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Tag Archives: #Muni



As last outlined in 2017, the State of Illinois is insolvent with shrinking options to avoid filing Ch.9 (the section of the US bankruptcy code available to financially distressed municipalities). Illinois has a population of 12.7mm, making it the 6th most populous state after CA, TX, FL, NY and PA. The Il. population has fallen 6 years in a row as people flee the highest state & local tax burden in the country (yes even higher than the “left” coast CA).

Start here:


Without significant public employee pension reform, bankruptcy is a near certainly for the State of Illinois (18 mths – 2 years). As outlined below, pension reforms have been stymied to date, there is no credible case to throw good money after bad in Illinois.

The long required pension reforms are largely common sense; lower payout levels, paid later for those still working, no COLA until 90% funded status is achieved (+3% fixed per annum fixed currently), and gate the defined benefit plan for new workers who will receive comparable support in a defined contribution 401k like plan (like the bulk of the US working population). Pension reform is happening on a broad basis across the country, especially for new public sector employees, but Illinois legacy plans remain sacrosanct.

The average public pension funding level in the US was 70% as we entered 2020. Public pensions garnered positive returns in the last 6 months of 2019 of 6.1%, but have given back approximately 9% in the first 4 months of 2020 (The Year of the Rat, and the Bat bred COVID-19 coronavirus pandemic). The USA country-wide, (i.e. all states) pension shortfall stands at $4.1 trillion. Illinois has a current pension shortfall of $137 billion (against a current pension liability of $214 billion for a 36% “funded status). The rating agencies have acted accordingly, taking Illinois to the precipice of junk at Baa3/BBB- (negative outlook with both). Affordability of retirement programs remains a long terms source of municipal credit stress. Other post-employment benefits (OPEB) account for up to 28% of current unfunded pension liabilities, with the provision of healthcare coverage accounting the the lion’s share. Illinois has never reported their OPEB liability, but is expected to do so from 2020, according to the Governmental Accounting Standards Board. Given the generous public pensions in Illinois, their OPEB liability is 2x the national average on a per capita basis and is largely expected to take their total unfunded pension liability to $210 billion from the current $137 billion (+$73 billion, not “new” by any means, but recognized for the first time).  This level of chicanery might be considered comedic to some, but to me it increased the inevitability of Illinois bankruptcy. Illinois have funded their OPEB liabilities at 0%, with 20 other US states in the same leaky boat.

As noted in my prior write-up municipal bond investors are a conservative lot. 2/3 invest via mutual fund and ETFs, rather than in individual bond issues. Some of these funds have strict investment guidelines to only hold investment grade bonds, leaving the municipal high yield space to specialists in that area.  Little new money is getting put to work in Illinois municipal bonds given the perilous rating, sinkhole pension system, gross mis-management, rampant crime, bottom quartile education system and untenable tax burden at all levels. Most portfolio managers expect Illinois selling pressure as longs seek skinny exit doors on a loss of investment grade ratings.

The City of Chicago situation is even more dire, with the pension plans funded at 23%. The pension underfunding issue is serious in many states, but Illinois is a special case of financial co-morbidity. Illinois incorporated a pension protection clause in their constitution, going forward pension can not be “diminished or impaired”. Illinois pensioners have case law to back them up as well; in May 2015 the State Supreme Court rule unanimously ruled that no cuts to pension are possible, overturning a 2013 pension reform bill which planned to reduce pension costs by upwards of $160bln over 3 decades (i.e. they know what has to be done, but they can not do it, full stop). The other issue that has turbocharged the pension shortfall numbers is a “hard-wired” 3% increase in benefits per annum (this was approved in 19909), having the stand-alone effect of doubling the state pension liability every 25 years. Few will pity those pensioners found in harm’s way when the jig is up. The number of Illinois pensions with payouts > US$100,000 per annum have increased by 74% since 2015. It appears that from a base case of “zero pension” is the only viable starting place for Illinois, and this can only happen with a Ch.9 bankruptcy filing. Taking a quick look in the rear view mirror, in 2008 Illinois was rated Aa2/AA with a pension shortfall of $54.8bln (1.5x bigger in 2020, 12 years later).

Illinois has 5 discrete state pension systems:

Teachers’ Retirement System (TRS). The biggest covering teachers across Illinois (ex Chicago), 130,000 active members, 95,000 retirees (total membership 406,000). The largest pension in Illinois. $122 bln liability, 40% funded 2019.

State Employees Retirement System (SERS). 87,500 members. $47bln liab. 36% funded 2019.

State University Retirement System (SURS). 231,000 members. $42bln liab. 44% funded 2019.

Judges’ Retirement System (JRS). 972 members. $2,7bln liab. 36% funded 2019.

General Assembly Retirement System (GARP). 470 members. 371 million liab. 15% funded.

Illinois Municipal pension plans:

Illinois Municipal Retirement Fund (IMRF). The 2nd largest public pension plan in Illinois. 410,000 members. $44.5bln liab. 90% funded 2019.

Global pension asset stand at $46.7 trillion, approximately 52% of GDP. Asset allocation is fluid, but a snap-shot reflects 45% allocated to equities, 29% to fixed income, 12% to alternative investments and 3% in cash. Low interest rates and higher volatility in risk assets, such as equities, clearly increase the risk profile for public pension.

Global GDP stood at $88 trillion coming into 2020. The negative impact of COVID-19 is estimated to impact global GDP by -5.8 to -8.8 trillion in 2020 (-6.6 to -10% GDP) according to the latest estimates by the ADB this week.

Illinois Debt:

Illinois debt clock; https://www.usdebtclock.org/state-debt-clocks/state-of-illinois-debt-clock.html

With $165 billion of General Obligation (GO) debt and a state GDP of $868 billion (1% of global GDP and 50% of Canada’s GDP), direct debt is optically manageable at 19% of GDP ($13k per resident). The 2nd layer of the onion lays bare the reality that Illinois is an ill-funded pension plan with a small state government attached. Of their annual budget, a full 25% is now consumed by pension servicing (the avg. of all states is 4%). Of the last $10bln contributed to the state pension, $4bln went toward new pension accruals (ARC, actuarially required contributions) and $6bln was expended for servicing. Illinois has issued $25.8bln of pension obligation bonds in aggregate, which are issued as taxable instruments. Illinois has more aggregate pension debt than 41 states. General obligation bonds are tax-exempt with respect to income tax (Federal for all, as well as state and local exempt for Illinois residents). Illinois recently (May 2020) issued $750 million in 2045 maturity GO’s that were 4x oversubscribed. The issue printed at 5.85% yield with reference 10 yr UST yielding 0.652%. With the top federal tax rate at 37% this has a taxable equivalent basis yield of 9.28% (double digit yield for Illinois residents).

