The thing about crises is that they are rarely singular in nature. The recent past…and the present are good guides. First we had the sub-prime crisis. That led to the housing crisis, which led to the banking crisis and then the most recent Sovereign Debt crisis. There are probably a few others that escape me for now, but you get the picture. Each crisis tends to have a major impact on some market or currency somewhere. As globally connected as we are today, these crises have a way of spreading their negative effect around the globe. There are few places left to hide these days and even cash is subject to problems of debasement. We almost came close to a run-on-the-bank crisis in 2009 when money market funds teetered on the edge of losing value. Had the government not stepped in to defacto guarantee them, things could have gotten even dicier.
Must See Video About The Collapse
This video can only be described as shocking:
After getting dozens of emails from all my friends about this I decided to check it out.
I’ve been hearing crazy stories about this video… People telling me how they’re using this to help save their retirement.
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I am all for a good crisis as long as I can see it coming and have time to prepare a strategy. Most crises don’t happen overnight. There are seeds that are planted well in advance but we tend to forget about them as time passes. The seeds keep growing however. If you look at our entire financial and social system, it’s just one big crisis in the making. Credit was introduced to the masses after World War II. It didn’t reach the over saturation point until the 80s and 90s when banks gave out credit to anyone with a pulse. But, it wasn’t until 2007, almost 60 years later that the whole house of cards came crashing down. A lot of money was made in the meantime and betting against the credit crisis did not pay off until the mid-2000s.
Today we are at the tipping point of another crisis. The seeds for this crisis were sown decades ago as well. And, now the proverbial chickens are coming home to roost. Municipalities have long been a stalwart for investors seeking tax-exempt interest payments. Cities and towns nationwide have raised money from investors to fund anything from toll roads to water treatment plants and to cover day-to-day operations. The promise is quite simple. We’ll raise money from residents through property taxes, tolls, permit fees and fines and we’ll make good on our obligations to you, the investor. From the investors point of view Munis made sense. They provided returns tax-free on the state and federal levels and funding municipalities was second only to funding the Federal Government when it came to safety. It was a win-win situation…or so investors thought.
The Muni Mess is Just Beginning
Municipalities are now facing potentially the most wrenching period in their history. And, for you the investor it could set up possibly the biggest tax-free income grab in recent memory.
As a result of the housing crisis and the recession occurring simultaneously, municipalities are facing a double whammy of massive proportions. The recession meant a lot of lost jobs, a slowdown in spending and speeding! Less people doing business means less money for permits, a construction standstill and less money spent in shops and businesses meaning less income. Even toll roads are affected as fewer people drive and when they do, they are either more efficient or take non-toll routes. That’s the recession whammy. By itself, it would mean little since municipalities can deal quite well through recessionary times as it is just one source of revenues (use taxes) that are declining or just not growing. But, it’s the other shoe that’s going to kill them in the next couple of years.
When Municipalities spend money, they do so based on long-term projections and much like start up companies seeking venture capital; their outlook is always sunny. These long-term obligations are significant in nature and require hefty outlays of capital and hefty interest payments. When times are good, municipalities tend to overspend and corporate governance goes out the window. Big 4th of July Parades, Christmas Lights etc. are expected and delivered.
This time it’s different. This time the municipalities are being hit hard in a place they never expected. As a result of the sub prime crisis and the housing debacle, municipalities are seeing property tax revenue plunge. It’s not just that they are not collecting taxes; for the most part they are still getting money in from homeowners and banks. It’s the amount that is hurting. Property taxes are based on property values and when property values fall, so do taxes collected. Now, when property prices plunge as they have nationwide, revenues don’t just fall, they plummet. It’s happening now and as a result, Muni bond prices are falling and yields are rising. Muni ETFs and Closed-end funds have taken a massive hit in the past few months trading near or setting new 52-week lows.
Not all municipalities are created equal and some are faring quite well. Areas like Colorado and Texas and some parts of the Pacific Northwest, Mid West and mid Atlantic did not experience the massive property boom and are not seeing a huge bust either. But, you have to know where to look…and it’s NOT necessarily those areas. The areas that may do the best are the most distressed “big” state and city bonds. Places like Florida and Nevada and even New York and Arizona may offer the best bets if you time it right. Yes, they are technically on the verge of massive meltdowns due to revenue declines, but they have a big brother waiting in the wings. If the Federal Government thought that GM and AIG were too big to fail, the muni crisis is almost a slam-dunk. But, like in all situations, the government tends to be behind the curve and slow to act. The Muni situation is not different. It’s still early, and acting now to bail out the municipalities or to offer Federal guarantees would be too smart and too cheap. Instead it will take one or two major municipalities to file for bankruptcy before they act. It’s coming soon and the opportunity that waits will be to buy these muni closed end funds or individual bonds when the headlines on the Wall Street Journal spell doom in black and white. This will happen when the talking heads start talking about it. It’s not there yet. But, it’s time to set some powder aside and wait patiently for the opportunity. When it comes, you will have the opportunity to lock in yields of 7% to 10%, tax-free for many years to come. It’s a crisis you can bet on!
Untill Next Time,
The Catch for Getting Free Cash
The holy grail of beating the system… Free Cash.
It is possible to get free cash, grants, scholarships, and loans for just about anything. But yes….THERE’S A CATCH! Don’t kid yourself.
What makes the lucky few who tap into this wellspring of cash so different than you?
Here’s the answer…
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