Detroit files for bankruptcy

Detroit bankruptcy makes munis a bargain
Some money managers see a buying opportunity in scary situation
By Chuck Jaffe
July 29, 2013, 7:23 a.m. EDT

"Money has been marching steadily out of municipal bond funds for about two months now, but with the recent news of Detroit’s bankruptcy claim, a lot of individual investors may be wondering whether they should join the parade.

"In spite of the scary headlines, most fund experts say that, if anything, the headlines make this the wrong time to abandon muni bonds.

"What’s more, the lack of a frightening muni bond fund story — the issue that blew up because it had become bogged down with Detroit bonds and was taken by surprise — may be the best sign that fund managers understood the risks they were facing even before the Michigan situation attracted attention to muni bonds.

"There’s no denying the black eye this has given the municipals market, but the question is whether that pain is more a buying opportunity than a sign to sell.

“Any fund manager worth his salt has seen this coming, as Detroit’s problems did not pop up overnight — they were well publicized and covered in muni circles,” said Christopher Keith, who manages bond portfolios at Adviser Investments in Newton, Mass. “This means that your higher-quality focused portfolio managers had time to work out of their positions or, at the very least, reduce exposure to the point where it will not cause noticeable harm.

“In spite of this and other highly publicized pockets of trouble, municipal bonds remain a safe, low-risk and conservative asset class,” he added.

"It just doesn’t feel so safe when default risk rears its ugly head.

"Bond defaults of all stripes have been rare in recent years, but particularly so in the muni space. That said, in every past case of a major community default — think the Orange County bankruptcy of 1994 — fund companies have in many cases stepped in to buy the paper affected by the problems, relieving their issues of troubled paper, stemming the tide and minimizing losses.

"There’s no guarantee that will happen again, but there’s also no reason to expect Detroit’s situation to trigger some sort of rush to the bankruptcy court. There are many other municipalities with revenue shortfalls and underfunded pensions that will be watching the proceedings and using Detroit as a test case, but they will also use the negative fallout from the problem to push for legislative and administrative change, rather than immediately moving to a last-resort solution like bankruptcy.

"As the Detroit case proceeds, there is a legitimate concern that the city could try to get a court to rule that general-obligation bonds — those tied to using resources like tax revenues to repay bondholders — should be treated as unsecured debts. That would mean that the city would no longer be on the hook if declining revenues — caused by Detroit’s shrinking population base — were insufficient to cover the debts.

"That said, most muni-fund managers balance general-obligation bonds with essential-purpose bonds — like a water- or sewer-utility bond — which are not likely to be affected by the bankruptcy proceeding at all.

"In the case of Detroit, the water and sewer system is self-sufficient, with adequate revenue to make its debt payments; while prices on the water and sewer bonds have fallen since the bankruptcy, most money managers see this as a buying opportunity.

"For investors who are worried about general-obligation holdings if they become less-secure after the Detroit case, a simple check of a mutual fund’s portfolio should let them see what they are dealing with. There are muni funds that, as a policy, avoid general-obligation bonds; the recently opened db X-trackers Municipal Infrastructure Revenue Bond fund RVNU +1.32% is the first exchange-traded fund to stake out that space.

"Detroit bonds also represent a small part of the muni market.

"Russ Koesterich, chief investment strategist for BlackRock, said on my radio show this week that “there are still good opportunities at the national level in the muni market and this is not an asset class you want to abandon, because the tax equivalent yield is still very competitive compared to the rest of the bond market.”

"Indeed, the Detroit situation has made munis a bargain, relatively speaking. Mark Salzinger, editor of the No-Load Fund Investor newsletter, noted that the yield on Vanguard Intermediate-Term Tax Exempt VWITX +0.37% is now more than a full percentage point higher than its government-bond-buying sister, Vanguard Intermediate-Term Treasury VFITX +0.09% .

"While Detroit will be a trigger point for some nervous, risk-averse investors, the truth is that the real worry isn’t default or bankruptcy risk so much as plain-old, ordinary interest-rate risk. A move in rates will hurt muni funds — and all types of bond funds — more than Detroit’s situation.

"Said Salzinger: “With absolute yields across fixed income so low, investors of all risk levels should have less in fixed income products than they normally would. However, compared with other types of bonds, municipals look pretty good now.”

 

Detroit is going to transfer their healthcare liabilities to Obamacare. I can't imagine how it will play out if all the failing cities/counties/states transfer their healthcare costs to Obamacare but it seems certain that is what will happen. It's been pointed out that Argentina went down in flames after their federal government assumed liabilities from failed areas. The federal sector is already way out over it's skis, piling on all this debt from the failing trashy Liberal areas is going to make things far worse. I'm not sure there is any amount of austerity that can rescue the federal sector at this point and after the states/counties/cities pile on it's unthinkably bad.

http://www.nytimes.com/2013/07/29/u...w-to-ease-costs.html?partner=rss&emc=rss&_r=0

 

All true of course, but look at the bright side.

"Detroit bankruptcy makes munis a bargain"

 

Detroit's broke, but that won't stop `em from shelling out a cool (and I do mean cool) 400 million for a new skating rink for the hockey team:

http://www.weeklystandard.com/blogs...lion-taxpayer-funded-hockey-arena_741090.html

Typical libtardism spend until you are broke then spend, spend, spend some more. Kruggie'd be proud.

 

Sheer stupidity.

 

Yawn. Remember, page hits generated by elitetrader staff (unpaid or not) do not count as unique page views.

"New arena for the Red Wings

In 2009, the Red Wings announced that they would not renew their 30-year Joe Louis Arena lease with the City of Detroit (which also included the rights to Cobo Arena).[11] In May 2012, it was reported that the Red Wings had hired a pair of architects, HKS and Chan Krieger NBBJ, to design a new arena.[12] In December 2012, Olympia Entertainment announced the intention to develop a new district in downtown Detroit composed of offices, residential facilities, and "a new state-of-the-art, multi-purpose events center". The project has an estimated cost of $650 million.[13]

In June 2013, the city of Detroit's Downtown Development Authority officially announced the location of the new Detroit Red Wings arena and entertainment district.The new arena will seat 18,000, with a total event center space of 650,000 square feet. There will be 10,000 square feet of retail space on the ground level, 105,000 square feet of office space and 35,000 square feet of retail. According to the Detroit Economic Growth Corp., $285 million of the $650 million cost will be public, with $365.5 million in private funding.[14] On July 24th, 2013 the Michigan Strategic Fund approved the Detroit's Downtown Development Authorities request for $650 million in funding. [15]"

http://en.wikipedia.org/wiki/Joe_Louis_Arena#New_arena_for_the_Red_Wings

 

More niggas behaving badly:

Two police officers accused in Detroit robbery, assault

Detroit— A photograph snapped by a citizen and distributed to the media led to the arrest of two police officers who allegedly robbed and assaulted two people last week, Detroit Police Chief James Craig said Monday.

The two men — one a sergeant and 20-year veteran of the Detroit Police Department; the other with the same rank in St. Clair Shores — allegedly wore their badges around their necks and drew their department-issued pistols when they robbed two men at an east side gas station on July 21, according to police. One of the victims was assaulted, Craig said.

http://www.detroitnews.com/article/...in-arrests-Detroit-St-Clair-Shores-cops-today

 

Just curious, but what in your link and text refutes that approx $300mm is being picked up by the public?

 

And yet many of our anti gun pussies want no one but the police to have guns.

 

Tgregg's conclusion is the target. He's small-time.