Hey I’ve got an interview tomorrow for a Municipal Boutique shop. I’m doing a little research on munis but it is not my industry. Does anyone here work with munis and could summarize some key points of what has been going on with them lately. I know it has to be an interesting time. I remember reading about the failure of the Variable rate auction market a few months ago. Any input would be appreciated.
From the lack of response I gather everyone is trying to tell me I should spend time and research it myself and I will be better for it. That is so true! Thanks AF as you once again you come through in the clutch.
I don’t really touch that market much, but I’d say some important recent events were the auction rate notes that you mentioned as well as turmoil with the bond insurers. How falling home values will impact tax revenues and tax capacity (I forget what they call it, but basically the room they ahve to raise property tax rates to increase revenue).
I’m far from an expert of munis. However, there were some absolute steals a couple months ago. A lot of forced selling resulted in high quality munis selling at a huge discounts. Today, they are trading closer to normal market values. I want to say Wilber Ross invested $1 billion at the time and made about $100 million in 3 days. Not bad.
I bought a few of those auction reset munis and the yields have come down, from originally in the range of 6-9% to the range of 4-5%. Also, two have been called. I think I only got the penalty rate one week on one bond. The penalty rate was like 12%. I was stylin’ that week. Life was good LOL. I heard Whitney Tilson give a speech. He was talking about Buffett’s entrance into muni reinsurrance. He said Buffett was making more money reinsuring the ones that MBI and Ambac already insured than doing a new issue. That doesn’t make sense to me but that’s what he said. The most important concept I think that could be relevant is how a reinsurer takes a aa3 underlying credit and waves it’s magic wand over it turning it into an AAA. This “wand waving” act is, theoretically, a free lunch because they’re charging ~1/2% for their service which lowers the interest rate for the issuer by ~1%. The market doesn’t give out too many free lunches.
The guys at my shop were having a field day with the muni inefficiencies. I want to say they were buying at 97 and now those same munis are anywhere between 100 and 103. Not bad. Tilson was right. I heard Buffett on CNBC a few months back basically saying that he was receiving a larger premium being the second line insurer than the first line guys. Everyone was so worried that one of the monolines was going down that he was able to make a killing being the second line insurer.
All for naught it seems. I spent all hours researching and preparing for this interview which would have been a transition from what I currently doing. The guy first was late and then refused to give me a professional interview. He talked without giving me a chance to speak…and then basically said they were looking for someone with current muni experience. I was so close to asking him why he brought in there as you can see I don’t work with Muni’s on my resume. I’ve had some crappy interviews but this guy takes the cake. I feel like a fool wearing a tie today.
Sorry to hear that pinkman. That’s pretty crappy.