International Investing

In the equities market one crisis is usually replaced by another in short order, so that only the really big issues are discussed years later. For instance, the Bear Stearns collapse is already a footnote.

Not so, in the municipal bond market, which still talks about the 15 year-old Orange county default, and who, collectively, will never forget the Heartland Fund write down.

A recent court case and market conditions have suddenly make this market worth paying attention to. Bloomberg columnist Joe Mysak talks about the big muni issues:

Well, there’s this Supreme Court case, of course. If the judges decide that states don’t have the right to discriminate against out-of-state bonds, why would anyone want to keep their money in the almost 500 single-state bond funds? That’s just for starters.
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Are we going to see a wave of so-called dirt-bond defaults? We typically do after a housing bust. Millions, and more likely billions, of dollars’ worth of bonds were sold in recent years to build the infrastructure in places where nobody now wants to, or can afford to, live. The bonds are backed by taxes on the now non-existent residents. Guess what happens?

Let’s not forget the bond insurers. Remember them? The industry was on the point of collapse a few months ago. The patient has stabilized, but hasn’t left intensive care.

Then there’s the auction-rate securities market. Thousands of individual investors still can’t get the money they put in the preferred shares of tax-exempt closed-end funds. Redemption, for them, is coming at a glacial pace.

There’s also the Securities and Exchange Commission’s, and everyone else’s, big investigation into the reinvestment-of- proceeds business. That’s not going to have a good outcome.