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Let's give credit where credit is due: recently, Forbes published an article that to some might seem like the kind of article that sits on the shelf until there is a slow news day and the editor is looking for a filler piece. In fact, this article raises a number of important points that, in my opinion, all touch upon the national economic recovery and just may be the locus of the revival of small business and wealth creation.
Authored by James Colby
Looming under the somewhat Byzantine headline name, Sequestration, are automatic cuts to government spending that may include planned reimbursements to state and local issuers of Build America Bonds (BABs). BABs are taxable municipal bonds, authorized as a stimulus program under the 2009 American Recovery and Reinvestment Act. The federal government promised rebates to the issuers equal to 35% of their interest costs as an incentive to raise capital for "shovel ready" projects. Many market participants considered it to be a highly successful program.
With the political ripples of the "cliff" and inauguration finally reaching the edge of the pond, the markets appear to be once again fully engaged in the dissection of domestic economic releases, earnings and European monetary drama. The elements that I believe sparked a year-end selloff have now receded, allowing municipals to push forward with a month-to-date gain of 0.62% as of January 25, 2013. New flows into municipals, along with cash from calls, maturities and coupon payments are again positive, overwhelming a meager January supply: a formula that is prevalent in most years, coined the "January Effect."
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Please note that the information herein represents the opinion of Jim Colby and these opinions may change at any time and from time to time. Not intended to be a forecast of future events, a guarantee of future results or investment advice. Current market conditions may not continue. Non-Van Eck Global proprietary information contained herein has been obtained from sources believed to be reliable, but not guaranteed. No part of this material may be reproduced in any form, or referred to in any other publication, without express written permission of Van Eck Global. © 2014 Van Eck Securities Corporation. MUNI NATION is a trademark of Van Eck Associates Corporation.
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