The yield on $HYD, the Market Vectors High Yield Muni ETF is 4.64%. $HYG, iShares High Yield Corp Bond ETF yields 5.56% presently ($15bln AUM). The largest investment grade municipal ETF is $MUB with $15bln AUM and it yields 2.39%. The grey-haired investors in muni bonds to date have preferred mutual funds to ETFs, as reflected in their assets under mgmt (AUM). The biggest, Vanguard’s Intermediate Term Tax Exempt Fund has $70bln in AUM, is flat over the last 12 months and yields 2.58%. Nuveen’s High Yield Municipal Bond Fund (18bln AUM) is -9.5% over the last 12 months and yields 5.62%.

Chapter 9:

Municipal bankruptcies are relatively rare. Defaults in the municipal space have largely been restricted to bespoke revenue bonds which rarely affect the upstream, ring-fenced GO issuer. Detroit filed Ch. 9 on 2013 with $18.5bln of debt, the largest default to that point in US municipal finance. Puerto Rico had $70bln of debt in their bankruptcy in 2016 (their pensions were funded in the mid teen’s at the time of tap out, 14% blended).

Illinois will  be a different kettle of fish altogether, much bigger, more complex with more potential knock-on effects. An investment grade rating (just I might add, with a negative outlook by both agencies) is hardly warranted at this juncture and few portfolio managers would buy the credit in the perilous environment we find ourselves. Should Illinois file Ch. 9, the recovery rate would not be stellar (loss given default, LGD) as they have already been to the pawn shop and monetized what they can. Examples include revenue bond secured from everything from toll roads to tobacco settlements. Illinois has even gone so far as to sell their prisons to private operators.

Illinois pensioners might wager that they would be able to secure a higher recovery rate than general unsecured creditors (namely general obligation bond holders) as we saw in the Puerto Rico case, but the degree of “outperformance” might seem moot when GO bond holders get 50¢/$1 and pensioner get 55¢/$1.


Of the 4,058 COVID-19 deaths reported thus far in Illinois, a full 50% have been nursing home residents. This theme has been prevalent across the country, and the world. Japan’s population is 10x bigger than Illinois at 128 million yet COVID-19 deaths stand at 725 (yes, seven hundred and twenty-five). To have a comparable case fatality rate (CFR) experience, Illinois would have 73 deaths (roughly equiv. to two month of gang violence in Chicago). Japan has an older demographic than any country in the world. Rather than effect a hard lock-down, Japan has chosen a “cluster” C-19 treatment approach. Some credit has been given to universal BGC vaccinations (for TB) and that the COVID19 strain in evident in Asia appears less virulent, but all remain perplexed at the marked CFR discrepancies between countries. Notably, rates of obesity in Japan are 4.3% versus 36% for the USA and in the “at risk” demographic of 65+ I would argue the obesity rates in Japan are below the 4% average. I’m not a Doctor, this will be a subject of great debate and study as well navigate the “new normal” in 2H 2020 and beyond.

Illinois residents, save essential services,  have been largely home bound since March  7th (Shelter-in-place order remains in effect). Government spending, esp. for healthcare have skyrocketed while sale tax revenue have plummeted (state income taxes to follow). Illinois, via Senate President Don Harmon has requested a $41.6 billion bail-out from the federal government (largest items include $14bln to close the state revenue shortfall, $9.6bln to aid Illinois cities, $6bln for the unemployment trust fund aid and $10bln for “kick the can”pension servicing.

Pictured: Illinois Governor Pritzker continues to press that the Illinois remain effectively closed until the novel coronavirus is all but defeated (BMI undisclosed, seems high).

Senator Majority Leader Mitch McConnell has been vocal in pushing for the bankruptcy route for failing states, rather than kitchen sinking state pension bail-out in future COVID-19 relief bills. Mitch’s home state of Kentucky makes Illinois look financially prudent with the worst funded pension of the contiguous states with a laughable 16% funded rate. Kentucky is gracefully a small state in terms of significance and the unfunded pension liability is $36bln in absolute terms, a paltry 26% of Illinois $137bln shortfall (Puerto Rico was blended at about 14% across their 4 plans when they tapped out, for reference).

Public sector employment in the US averages 14.5% (State & local government employs 20 million in the USA). The 30 million currently filing for unemployment claims are largely from the private sector with a heavy weighting in the  food & beverage, entertainment, transport and hotel sectors. None of the hundreds of thousands of Illinois public sector workers have been furloughed and the pension benefits continue to grow at a factor of 1.03 per annum.

14% or 1.8 million Illinois residents collected food stamps in 2019.

The latest government largess proposal, the $3 trillion HEROS Act, approved by the House of Representative last week, includes sweeping support for a pension plan bail-out via Division D, Title I, the Emergency Pension Plan Relief Act of 2020 (there are no benefit cuts proposed in the formula, big surprise). There are very long odds on this bill garnering broader support in its current form (as in ZEROS, a more appropriate bill name than the flag-wrapped swill the lobby groups try to pass off as 1st growth wine).

The Federal Reserve balance sheet has gone from $2.7 trillion to $7 trillion with remarkable speed (quantitative tightening to quantitative easing infinity). Monetary policy (short rates) went from the early innings of a tightening cycle in late 2019 (2.25% Fed funds) to zero inside of 6 months. Unemployment went from record lows (full employment) to 15% (20% + if fully reported) over the same time sub 6 month period.


Is is premature to think we are “out of the woods” and the global municipal finance implications have not been fully vetted , let alone understood and absorbed. Those modeling “cliff risk” should have a delta of > 0.7 assigned to a State of Illinois default on an 18 month timeframe. EM will have more than enough fireworks as well, but I see Illinois as the “big 1” in the US municipal market. China’s lack of access to USD swap lines mean that devaluing the Yuan ($CNY) is their only near term course of action. The word for 2021 in global municipal finance will be austerity. MMT is poppycock. The near term demon to be slain is deflation. The only trade I like for more than 5 trading days is short the € versus the USD.

