Municipal Bond Forum
No shortage of doomsday scenarios
Q
I have an account with your firm and all is going well! But I read a story in The New York Times recently quoting a hedge-fund manager who lays out a depressing sequence of events. He says governments can’t borrow much more and are being forced to print money. He says that will be followed by a new bubble in long-term bonds, which in turn will cause currencies to collapse. If that happens, how could municipalities cope? I realize your view that long-term bondholders keep bonds to maturity and collect the interest, but if currencies are in bad shape, doesn’t that undermine the merit of holding municipal bonds?
A
James A. Klotz responds:
As you know, there has never been a time when there was a shortage of “the sky is falling” predictions. We don’t expect this one to be any more accurate than those that have preceded it.
You ask what would happen to municipal bonds as a result of his scenario. If this came to pass, one must ask oneself, how would any investment cope, other than gold coins and guns?
It has never been wise to structure an investment portfolio based on a doomsday scenario.
Although the financial world has challenges to face, brought to life by the recent financial crisis, we see changes afoot in Europe and here at home which bode well for a brighter future.
Start here.
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