Letters and Opinion

Armageddon does not lie ahead

February 19, 2011

Much has been written in the financial press recently [including a story in the Feb. 7 IBJ], most of which has been negative, regarding the state of the municipal bond market. The “Great Recession,” some say, will lead to abnormally high rates of default by issuers and could potentially lead to anarchy.

Some pundits have even attempted to draw parallels to the sovereign debt crisis in Europe. These irresponsible comments by a select few have caused considerable fear in investors’ minds and, consequently, disrupted an otherwise fluid and stable market.

We at City Securities Corp. disagree with those predicting Armageddon. It is our belief that the vast majority of municipal issuers nationally are in sound financial condition. Certainly there are some municipalities that have acted imprudently and contributed to their own financial distress. Others issued debt to be repaid from economic activity that failed to materialize due to the recession.

However, together these scenarios represent only a small number and dollar amount of securities relative to the overall municipal market. In Indiana, one of only a handful of states rated AAA by Moody’s and Standard & Poor’s, investors should feel very comfortable with their municipal bond holdings.

All investments, including municipal bonds, have some level of risk. Investors must realize there are many different types of municipal bonds backed by different streams of revenue. As a result, proper due diligence must be performed before investing. City Securities has been providing that due diligence and counseling investors since 1924. We believe that recent market dislocation has created great investment opportunity. As we have for 86 years, we’re advising our clients which tax-free bonds are appropriate to take advantage of this opportunity.

Armageddon is not around the corner, particularly in Indiana.

____________

Mike Bosway, CEO
John Peterson, Chairman
City Securities Corp.

 

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