There is not enough yield pick up to venture into IG (taxable or tax-exempt), let alone HY, even with the goosing the Fed has effected with their announced and recently under taken HY ETF purchase program. A municipal credit support program is in the works, 100%. The last highly effective program for munis was the Build America Bond (BAB) program which, while limited in size and tenure ($147bln 2008-2012), the program had the desired effect of bringing in muni credit spreads, flattening the muni credit curve and providing funding to liquidity starved sectors of the muni market (healthcare/acute care in particular). The follow-on program linked to an infrastructure build out, America Fast Forward (AFF) never came to fruition, but most, including the writer, believe that infrastructure will be the next and on-going focus.

Trade safely. Cash is a viable investment alternative.

Follow me on twitter @firehorsecaper


Caleb Gibbons, CFA, FRM


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Should the insurance sector be left for dead, or is there any semblance of value beneath the multi-layered COVID-19 ruble?

No sectors were immune from the March 2020 left-tail quickening that brought global equities to their knees in a snap reaction to the “Chinese virus” (POTUS’s term), COVID-19’s seemingly inevitable global roll-out, still underway.

Chart: total return, by year: $KIE, the SPDR Insurance ETF, while smartly off recent lows, sits -26% ytd in 2020 (updated through 29 April 2020). $XLF, the much larger and broader Financial Services SPDR ETF $XLF is down 23.4% ytd in comparison (largest weighting in $BRK.B at 15% with 12% in $JPM).

Early estimates for COVID-19 insured losses for the global insurance industry come from UBS which estimates a wide range of US$30-$60 billion. Included in this estimate is $7-$22bln in non-US business interruption losses and $8-$16bln in credit insurance losses, primarily re-insurance. The lock-down has hit the service led US economy particularly hard. Paycheck-to-paycheck has taken on new meaning for throngs of employees caught in the maelstrom. Not enough time has passed to see the full repercussions. Decisive action has been taken for certain, with the USA leading the charge. Monetary policy has spent its wad at this juncture, save negative rates which perhaps can not be ruled out in the “upside-down” MMT world. The fiscal stimulus measures announced have been awe inspiring with respect to both size and breadth, the tally in terms of cost now within a stone’s throw of 30% of GDP. As Canada’s Poloz (BoC Governor, this week) noted at their last meeting, “A fireman never gets accused of using too much water.”

Chubb Insurance ($CB), headquartered in Zurich, Switzerland, CEO Evan Greenberg cautioned last week that the industry is at risk of insolvency if open-ended business interruption claims (even those policies where losses from the peril were explicitly excluded from coverage) are enforced.

Source Bloomberg, “Lawmakers in states including New Jersey have considered legislation forcing insurers to pay out certain interruption losses for small businesses, with some bills requiring insurers to pay out even if policies explicitly excluded losses from viruses. The American Property Casualty Insurance Association has estimated that companies with 100 employees or fewer could see business continuity losses of as much as $431 billion a month, compared with the $800 billion in total surplus for all U.S. home, auto and business insurers.” Mr. Greenberg expects eventual COVID-19 claims to be the biggest ever recorded for the industry, which would tighten the UBS estimate band considerably to US$45.1-$60bln.

Greenberg, clearly sensing the legal landmine that lies ahead, urged Congress to grant some broad legal immunity for the insurance industry. Insurance regulation is a combination of State and Federal responsibility in the USA, roughly weighted 70%+ State. Court decisions are extremely important and historically when it comes to policy language interpretation, the courts often rule in favor of the insured. Evan further noted that the  loss potential from a pandemic are infinite and that insurance company balance sheets are finite. His father Hank Greenberg ran AIG, the name should be somewhat familiar. Chubb has a mkt cap of $51bln and is 32% of its 52-week highs versus the more opaque AIG, sporting a market cap of $23bln and an oil like 50% off its early 2020 pinnacle.

Chubb CEO Greenberg is correct in noting that the insurance industry is a critical part of the plumbing of the economy. Global insurers manage over US$25 trillion in assets, the majority allocated to bonds (credit risk).

Chart credit Twitter; @the _chart_life

GFC; AIG Financial Products

AIG was the biggest seller of credit default swaps on the street in 2007. Their comments as we rolled through the summer of 2007 were like a fortuneteller. “It is hard for us, without being flippant, to see a scenario within any realm of reason that would see us losing 1 dollar in any CDS position.” A short 5 months later AIG wrote down their CDS book by > $5bln. AIG’s $20bln Muni GIC (aka Investment Agreement) book soon took write downs as well as they guaranteed “make-whole” on a loss of AAA/Aaa. The initial Troubled Asset Relief Program (TARP) was sized at US$700bln. It was a source of a great deal of consternation as the time, the gob-smacking size of it. Those were the days. Instead of taking equity stakes in the targeted firms, a full 1/3 ($235bln)was clawed back via various and sundry fines for all forms of malfeasance. There were no perp walks and Martha Stewart served more time solely that the lot of them collectively.

To get back on point, 9-11 was the largest single insured loss in history, to date. $45bln in insured loss were paid. 2/3 of the eventual losses were paid my re-insurers (the mechanism by which insurers lay-off/hedge their risk). In a parallel to COVID-19, legal matters became paramount. Most policies at the time were “All-Risk Policies” (covering all possible risks, save those explicitly excluded in the policy text) versus what has now become more common, namely “Named Perils” policies. A long standing exclusion on insurance policies is war, but there can be others, such as flood, earthquakes (if covered, often at a lower absolute level here in Japan, given the prevalence, “Ring of Fire” and all).

