Municipal Bonds

by Monty Guild on Wed, 8 Sep 2010

The rise of smaller emerging nations as trading powers

Recent research by UBS economist Jon Anderson illustrates how trade is being reshaped in the developing world. It will probably not surprise you to learn that between 1998 and 2008 six developing nations recorded an increase in exports (as measured by manufacturing & GDP) of more than 25 percent. What will surprise you are the names of these countries.

The emerging market countries that grew their exports by the largest percentage were not the big countries one might expect, such as China, Brazil or India. Instead, they were smaller countries, with less celebrated economies. They were Cambodia, Thailand and Vietnam in South East Asia and the Czech Republic, the Slovak Republic and Hungary in Eastern Europe.

Why did these countries record the highest increase in exports?

In the Kudlow report below, Faber and Schiff argue against the purchase of treasuries and that treasuries are in the mother of all bubbles. We share a similar view, though we believe that the bubble can go on for years. Wasn’t it Keynes who said, “The market can remain irrational longer than you can stay solvent?” He got one thing right.

If you have every used a public restroom, you notice that the government (no matter if it is local or federal) does a lousy job maintaining businesses and property.  Despite what we reported earlier about city waste, it looks like cities are finally being forced to sell good producing assets and getting out of business all together. 

The Wall Street Journal is reporting that faced with enourmous gaps in municipal budgets, cities are selling airports, parks, zoos and more.

According to municipalbonds.com, current yields on California debt ranges anywhere from the low 4% to mid 7%, and the curve on this debt is realatively flat, with only a gradual increase.  Why haven't yields exploded and the curve steepened is beyond us.  This is the exact kind of apathy that is common before investment instruments like these implode.

But what happens to the California economy as austerity measures continue?  In a government based economy, things will continue to slow.  Watch employment to continue to rise and the yield curve should continue to steepen as risk is priced in.