Wednesday, March 12, 2008

Muncipal Bonds...

Should we be buying General Obligation muni bonds en masse, right now?

The failure rates on GO bonds, historically speaking, are so small that it's highly unlikely that an investor with a diversified muni-bond portfolio would experience a catastrophic loss of capital. On top of that, Warren Buffett just created an insurance company for the sole purpose of insuring these bonds. Typically companies like Ambac would insure muni bonds, but they've got themselves into a fine mess now.

So for Buffett, this is a lay up. He gets to insure low risk bonds that he'll probably never have to pay off and in turn will collect a nice revenue stream from the insurance premiums in the if the Oracle is in it, I've got this gut feeling that I should be too.

I really can't see any state governments letting any large municipalities default on their debt, especially given the current economic climate.

I don't think I'd go near any revenue bonds right now, but anything backed by the full faith and credit of a city I lived in would be just fine by me.

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