bond and coexist with humans, may by necessity revert to feral (or wild) behavior, but they are not wild animals. As a result, they often seek the company of humans for food and shelter. The trust that they frequently display toward humans can be dangerous. Some of the most horrific reports of animal cruelty either committed or observed by the subjects in this study involved stray animals. These reports included exploding animals by inserting fireworks into the animal’s mouth or anus, using “Crazy Glue” to glue the paws of kittens and puppies to the middle of streets and then watching the animals be killed by passing cars, throwing stray animals to their death from rooftops, and setting animals on fire after drenching them in gasoline. Stray animals who are victims of cruelty can be analogized to the victims of serial killers, such as prostitutes and runaway juveniles; their deaths are often unseen and unknown by the average citizen until the remains are found.

This includes states, towns, cities, counties, school districts, hospitals, transportation authorities, universities and colleges, housing projects, road and highway authorities, water districts, and power districts.

General obligation bonds are often viewed as being safer than “revenue” bonds. The former are funded by fees and taxes, which can be raised - and the latter are funded from the income of a specific project.

to the enterprising investor. He might be interested in special opportunities of the following kinds: Tax-free New Housing Authority bonds effectively guaranteed by the United States government. Taxable but high-yielding New Community bonds, also guaranteed by the United States government. Tax-free industrial bonds issued by municipalities, but serviced by lease payments made by strong corporations.

Questionable investment deals certainly contributed to a number of municipal financial crises that occurred after the 2008 stock market crash. Jefferson County, Alabama, for example, entered into interest rate swaps that helped swell its debt burden to $3 billion when interest rates collapsed. The county sued the lead underwriter, J.P. Morgan, on the grounds that it misled the county and investors. The Securities and Exchange Commission also imposed significant penalties on the underwriter in 2009. Detroit similarly entered swaps that the bankruptcy court ultimately settled for much less than their face value after the bankruptcy judge raised significant questions about the swaps' legality and enforceability.

The highest-risk investments include: Futures Commodities Limited partnerships Collectibles Rental real estate Penny stocks (stocks that cost less than $5 per share) Speculative stocks (such as stock in new companies) Foreign stocks from volatile nations “Junk” (or high-yield corporate) bonds Moderate-risk investments include: Growth stocks (companies that reinvest most of their profits to grow the business) Corporate bonds with lower (but still investment-grade) ratings Mutual funds or exchange-traded funds (ETFs) Real estate investment trusts (REITs) Blue chip stocks Limited-risk investments include: Top-rated investment-grade corporate and municipal bonds The lowest-risk investments include: Treasury bills and bonds FDIC-insured bank CDs (certificates of deposit) Money market funds Practicing

taken on new significance in the past several decades. Serious fiscal crises in several major American cities, shifts in attitudes regarding state and federal social programs, and an explosion in the use of tax-exempt bonds have brought a topic once thought to be the exclusive province of public finance specialists to the attention of the American public at large. Law schools, in particular, have added courses on state and local taxation and finance to their curricula, and law students increasingly view municipal bond firms and state and local government agencies as respectable potential employers. Business schools and public policy schools have continued to

Bernard Law, the former cardinal of Boston, mistaking (or maybe understanding too well) the degree of authority bestowed on him by the signifier of his patronymic, denounced in 1996 proposed legislation giving health care benefits to same-sex partners of municipal employees. He did so by proclaiming, in a noteworthy instance of piety in the sky, that bestowing such access to health care would profoundly diminish the marital bond. "Society," he opined, "has a special interest in the protection, care and upbringing of children. Because marriage remains the principal, and the best, framework for the nurture, education and socialization of children, the state has a special interest in marriage." With this fatal embrace of a futurism so blindly committed to the figure of the Child that it will justify refusing health care benefits to the adults that some children become, Law lent his voice to the mortifying mantra of a communal jouissance that depends on the fetishization of the Child at the expense of whatever such fetishization must inescapably queer. Some seven years later, after Law had resigned for his failure to protect Catholic children from sexual assault by pedophile priests, Pope John Paul II returned to this theme, condemning state-recognized same-sex unions as parodic versions of authentic families, "based on individual egoism" rather than genuine love. Justifying that condemnation, he observed, "Such a 'caricature' has no future and cannot give future to any society." Queers must respond to the violent force of such constant provocations not only by insisting on our equal right to the social order's prerogatives, not only by avowing our capacity to promote that order's coherence and integrity, but also by saying explicitly what Law and the Pope and the whole of the Symbolic order for which they stand hear anyway in each and every expression or manifestation of queer sexuality: Fuck the social order and the Child in whose name we're collectively terrorized; fuck Annie; fuck the waif from Les Mis; fuck the poor, innocent kid on the Net; fuck Laws both with capital Ls and with small; fuck the whole network of Symbolic relations and the future that serves as its prop.

