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Curb their appetite.
-- -- is the head of municipal investments at UBS global asset management manages fourteen billion dollars in assets have been welcome it's so much for joining us again thanks Laura.
Aren't we been talking about yesterday we heard about the Detroit budget crisis I mean this is -- question you get all the time I mean before the crisis you can pick and choose your Munis but.
How do you what do -- in this climate.
-- -- Research is -- can be.
The market has gotten much much less monetized.
Due to the credit crisis.
Insurance gave many investors a sense of security.
That model is clearly broken as a you ventured into CDS and mortgages except for a what you really need to do is do your homework and do a lot more bottom up research and specific credits Detroit -- the state of California.
-- California Stockton California won't just pick on that statement.
-- but there are many that are having difficulties in you gotta do it again.
The beauty -- it also is yes there's definitive landmines out there but there's -- opportunities.
The market is really under research because of this transformation.
Single a bonds which used to represent all about 7% of the of fixing by the excuse me -- the -- grade arena is now about 25%.
You know so much is -- -- America Whitney call a couple of years ago right so where are we now in terms of said the risk of default for these Munis.
Have a potential through to potentially rise but let me let me give you some perspective -- if you're talking about defaults -- municipals at around eight billion of -- amount of assets that are in technical default.
On a three point seven trillion dollar market.
So it's a very very small percentage if you have a 10% rise you go to nine billion that's still a small amount.
Where the real risk is is what we -- -- super downgrade.
You have a double A bond that you think is solid and it gets downgraded -- -- low -- -- into the triple B category.
While us out of default and it's highly highly probable its money good.
It's more to market and that's what it does to its market price and that given timeframe is that it is highly underperforming.
And that's really -- -- -- are.
But because of that also the baby gets thrown out with the bath water.
There are some opportunities where it gets painted with the same brush will that means.
Many other large cities must be in trouble like Detroit or other states must be in trouble like California.
And prices are are not.
I'm not homogeneous in.
In this that's a plus so how do you differentiate doesn't mean how do you tell the difference between the one that is you know right -- -- tripled downgrade you know you're one that's a deal.
Yeah it's it's most and it's difficult you're talking again about a markets highly fragmented -- over 50000 issuers.
-- -- -- -- -- -- -- -- -- I could speak a little bit about us we follow with a a six person deep credit team 300 -- Which is obviously very small percentage.
But it is the largest issuers we feel we tackle almost 50% of the outstanding debt by following them.
Because they issued financial statements many of these small little local municipalities.
Don't -- financial statements due to the tower -- -- have to.
So the key thing is doing your homework and gets gets back to the research -- -- arguing anticipating.
Money into Munis because we're in this sort of state of tax reform.
In that you know Munis of course our tax exempts yup by nature so if people -- to pay a higher income tax it's.
Attractive that coupled with Saddam -- there can be some pretty big tax volatility here depending on election results in November.
If President Obama gets reelected there's that much higher probability -- income tax rates going up.
And compare to where municipal rates are today relative to alternatives on missiles or basically triple -- Munis.
Have the same if not higher are mostly higher than -- in the counterpart treasuries -- Yorker.
So there is a greater probability.
Also what's driving participants in two minutes -- Not only the tax exemption is you know you'll do you talk every day about the risk on risk off trade -- when you have risk off actually Munis -- are seen as a fairly safe investment.
Despite some of these markets -- to.
Running at a time a -- to get.
Within your fixed income portion of allocation -- how much would you recommend an average investor average risk taker put toward.
-- -- -- it's obvious is so specific to the individual investor.
-- I'll try to get across on summer younger.
A third thirty years old getting started her that's probably a low number not an asset -- -- As you get older that number -- I think is you get into.
My age group mid fifties.
That's getting into more 5050 maybe 6040 get -- so it's -- He got -- well thanks for engaging my question how much my pleasure every theory and extravagant that it and -- and you took.
So who -- failure in Europe benefit President Obama or Mitt Romney up next -- front of the doubts about the European speeds that are ready emotion from both eyes and -- -- had to break we're just talking about the bond market that's looking yields on 1030 your.
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