Those of us working/living in lower Manhattan on 9-11 thought it our last loss, as in the “final loss”. I was working that morning at One Liberty Plaza across the street from the WTC towers, already in the thick of it and gazing on a brilliant blue sky in lower Manhattan between morning market updates calls. I was on the phone selling the days wares when the 1st plane hit the North Tower , changing our lives henceforth. More screens than a sports bar were reporting perhaps an errant Cessna struck the formidable 1 WTC tower. From our close proximity the sounds, the evidence of it all (i.e. flames, debris falling)  told another story all together, a more sinister version of events. Our trading floor was gracefully on the 2nd floor and a small grouping of us escaped One Liberty Plaza (OLP), pulling the fire alarm as we exited, well before 9am. I had just moved into a flat on Park Row and was concerned my fiancée might be in harm’s way, walking our dog in the vicinity. Most colleagues were held inside OLP to reduce the risk of injury from falling debris. From my bedroom window I saw the 2nd plane strike the South Tower ….. this is a terrorist attack honey, let’s get to street level. We watched the ferocious fire burning 4/5th up the North Tower and mused how it could possibly be extinguished. It took less than 2 hours for One WTC (WTC 1) to succumb to the litany of hell like temperatures. Fire & rescue loudspeakers warned a few minutes prior and we backed our way towards Brooklyn Bridge which Park Row filtered directly into. I was filming the tower at the time of the critical “break”, when the substructure could no longer support itself. The building fell straight down, like a demented Wile E. Coyote cartoon. I spun on my heel and tucked the Frenchie (Yukon) under my arm as we jetted for escape across into Brooklyn. News of the concurrent strikes blared from car radios with doors ajar and early estimates were that as many as 50,000 American may have perished in the co-ordinated attacks. The dust cloud unleashed by the collapse of the North Tower was tremendous and given the sinister, other worldly funk we found ourselves in my thoughts as the cloud enveloped us were “Did these terrorists fill these planes with Sarin gas to boot?” (As Aum Shinrikyo had perpetrated in Tokyo subway 6 years prior, killing 13). The air was gritty, but breathable. We made it eventually to our disaster recovery site in Long Island City and found organized chaos. Our chairman was at the disaster recovery site are noted he had one of the few hotel rooms in the area booked, flipping me the card key with directions. French bulldogs and paring risk in dollops of a few million $ per basis point of risk exposure did not mix well, apparently.  We never did make it to the “fancy” hotel and caught a few hours sleep at a flea-bag motel in one the worst of neighborhoods, undetermined miles north. Kick-out early morning because of the mutt, we eventually made to a friend’s place in Hoboken the morning of the 12th. The first flight to Japan was Sept. 19th and my fiancée was on the flight. The dog was in cargo and I’m sure the wedding would have been cancelled if the dog had not made it. Japan waived their quarantine (30 days) with the ability to inspect the animal at regular intervals. The final certificate we needed to get the dog in was issued exclusively by an office in the former 1 WFC. The wedding took place the first week of October. While under a high degree of stress, dressed in a kimono (borrowed from Gojoro, a sumo wrestler with links to the family), reciting Shinto vows it was a miraculous win, esp. for me. My team was temporarily moved North to Toronto, Canada which was certainly difficult for key staff, being away from family in a time of uncertainty. Less fortunate firms had their “back up” data centers and even disaster recovery centers in the adjacent WTC tower. Margins reflected the turmoil and management gave thought to keeping up permanently in “T zero”, as Toronto was affectionately known. The Royal York, while close by, was not home and the lads were getting restless to return to the “Big Apple”. Mike Bloomberg saved the day and granted us some space in a trading room fashioned out of a converted warehouse in Tribeca (Bloomberg terminal at every station) in early 2012 and we re-entered OLP on Valentine’s Day 2012. Almost 800 windows had to be replaced and all soft materials down to the carpets were re-fitted, but we were back. Despite being across the street from the outlined direct hit, we suffered no fatalities. 9-11 was the worst ever event with respect to loss of life for firefighters, 343 having perished, along with 72 law enforcement officers and 55 military personnel. On-going ailments from first responders and clean-up crews are on-going, with extended benefits just granted in 2019 for some.

The eventual 9-11 loss of life was a horrendous 2,977, tallied many weeks/months after. The 13 acre WTC site was a smoldering, caustic mess and over 1 million square ft. of office space was zeroed out in one go. Insurance losses were quite evenly split between commercial liability, group life and business interruption. The courts were involved in the settlement of the WTC tower coverage as the insurer sought to cap their payout at US$3.55bln with the key clause being whether it was 1 event or 2. Silverstein eventually settled in 2007 for $4.55bln. The lawyers always make out OK, it seems. A full 2/3 of the loss fell to re-insurers.

The property & casualty  insurance industry was in shambles, not because of the insured losses per se (a war exclusion does not cover idealogical differences), but losses from terrorist acts became effectively un-insurable with private insurers from that day onward. The white horse arrived  in the knick of time in the form of the Government sponsored TRIP (Terrorism Risk Insurance Program) program, not to be confused with Stephen King’s Captain Trips from “The Stand”. The Federal loss sharing program was well crafted and was tweaked on a couple of iterations as the plan life was extended. In a nod to law enforcement and Homeland Security there has never been a terrorist claim in the USA since 9-11. Quite remarkable, historians will attest. We perhaps have a template for global pandemic coverage to boot (Acronym to follow).

Post GFC a complex web of regulations were put in force globally. Of the current top 100 financial companies in the world, 40 are insurers. The list of G-SII’s (Globally Systemically Important Insurers) issued by the FSB (Financial Stability Board) existed from 2013 through the beginning of 2020 (no longer required, impeccable timing). The exit list included 8 global insurers (market cap US$):

Allianz (German), parent of PIMCO, mkt cap $73bln

AIG (US), mkt cap $24bln

Aegon, (Netherlands) mkt cap $6bln

Aviva (UK), mkt cap, mkt cap $13bln

AXA (France), mkt cap $43bln

Metlife (US), mkt cap $34bln

Ping An (China), mkt cap $227bln

Prudential (UK), mkt cap $38bln

Aggregate mkt cap $458bln. Ping An 50%. USA (2) 13%.


Supreme Court

The courts do not always rule against the insurers. Just this week, a long standing case came down on the side of the health insurance industry (aka Obamacare Insurers) where it was decided the $12 billion promised them by the Obama administration to aid in the 3 year implementation period  of the Affordable Care Act (ACA) in 2014 must be paid. The vote was not close 8-1 in favor of the insurers, the government must make the payments to effected insurers.

In a famous event cancellation policy case, a Lloyd’s of London underwriter refused to pay the US$17.5 million Michael Jackson’s concert promoter AEG took out on the “This Is It” tour in 2009. At the time of the purchase of the policy key details were withheld with respect to the “King of Pop”, his poor health, drug use and prescription. The court case was not settled until 2014. Insurance companies must protect themselves from adverse selection, a higher than average risk seeking coverage at the average risk. The only real protection in this regard comes from prudent underwriting practices. Lloyd’s of London is not actually an insurance company, rather it is a syndicate of underwriter. A study unto itself, individual underwriters used to carry unlimited liability until a few individual members (family offices effectively) were forced into bankruptcy by 1999 asbestos claims. Yet another example of an open-ended liability, asbestos isa generic term for a fibre that has a length 3x its width. When working in environments where asbestos is prevalent workers can easily breath in the fibers which can lodge in the lining of the lungs, over time (20+ years in some cases) forming a pearl, which is often cancerous. To ensure their longevity as a company. Lloyd’s capped the liability of individual underwriters thereafter.

