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Puerto rico muni's
Old 01-08-2014, 10:25 AM   #1
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Puerto rico muni's

Is anyone buying? Anyone knowledgable about munis? PR bond are yielding 10-18%. After tax yield. I'm looking for the baby (the ones most likely to be first in line) that gets thrown out with the bath water.

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Old 01-08-2014, 12:24 PM   #2
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.....there was something about PR munis on Wealthtrack (Alexadra Lebenthal interview) about a month ago. I don't recall it being positive.

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Old 01-08-2014, 12:48 PM   #3
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I buy for my personal account individual muni bonds and have been doing it for 20 years. I bought California bonds (when they said it was going broke), I bought Illinois bonds (when they said it was going broke), I am currently buying O'Hare Airport and LA County bonds......but I am not buying PR bonds. States (as opposed to municipalities and authorities) cannot file for bankruptcy under the Constitution. A territory like PR "supposedly" cannot file based upon some precedent involving the Northern Mariana Islands in 2012 where its case was rejected. In all likelihood the federal government may need to impose financial oversight like it did to Washington DC years ago--but who knows. Detroit had debt of about $25,000.00/resident and filed. PR is in about the same position. This is a risk issue which I am not personally comfortable with. Many who own muni funds continue to own PR without realizing it. That is why I always prefer to buy the individual bonds myself in addition to the greater control I have over taxes and maturities. If you want to roll the dice with a small amount (which amount varies for each of us) I see no harm.
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Old 01-08-2014, 12:53 PM   #4
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Puerto Rico bonds reminds me of that old Will Rogers quote

I'm not as concerned about the return on my money as I am the return of my money

There is a reason why those bonds pay so much. Detroit bonds paid very well also.
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Old 01-08-2014, 12:55 PM   #5
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I have a small position in a 5.5% PR General Obligation. It started off being a pretty sizable position in 200 but as interest rates dropped, the bonds have been gradually redeemed.

Brewer warned me and others a couple of years ago about the terrible condition of PR finances. I put it on my to do list to sell it and never got around to it.

Last fall I tried to sell. It turns out the price Schwab's computer say the bonds are worth $950 is quite a bit higher than human is actually willing to pay say $880. The bonds mature in 3 years so with a yield to maturity of 9% I'm going to bury my head in the sand and hope for the best. I figure my break even point is getting more than $.75 on the dollar in bankruptcy. But if they can kick the bankruptcy down the road for 3 more years I am home free.

I figure worse case I'll have a seat at the largest muni bankruptcy. Plus since the bonds are insured by the AMBAC who's financial condition is as bad as PR. I figure I'll also become a creditor of AMBAC and will get twice as much legal paperwork to read .
Unless you've got some expertise in the field, I'd personally stay far away.
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Old 01-09-2014, 04:40 AM   #6
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I have some munis from a couple of states including Michigan, but would stay away from PR bonds.
Originally Posted by Jmo1969 View Post
Is anyone buying? Anyone knowledgable about munis? PR bond are yielding 10-18%. After tax yield. I'm looking for the baby (the ones most likely to be first in line) that gets thrown out with the bath water.
Very conservative with investments. Not ER'd yet, 48 years old. Please do not take anything I write or imply as legal, financial or medical advice directed to you. Contact your own financial advisor, healthcare provider, or attorney for financial, medical and legal advice.
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Old 01-09-2014, 04:50 AM   #7
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I don't even buy PR bank CDs even though they pay a slightly higher interest rate and are FDIC insured. You never know what could happen. They could be made independent and do an Iceland or Cyprus on the savers and bond holders.

The object of life is not to be on the side of the majority, but to escape finding oneself in the ranks of the insane -- Marcus Aurelius
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