Wednesday, March 18, 2009

Modestly: I TOLD You So!

Would you lend ThreeCardMonte Doyle $1.5BN?

Some are a bit hesitant.

The state hopes to sell $1.52 billion in bonds, which have a minimum purchase price of $5,000, as a way to shore up the budget. For example, a new 10-year bond, which is exempt from federal tax, carries a 4.75% yield for someone in the 28% tax bracket.

That's a good yield for a 10-year bond, said Wendy Stojadinovic, senior fixed-income manager at MBO Cleary Advisors Inc. in Milwaukee. However, she said, she's reluctant to invest without seeing exactly how the cash flow needed to pay off the bonds will work.

The bonds are tied to the 1998 settlement by tobacco companies with states over medical costs caused by tobacco products. The $1.52 billion is roughly what the companies are scheduled to pay the state government from 2010 to 2037.

Got that? (Hint: it's in the very fine print...)

Stojadinovic said she wants to know more about the likelihood of tobacco companies continuing to make payments.

"I'd be more comfortable with more essential-service revenue bonds, like the water or sewer revenues," she said.

Marquette University accounting professor Robert Yahr said he wonders how receptive the market will be for those who need cash and want to sell the bonds before they mature.

"For people investing for the first time, hopefully they have other investments and have an investment adviser so they can get some professional advice," Yahr said.

That's what we call VERY cautious endorsement.

HT FoxPolitics

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