“Sunshine on my shoulder makes me happy.”
John Denver recorded that hit over 30 years ago. Whatever he meant, I’m pretty sure he did NOT intend it as a commentary on the municipal bond market. But that’s what’s needed in muni bond land: sunshine.
By sunshine, I mean transparent disclosure of current financial conditions. The kind of disclosure we get in the stock market. The kind of information we get on the general economy. Because US companies have to report their revenues, expenses, and earnings every quarter, there are very few genuine surprises. Yes, you get the occasional fraudulent Enron, but in general, in the equity market the best surprise is no surprise.
There are some areas of the muni market where this is the case. In California, for example, the State Controller provides monthly updates (about 10 days after each month-end) regarding the State’s revenues and disbursements. Contrary to what you might read in the media, that State’s credit rating is still A1 and is not close to junk.
But there are many places where disclosure is sadly lacking. Not every issuer has tens of millions of dollars to spend on financial analysis, and accrual accounting in the public sector can be tricky. Nevertheless, if small companies with around 300 employees can produce financials 90 days after the quarter closes, cities like Chicago or Miami ought to be able to come up with preliminary numbers on a regular basis. The problem is, the current political leadership may not want to.
There are problems in the muni market. But they’re problems that can be fixed. In order to fix them, we need to see them. And in order to see them, we need sunlight.
Douglas R. Tengdin, CFA
Chief Investment Officer
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