In 2020, Wimbeldon collected £125 million (US$145mm) on a pandemic insurance cancellation policy they put in place 17 years ago after the SARS outbreak in 2003. Their annual premium for the policy was £1.5 million and they have paid out £25.5mm in policy premiums to date.

Moral hazard is another key concern with insurance fraud costing as estimate $80bln per annum.

Total annual insurance premiums in 2018 were  $5.2 trillion (6% of global GDP) with 54% life insurance and 46% property & casualty. The US is the biggest insurance market in the world, accounting for 29% of the total with a penetration rate of 7.1% (premium as a % of GDP). China is the 2nd largest insurance market ($575mm in 2018 premiums), followed by Japan ($441mm) and the UK ($337mm).

Director and Officers Insurance (D&O). Elon Musk has increased his shareholder loans to over 50% to “self-insure” Tesla’s D&O insurance, which Musk this week deemed too expensive. The Tesla board (10 strong) includes Elon’s brother Kimbal Musk. Considerable risk exist from the ongoing class action lawsuit relating to the 2016 acquisition of sister form Solar City to the on-going self driving experiment involving live crash test dummies. Firms like Toyota and Nissan, that have spent considerably more on self driving technology than Tesla caution that the current tech is not ready for “prime time” beyond closed loop applications. It is a good thing that Elon has deep pocket to backstop and/all lawsuits that might be brought against the Tesla board. They have a degree of “wrong way risk” with the war chest of fiat US$ margined against his holding of $TSLA stock (he owns 27%), but I’m sure it will be fine.

Globalization of the insurance industry over the last few decade have seen waves of consolidation as mutual insurers largely de-mutualized to become stock corporations. Many jurisdictions have seen the lion’s share of market fall to half a dozen players. In the USA almost 4 million people (3.8mm) work in some facet of the insurance industry (>5,000 insurance companies). There are over 750 life insurance companies in the US (down from >2k in the 90’s) and > 2,500 property & casualty insurers and 860 health insurance companies. There are still 85 fraternal insurers (8% of in-force life insurance policies) in the US with Thrivent being the largest (founded by the Lutherans).

A basic tenent of insurance is the concept of indemnification, i.e. putting the insured in a similar position as they were prior to experiencing a loss. Some categories of insurance are not suited to the public insurance markets, unemployment insurance being one such category. It has been reported that in some states >50% of workers on unemployment insurance are making more on a take-home basis than they were when working. Such largess can only be found by the folks running the printing presses and obviously must have a terminus once shelter-at-home orders are lifted. “At risk” populations must clearly be protected as restrictions are lifted across the globe, but clearly the medicine (extreme behavioral modification/ lock-down as a vaccine is developed and the Ro is brought to a manageable level) is not supposed to be worse than the disease. Fail we may, sail we must.


COVID-19 global prevention measures affect the various business lines of global insurers in distinctly different ways. Commercial, Speciality & Personal lines:

Auto insurance. Caught in the grips of shelter-in-place orders, few are driving. Claims have plummeted, leading leading insurers to rebate customers auto insurance premiums. Allstate has pledged to return $600 million in premiums to policy holders. State Farm, who insure 10% an Americans will be rebating as well, a total of $2bln. Berkshire’s GEICO appears to be less enthusiastic, offering 15% off of renewals.

Business interruption insurance will be the big category for COVID-19, very open ended and a potential tail risk for P&C insurers. The early data from the UK allows for some extrapolation with £1.5bln  in BI claims paid thus far in 2020. With a UK GDP of 2.9tln this scales to $13.125bln for the USA ($20.5 tln GDP). The UK has also paid out $275mm in trip cancellation insurance. Heavy pressure is being applied to insurance companies pay claims promptly and to take an “insured friendly” interpretation of contract terms (from the UK Treasury Committee). It seem to have fallen on deaf ears thus far, with 71% of business interruption claims declined upon submission.

Credit & surety markets will see higher claims as the construction industry globally has been heavily delayed. All specialty lines; aviation, marine, construction and energy have been negatively affected.

Life insurance. Even with global deaths from C-19 approaching 229,000 and US at 61,680, overall death rates are at a 6 year low. The double digit COVID-19 case fatality rates have been evident in those >65 and esp. in those with comorbidity (obesity, diabetes, heart disease, renal disease). 78% of the aggregate reported COVID-19 deaths are from those aged > 65. The UK has seen a life policy surrender rate spike  of 4% since the onset of COVID-19. Whole life currently has a surrender rate approaching 50% by the 10 year anniversary. For many, term life (2x base for each dependent) is often the way to go to cover that critical age 25-65 year period. Underwriting standards are changing rapidly, with John Hancock now only selling new life policies on those that agree to wear a Fitbit (or equiv.). 40% of all the life insurance in force is group life which is all term life underlying.

Dr. Peter Attia, podcast “the drive”.

Early numbers out of China are dire from an earnings perspective with China Life reporting -34% for Q1 2020 and Ping An -43%.

Hard markets lie ahead in the insurance industry. Tighter underwriting standards and higher prices. In the P&C sector the major risk categories include tornadoes, thunderstorms, hurricanes, draught & wildfires. Economic losses in the USA exceeded $650bln over the 2017 – 2018 period. Insured losses were the highest ever over the same period $136bln in 2017 followed by $50bln in 2018 (and $41bln in 2019).

Across some business lines insurers will be dealing with an existential crisis. A deemed lack of value-add is a real risk. A threat of relevance is also a risk  if policy exclusions are broadened going forward. While there are less global fixed income securities trading at negative yields, more in aggregate trade closer to the zero bound as well, threatening to make long-tail lines uneconomical at current rates.

Expense ratios for insurers will go up as they outsource help to assist with claims adjustment in an environment of lock-down.


Insurance is a key global sector. It is both  complex sector and a difficult one to assist via direct programs given its international nature (footprint, ownership, & multi-line nature).

The average equity drawdown in a recession is 33% and the recent BRRR … inspired bounce has us inside of 10% down from the February 2020 highs (almost flat in the tech heavy NASDAQ). When the risk guys are modeling the fallout of an Illinois or Italy default it is probably not the time to daydream about multiple expansion or S&P earning flat to 2019.

