http://bloomberg.com/apps…;sid=a9HNldyokP.M

I am always up for good positive dialog, and FYI I am never here to trash anyone, nor have a “pissing match”. Not worth our time, I have lots of other enjoyable things to do, but business and investing are two of my passions (along with great music, and a really good filet mignon), so if I can learn something it makes it all the more fun to be on this sight.

So, on that note, good luck and many happy returns!

Looking at the risks involved with a non-rated muni issues wrapped MBIA or ABAC is no doubt a concern. It’s not even a close call. Last I saw, the credit-default swaps tied to MBIA bonds were 190 basis points. In other words, it cost about $190,000 to buy a contract protecting $10 million of bonds from default for 5 years. AMBAC cost around 290 basis points, implying a default chance of approx. 20%. I promise you, the rating agencies are trying to understand what is the risk-adjusted nature of these type portfolios. AAA company like GE would be about 15 BPs; default a tenth of a percent. Hard to believe but, a natural AAA Municipal credits would be close by.

In the street, munis don’t trade on a risk- adjusted basis because the event risks are not as prevalent as other bonds i.e. callable agencies.

I traded them for 35 years and now they don’t excite me. But good ideas from Joe’s members help me make money, diversify and hopefully reduce my adjusted risk. I appreciate your dialog and look forward discussing new avenues with you in the future.

I was merely pointing out that on a risk adjusted return basis, munis are not good investments, but yes they do have a place in some portfolios. But I just do not get too excited about them.

I am not saying you are just plain wrong, as you feel I am, but to get to Joe’s point, there are alternatives out there that people can utilize.

Read Missed Fortune by Doug Andrew and you will see where I am coming from on life insurance. I do not think it should be the end all be all for your portfolio, but when used properly can provide a tax shelter and a reasonable return on investment. I expected nothing less than criticism on a web site about stock investing. I love stocks, but there are lots of tools out there.

But I am just a dumb Swede, so what do I know.

Munis are terrible for all but the highest tax-bracket investors. Even then, as Casey pointed out, they may not be the best investment out there when considering the alternatives. Still, a high-tax investor seeking stable income .and. liquidity may have a hard time beating munis. And with Berkshire backing the checks, we’re not likely to see another Orange County any time soon.

Of course, for high income individuals, there are tax-saving strategies that can help maximize portfolio income while minimizing the tax burden. (Yes, the joys of capitalism.) CRTs, real estate, personal corporations, and gifting come to mind. When in control of their retirement plan/401(k), they can buy taxable bonds inside these tax deferred accounts.

It all leads back to one main point: Start by looking at the world of investments, and then narrow down the list to find the few that are worthy of your money. Unfortunately, most brokers can only tell you about the world of investments as it relates to their firms’ inventories. Beyond that, you’ll usually get the old, “Hmm. That’s interesting. If you are looking for [goal], maybe you should look at [this preferred investment in our inventory because I have no idea what you are talking about].”

There is no debt/bond to be traded.

Excellent (and might I say, timely for me) article. I am researching bonds as I write this.

I read somewhere about ARC bonds — would you care to enlighten the likes of me what these are. and how to invest in them? My usual Google etc. search led to a few sites that show you how to acquire an ARC bond (required of travel agents — like in “bonded and insured”)….but how can an investor buy instruments that back an ARC bond, if there is a way to do it? Lastly, is the investment exempt from income taxes?

The only exposed risk a AAA/AAA State general obligation municipal bond has is interest rate risk and call risk. The most important source of risk for bonds in general is interest rate risk. It is the major cause of price volatility in the bond market. As interest rates become more volatile, so do bond prices.

It might be helpful to understand the distinction between bonds and stocks. Owning a company’s bonds does not constitute an ownership in the company, whereas owning common stock in a company literally means owning part of the firm. Buying its bonds is like making a loan to the company and as in municipal bonds to the municipality. Bondholders have claims that take priority over the claims of stockholders on the assets of the company. A general Obligation Municipal bond is backed by the full faith and credit of the issuing government and its taxing power and its issuance must be approved by voting public.

In all seriousness though, for those who can not stand the volatility, a well balance portfolio of bonds and stocks is necessary. Go review Graham’s Intelligent Investor where he discusses his allocations to bonds and stocks. Heck review Buffetts balance sheet in Berk, he always seems to have cash/bonds as part of his mix.

Note: I read somewhere, something like 80% of your portfolio return is based on your asset allocation. Presumption being a “passive” portfolio.

Bottom line being, bonds/cash are a necessary part of your portfolio.

“Be greedy when others are fearful, fearful when others are greedy”