The safety of municipal bonds no longer seemed so assured. However, although they would have done better in equities, they still had enough money and, feeling safe, didn’t worry as they would have done watching the ups and downs in the value of a stock portfolio.

Overall, US equity investments increased four or five times on average (before taxes, investment adviser fees, and other costs), and Berkshire Hathaway advanced from $12,000 to almost $150,000, fell to $75,000 during the crisis, then rose above $200,000 per share in 2016. When the crisis of 2008 struck, equities lost half their value before rebounding. As tax receipts shriveled, the massive deficits of the US government were echoed at state and local levels. The safety of municipal bonds no longer seemed so assured. However, although they would have done better in equities, they still had enough money and, feeling safe, didn’t worry as they would have done watching the ups and downs in the value of a stock portfolio.

But the actual arguments advocated by Secretary Mellon had nothing to do with a “trickle-down theory.” Mellon pointed out that, under the high income tax rates at the end of the Woodrow Wilson administration in 1921, vast sums of money had been put into tax shelters such as tax-exempt municipal bonds, instead of being invested in the private economy, where this money would create more output, incomes and jobs.[8

Investment Counsel and Trust Services of Banks The truly professional investment advisers—that is, the well-established investment counsel firms, who charge substantial annual fees—are quite modest in their promises and pretentions. For the most part they place their clients’ funds in standard interest- and dividend-paying securities, and they rely mainly on normal investment experience for their overall results. In the typical case it is doubtful whether more than 10% of the total fund is ever invested in securities other than those of leading companies, plus government bonds (including state and municipal issues); nor do they make a serious effort to take advantage of swings in the general market. The leading investment-counsel firms make no claim to being brilliant; they do pride themselves on being careful, conservative, and competent. Their primary aim is to conserve the principal value over the years and produce a conservatively acceptable rate of income. Any accomplishment beyond that—and they do strive to better the goal—they regard in the nature of extra service rendered. Perhaps their chief value to their clients lies in shielding them from costly mistakes. They offer as much as the defensive investor has the right to expect from any counselor serving the general public. What we have said about the well-established investment-counsel firms applies generally to the trust and advisory services of the larger banks.

What else should you watch for? Most fund buyers look at past performance first, then at the manager’s reputation, then at the riskiness of the fund, and finally (if ever) at the fund’s expenses.8 The intelligent investor looks at those same things—but in the opposite order. Since a fund’s expenses are far more predictable than its future risk or return, you should make them your first filter. There’s no good reason ever to pay more than these levels of annual operating expenses, by fund category: Taxable and municipal bonds: 0.75% U.S. equities (large and mid-sized stocks): 1.0% High-yield (junk) bonds: 1.0% U.S. equities (small stocks): 1.25% Foreign stocks: 1.50%9 Next, evaluate risk. In its prospectus (or buyer’s guide), every fund must show a bar graph displaying its worst loss over a calendar quarter. If you can’t stand losing at least that much money in three months, go elsewhere. It’s also worth checking a fund’s Morningstar rating. A leading investment research firm, Morningstar awards “star ratings” to funds, based on how much risk they took to earn their returns (one star is the worst, five is the best). But, just like past performance itself, these ratings look back in time; they tell you which funds were the best, not which are going to be. Five-star funds, in fact, have a disconcerting habit of going on to underperform one-star funds. So first find a low-cost fund whose managers are major shareholders, dare to be different, don’t hype their returns, and have shown a willingness to shut down before they get too big for their britches. Then, and only then, consult their Morningstar rating.10 Finally, look at past performance, remembering that it is only a pale predictor of future returns. As we’ve already seen, yesterday’s winners often become tomorrow’s losers. But researchers have shown that one thing is almost certain: Yesterday’s losers almost never become tomorrow’s winners. So avoid funds with consistently poor past returns—especially if they have above-average annual expenses.

It is evident that a large proportion of individual investors would obtain a higher return after taxes from good municipals than from good corporate bonds.

Corporate bonds, Treasury bonds, and municipal bonds all represent nothing more than a loan—or, if you wish, debt—for which the lender will be paid an interest rate,