Dry powder, in the form of a larger allocation to cash are prudent in the current environment. Gun to my head to allocate new $ in the insurance space, I’d buy Berkshire Hathaway ($BRK-B), $818bln balance sheet with $130 of it liquid, with direct premiums received of $38.4bln and a 6% auto insurance market share (#2 to State Farm at 10%). Life Insurers that get too beat up will be worth a look, but I’d give P&C focussed insurers a wide berth until the COVID-19 dust settles.

Safe trading, as always.


Follow me on Twitter; @firehorsecaper




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Illinois is in a serious bind. The road to perdition has been well lit, and signposted. 8 downgrades in 8 years for the General Obligation (GO) liabilities of the state, with another drop down to junk likely as soon as July 1st, the beginning of their 2018 “fiscal” year. Moody’s and S&P last moved June 1st taking the GO ratings to 1 notch above junk with the ominous warning that they will not be timid if further downgrades are in order. Illinois remains with a negative outlook and on negative watch with both major rating agencies. The unfunded pension liability of Illinois’ five state plans now exceeds US$130bln. IL State now has the lowest funded pension percentage (ranging from 37.5% to 44.2%) of all 50 states. All 5 plans have been achieving investment results well shy of their actuarial assumptions, the most prominent, State Employees’ Retirement System of Illinois (SERS) by -1.75%, returning 5.5% versus a 7.25% bogey (reduced modestly in 2013).

Each Illinois taxpayer is on the hook for almost $50,000 in unfunded liabilities (pensions and post retirement health benefits). Illinois is the 5th most populated state in the union at 12,800,000, for reference. Same ranking for income (for now). Illinois has proposed a 20% privilege tax on investment management services (read; hedge funds) which was tabled in February 2017, approved by the House Revenue and Finance Committee in March and if enacted becomes effective July 1, 2017. The taxation of carried interest is highly topical at both the Federal and State level presently with both NY and NJ considering similar legislation (CT and FL are gladly accepting hedge fund refugees at the time of publication).

In addition to the pension woes, Illinois has not passed a balanced budget for 3 years in a row, as required under their constitution. This has resulted in the untenable situation whereby the state has accumulated $14.5bln in “accounts payable”, on which they will owe $800mm in interest and fees as of June 30, 2017. The cascade effect (i.e. it rolls down hill) has been very damaging. Chicago Public Schools (CPS) are owed nearly 1/2 billion from the state ($467mm to be exact) and must resort to “Grant Anticipation Notes” to bridge the funding gap created. CPS are hoping to keep the cost below 8% which is the usury cap in effect for some school budgets. Chicago accounts for a full 20% of K-12 (Kindergarten through grade 12) enrollment but a more modest 15% of the IL state budget. Laughably, the Chicago teachers are not covered by the state Teachers Retirement System. Chicago Teachers Pension Fund (CTPF) is also a basket case, as you might surmise and in addition to a number of other issues led Illinois’s largest city to be downgraded to junk status in May 2015.

Bond investors have taken note. Spreads on Illinois debt to MMD (Municipal Market Data, the yield curve of the highest rated, AAA/Aaa  municipal bonds, as published by Thompson Reuters) have widened. The eventual downgrade to junk, aka non-investment grade, will make IL debt ineligible for investment for some of their major institutional investors (one of which has already called for a boycott of Illinois debt) which are restricted by mandate to purchase only investment grade muni bonds. There are of course high yield muni funds, but they tend to be smaller in terms of AUM and have had some performance hiccups (Puerto Rico) which have curtailed investor inflows. Suffice it to say there will be more sellers than buyers on a downgrade to junk status for Illinois.

Municipal investors are a conservative bunch. Not a lot of crypo-currency investors in this lot. They are typically older investors in the highest Federal tax brackets (39.6% & 35%), let’s call them the 3%. An increasing portion of muni bond portfolios are Separately Managed Accounts (SMA’s), but the majority are still via mutual funds and closed end funds. ETF’s have made some inroads, but modest in market share terms. 10 year Illinois debt is yielding approximately 4.3% (Federal tax exempt, State tax exempt for IL taxpayers and not subject to 3.8% Obamacare investment tax). Converting this to a TEB (Taxable Equivalent Basis) a non-IL resident in the top tax bracket would need to invest in a corporate bond yielding 7.6% to match. Note: HYG the $20bln high yield ETF yields 5.13% in comparison, hence you might need to buy an out of favor sector like bricks and mortar retail, otherwise non-rated is likely where you will find >7% in the US domestic bond market.

The same negatives that sent Puerto Rico (importantly not a State, technically a Protectorate https://ibankcoin.com/firehorsecaper/2016/04/10/puerto-rico-the-spoils-of-war/) on tilt recently are evident in Illinois as well, namely rampant crime and failing schools. Many schools are years behind in even tabulating scoring tests, which would be required to confirm their bottom quartile performance. To rival the record for shootings in Chi-town you have to go very far afield to places like Kabul.

Kentucky born Lincoln might hide the other half of his face if he were privy to the folly that has befallen “Land of Lincoln”.

Tread lightly, tread carefully. This is July business, post downgrade to junk for the GO credit. Remember, the highest yielding bond is often not the best “value”. Cross-over buyers that can not readily utilize the US Federal tax exemption (i.e.; foreigners, hedge funds) might look to the Build Illinois Sales Tax Revenue Bond which offers enhanced security (and ratings) from the dedicated sales tax pledge (This was also the thought with PR’s COFINA bonds which interest was recently suspended on by the courts, but you get the idea). The PO’s (Pension Obligation) bonds of Illinois are also taxable and will likely swoon a bit on a GO downgrade to junk status. Those looking to structured deals can vet Illinois tobacco settlement bond “Railsplitter” which was structurally superior on issue in 2012 as it could withstand smoking cessation rates of 4% wrt debt service (over $55bln of tobacco bonds have been issued across all 50 states).

Follow me on Twitter @firehorsecaper JCG

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If they ring a bell at the top of the muni bond market, this muni bond issue will be the poster child. Muni investors have long been considered the “C students” of Wall Street, but even for them, this may be too much.

McKinney ISD (Independent School District), Texas just voted yes to a new $220mm tax exempt bond issue which will help finance a $72,800,000 football stadium for their high school, yes their high school. Even though MISD is projected to grow by a scant 71 students (net) per year over the next 5, it has been determined that this all makes abundant sense. Most sane voters (Grassroots McKinney) would squash such financial folly, but the proponents of the deal, labelling themselves “Vote for McKinney’s Future” included the $50.3mm of “new” stadium earmarked money ($10mm was previously spent for the land and $12.5mm of debt was raised a full 16 years ago for the stadium) into a larger debt deal with sensical use of proceeds as a means push through this farcical stadium plan. The only way this could be more emblematic of the funk taking place in US of A is if it carried the name TRUMP stadium. A 10 year stadium naming rights deal could at least have resulted in some savings versus the ridiculous budget  for this open-air teenage concussion petri dish.


