Re: Why are tax exempt munis paying so much ??

[dapperdobbs <GeorgeCFL@hotmail.com>]

On Jun 26, 9:42 am, Douglas Johnson <p...@classtech.com> wrote:
[own snipped]
> I suspect we are talking about different points on the yield curve.  According
> to:
>
> http://www.bloomberg.com/markets/rates/index.html
>
> 2 year AAA general obligation tax exempts are yielding 1% while 30 year are
> yielding 4.86%.  That's a 28% taxable yield of  1.39% and 6.75% respectively. So
> it kind of depends on how much interest rate risk you want to accept.  
>
> -- Doug

That's what I see, too. I look for 3-5 years out, the more traditional
'hump' in the yield curve. In the early 1980's, long-term munis (e.g.
Duke Power) sold at 85-90 paying 13-15%, and the ridiculous "de
minimis" tax rule did not exist. You also got a prospectus
automatically. Prime was at 20%. Then, it was worth it to go 25 years
out, just so you could sell a high YTM in mid 1980's for 130. Ah, to
be young and reckless, no?

Today, I'd rather place bets on a depressed stock market with
companies yielding 4%+, looking for dividend increases and some
capital appreciation. A few companies raised their dividends in Q4
last year and Q1 this year. Run numbers on where an average 8% a year
div increase leaves you in 20 years. Many companies' sales are down
'in the high single digits' and net is off, but the profitability and
the business is sound. Buffett quipped that when the tide goes out you
can see who's been swimming naked (like AIG). By the same tide, you
can see who has good swimsuits.

No disrespect intended to those who insist on safe money, but if one
has some notion that three years from now short term rates may be 5%,
why not hold off on the 20 year commitment until then? The charts on
five and ten year treasuries are spiked up - just on one crystal ball,
that's not a good time to buy.