Municipal Bonds and Funds: A Questionable Future

There are plenty of predictions of a negative future for the values of municipal bonds and muni bond funds. Baby boomers who invest in muni bonds for retirement should pay close attention.

First, Warren Buffet has been issuing warnings about municipal bond defaults since 2009. In June of 2010, Buffet testified before the “Financial Crisis Inquiry Commission” as follows:

I don’t think Moody’s or Standard & Poor’s or I can come up with anything terribly insightful about the question of state and municipal finance five or 10 years from now except for the fact there will be a terrible problem and then the question becomes will the federal government [help]?

(Source)

This month, Meredith Whitney (a well-regarded financial analyst) appeared on 60 Minutes and, among other warnings about state and local finance, said this:

The most alarming thing about the state issue is the level of complacency. It has tentacles as wide as anything I’ve seen. I think next to housing this is the single most important issue in the United States, and certainly the largest threat to the U.S. economy.

I recommend that you watch the entire 60 Minutes story here.

More recently, Peter Schiff had even stronger predictions of a muni bond meltdown:

I have no interest in muni bond investments at this time, even if the federal government starts intervening to prevent defaults. The potential tax benefits do not outweigh the risk.

What do you think?

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