Note: artist rendering of the new 12,000 seat McKinney high school football stadium.

This is far from an isolated case. Allen ISD is only a few miles away from the planned McKinney stadium, seats a much larger 18,000 and was built for $60mm (bargain). KATY ISD (near Houston) is in the final throws of approval for their very own $62.5mm cost, 12k capacity high school football stadium. The KATY ISD was established in 1898 and includes 60 school with a total annual budget of $785mm. KATY is ranked 13th place within Texas. One would think a top 10 academic placement might be a pre-requisite for spending $50mm+ on a stadium for a non-pro sport, played by teenagers, that may well be extinct or highly amended a decade out (watch the film Concussion, circa 2015).


The US muni market is immense at $3.6 trillion and as with the Federal debt tally, much has been issued in the last couple of decades. In 1945 there was $20bln of muni debt, in 1960 there was $66bln, in 1981 there was $361bln and now we sit at $3.6 trillion.

Texas is a AAA/Aaa rated state. KATY ISD is rated Aa1/AA stand alone, but as with many muni issuers they often procure credit enhancement to get to AAA/Aaa ratings (saves on interest cost for timid muni bond investors that love the idea of a AAA/Aaa rating). The point here is debt is not free. Even if McKinney can get their debt deal done in the mid 2’s, that is still $5.5mm of interest per annum, enough to pay 150 Texas 10 year tenure teachers ($37,000 per teacher). The right be be able to issue debt on a tax exempt basis is a powerful right, in and of itself. Most of the holders of muni debt are the wealthy, the top 10% of taxpayers, with a big concentration in the top 1% of taxpayers. A seemingly paltry 2.5% tax exempt yield is much more attractive when converted to a taxable equivalent basis (TEB) = 2.5% / (1 – marginal tax rate). The 1% are taxed Federal at 39.6% at the margin. There is a 3.8% tax on investment income to pay for Obamacare, but muni interest is exempt making 2.5% tax exempt equivalent to 4.42% on a taxable equivalent basis.

These silos of affluenza are not sustainable, full stop. The World is watching. Smaller government will be a necessity going forward. It will start with towns, which will share essential services (police, fire, education, health care …. high school football stadiums) skimming 20-25% of the bloated unpaid  bar tab for pension and OPEB (Other post employment benefits). Prudent investors should brush up on their Ch. 9 Title 11, Authorization for municipal bankruptcy knowledge. State amalgamation will follow within a decade. We can have a naming competition on the new name for Maine/New Hampshire/Vermont, followed by Washington/Oregon, North and South Dakota, etc.

Each $500bln of frivolous muni debt represent a huge  opportunity cost for the US government. With a weighted average (current) coupon assumption of 2.5% and a marginal tax rate of 39.6% (+3.8% Obamacare tax levy on investments) the Federal tax leakage is 5.4bln (12,500,000,000 of interest income taxed at 43.4%) per annum. Texas has no State tax, the opportunity cost is even higher in the high State tax states like NY and NJ.

All this is happening at a time of near unparalleled uncertainly (GFC aside, but that is a much longer blog …. AIG bailout, TOB – Tender Option Bond Programs, aka “Tons of Blood”, global arbitrage of the steepness of the US municipal interest rate curve gone awry). Puerto Rico (PR), which I have recently written on, will be restructuring their debt, as soon as legally feasible. PR defaulted last week on a large slug of GDB (Government Development Bank) debt. PR’s benchmark 8% 35′ GO’s (General Obligation bonds, top of the food chain from a “priority of payments” perspective) ,are yielding > 13% tax exempt this week (23% + on a taxable equivalent basis even as a Texas taxpayer).

The Federal stance on the PR pension plans will be precedent setting for the woefully underfunded US States. Illinois has the worst pension in the nation (funded 40 cents to the $1), aside from the non-state bastard PR (sub 10 cents funded on a blended basis). IF we see an insolvency at the state level in the next  decade it will be Illinois.

More than 45,000 students in Detroit missed school for a couple of days this week due to the “sickout” staged by teachers, embroiled in a strike. Detroit was the largest city bankruptcy in US history, July 2013 ($19bln).

Something is rotten in the state of Denmark (Shakespeare). JCG

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“Puerto Rico’s Sinking and I Don’t Want to Swim” was the other top candidate as a header. The current maelstrom has many questioning how the US got into this mess in the first place. Spain controlled Puerto Rico for 4 centuries, from 1493-1898. US victory in the Spanish-American war of 1898 saw Spain cede the Island of Puerto Rico to the US under the terms of the Treaty of Paris. The Spanish relinquished control of Cuba, Guam and the Philippines as part of the same conflict, which lasted a compact 10 weeks (fought in the Pacific and the Atlantic, obviously).

At the time of the 1898 handover, Puerto Rico (PR) had a population of under 1 million (Florida’s Puerto Rican American population is now >1mm). The island population is now 3.6mm, and it has been dropping drastically, as the prospects for the Commonwealth (notably not yet a State) have deteriorated markedly. The 10 year phased roll off of Section 936 tax exemptions for PR domiciled manufacturing under Bill Clinton in 1996 was a partial catalyst. The poverty rate stands at 45%. Labor force participation is low with 41% of the working population opting out (choosing not to work). A full 30% of the employed work for the government. Official unemployment is in the mid teen’s. 40% of personal income in PR comes from transfer payments from Uncle Sam and further 27% of the population is on food stamps.

The US$10bln plus in annual US subsidies to the Commonwealth of Puerto Rico (officially termed “stimulus”) is clearly not the long term solution. An unbroken chain of 7 year of PR recessions (shrinkage in GDP is entering the 8th consecutive year) has been the recent reward. Clearly, allowing an unincorporated US Territory admission to the Union as a State is not the path to salvation either.

There are now more Puerto Ricans living Stateside that there are living in PR (60%/40% split as of 2014). 5mm (including those of Puerto Rican descent), Puerto Ricans live in the US, 29% of them having been born in Puerto Rico. Worthy of note is the fact that the Jones Act of 1917 made all Puerto Ricans natural born citizens of the United States. The last thing we need at this juncture is a sea wall.



Puerto Rico is all over the press this week on the actions of the PR government to halt payments on their debt through declaring an “Emergency Period” for the GDB (Government Development Bank for Puerto Rico), their financial nerve centre. Governor Padilla previously termed the debt as “not payable” in June 2015. There is a $400mm + interest payment due May 1st hence the “come to Jesus” moment will be soon upon us. There have been efforts to restructure for certain. PREPA (PR Electric Utility) bond holders took a flesh wound haircut of 15% in November 2015. The Commonwealth of Puerto Rico has issued debt via 18 different issuers over the years. COFINA, linking bonds to sales tax receipts has been a popular credit (both insured and uninsured).

While not currently allowed by law (US Congress is working on giving PR the same rights that other US municipalities have under US Bankruptcy laws) a full white flag surrender by Puerto Rico would result in the 7th largest debt default in history. The effects would be far reaching. The full debt tally is pegged at US$160bln or about $44,000 per capita. California, as a comp, is at $11,000 per capita in debt. Ontario, Canada is US$15,600. Detroit was $28,600 before they filed for Ch. 9 bankruptcy protection.

Direct debt of PR stands at $72bln, 80% of GDP. The benchmark Puerto Rico 8% July 1, 2035 GO’s (General Obligation Bonds) are trading in the mid 60’s in price terms (CUSIP 74514LE86 rated Caa3/CC with both ratings on negative watch) . The yield at $66.625 is 12.663%. GO’s are tax exempt securities for US tax purposes and Puerto Rico bonds are triple tax exempt (i.e. not subject to taxation at the municipal, State or Federal level). Muni debt is also not subject to the 3.8% Obamacare investment tax, making it effectively “quad tax exempt”. Converting the low teens tax exempt security yield to a taxable equivalent basis gets you to a 43.40% yield (assuming a 43.4% tax rate and a 23.8% capital gain tax rate). Obviously many bad outcomes are factored in at such distressed levels. Even the bond king, Jeff Gundlach has drunk the cool-aid in moderation (approx. 2-3% weighting in Commonwealth of Puerto Rico 2035 GO’s in his $1.73bln Income Solutions Fund).

http://www.emma.msrb.org/  The official repository for information on virtually all muni bonds (official disclosures, trade data, etc.). An awesome resource for municipal credit.


Pension Plan Woes:

Arguably a bigger problem is the underfunded pensions in Puerto Rico. The total underfunded tally is $42bln at present.The pension plans stand on the brink of insolvency. The funded portion is approximately 10% whereas the worst in the contiguous states is Illinois at 40%. $25bln+ of the PR pension shortfall is from laughably generous legacy (pre 1990) pensions  (grandfathered) that call for a 75% pension, based on the retirees best 3 years, drawn as early as 55 years of age (with 30 years of service). Tweaks made to the system over time have resulted in the defined benefit model being replaced with a less costly defined contribution plan for participants joining after the year 2000. Full tap out of the pension plans would see conversion to a pay-as-you-go system with a draw of $1bln per annum (a full 11% of the annual PR budget). A full 1/3 of revenue currently goes to debt service.

All eyes are on the US Treasury and Obama, who have signalled support for the preservation of pensions over bondholders by potentially giving pensioners priority of payment over bondholders. This is a very important precedent for municipal finance in the USA and beyond.

330,000 current PR pensioners versus deep pocketed bond investors (many 1%ers, incl. hedge funds) is not that hard to handicap. As Puerto Rico goes, so goes Illinois and California, would be the thought.

Broader market implications:

The US Muni bond market is immense at $3.7tln-$4.1tln (estimates vary). Given the tax exemption, the bulk of muni debt is held by the top 10% of US taxpayers, either held directly or through investment funds. Upwards of 75% of the US fund complexes own Puerto Rican debt. Given the current distressed status of the credit (investment grade ratings are a distant memory) there are few new buyers, as on a suitability metric, there is a skull and cross-bones on the credit. What are termed cross-over buyers, primarily hedge funds, are the ones with the fin piercing the water’s surface recently. Estimates peg hedge fund ownership of PR debt at >20% (par amount). It should be noted many hedge funds call Puerto Rico home as well, fully gated as one would expect in an environment reminiscent of The Wire (without the clever police work). Acts 20 & 22 circa 2012 tax hedge funds at 4%. As an aside, crime has been a big factor in the travails of PR, with the crime index tracing in the mid 60’s versus 50 for the USA. That said, the murder rate in 2014 touched a 15 year low of 681 (down 40% from the official high of 1,164, but some pegged the high at 2,000, more than 5 homicides per day).

Monoline insurers:

Muni debt investors are overall a conservative lot. Monoline insurers have been a long standing fixture of the US municipal market whereby insurers “wrap” the credit risk of the muni (for a fee) to make the debt more saleable in the marketplace due to the higher ratings assigned to the debt. For insured debt, the owner has the comfort that to lose money due to default, they need both the issuer and insurer to default. The mechanic of the payout on an issuer default is different than a credit default swap (CDS). With an insured bond (monoline wrapped) the insurer is on the hook to pay periodic interest and principal payments (i.e. sinking fund payment, final principal repayment) when due, as per the underlying Bond Indenture.

01-FT Monoline Insurers Puerto Rico 12-1-15

What to do:

Monitor the PR situation, especially if you own muni bonds. Monitor to PR pension situation if you are a taxpayer. Opportunities will likely arise out of the ashes. Monitor the monolines, esp. Assured Guaranty (AGO) and MBIA (MBI). Look for excessive spread widening as a potential opportunity to buy investment grade muni credit that widens in sympathy. Closed end funds will likely trade at  deeper discounts to NAV. State specific funds from the high tax states may get unduly beaten up. Get some help with this, as muni investing is a specialized area. Funds are likely the way to go versus discrete bonds given the wide bid/offer inherent in retail clip sizes. For non US tax payers opportunities could arise in taxable muni credit which encompasses closed end funds like Blackrock’s BBN, Pension Obligations bonds (PO’s) and OPEB (Other Post Employment Benefits), all of which are taxable to US investors. Not all jurisdictions have tax treaties, but there is no wht on US municipal debt.


Many layers to this onion, but I’m beyond my optimal word count. San Juan’s Isla Verde was voted the best urban beach but it is likely to be Isla Rojo for a while. Follow me on twitter @firehorsecaper JCG

Disclosure: 6% weighting in DSL (Doubleline Income Solutions) in my IRA. 10.5% yield. 6.9% discount to NAV (closed end fund).

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