Taking Stock by Malcolm Berko

Dear Mr. Berko: I'm going into the hospital next month for major surgery and before I do, I'd like to buy some municipal bonds with a $27,000 CD that comes due just prior to my hospitalization. I want to get the highest possible return with triple-A rated municipals. I figure a 6 percent tax-free return is equivalent to 9 percent because I'm in the 30 percent bracket. My broker recommended a California tax-free bond called Tustin CFD No. 6-1 Legacy/Columbus, 5.75 percent due 9-1-37. I would pay a price of $9,400 per $10,000 face-value investment. The broker said this bond will be rated triple A by Moody's in March 2010. He said I could buy $30,000 face value for $28,200 yielding 6.1 percent. This sounds wonderful to me and my wife. What do you think? — W.R., Jonesboro, Ark.

Dear W.R.: There are some good tax-free returns available in the municipal bond market, and that 5.75 percent, Tustin CFD is not one of them. Your bond broker is a liar, a crook and greedy enough that he'd probably hitch his mother to a dog sled if the price were right. He's also an ideal candidate for a glossectomy, as are most grifters employed by firms that advertise and sell municipal bonds to suckers like you.

The first thing you need to know is that Moody's won't give that bond a triple-A rating next year no matter how much under the table green may be passed to those "nose-in-the-air" highbinders. Frankly, considering Moody's past foul and contemptible ratings practices, I'm not comfortable that their analysts have the ability or credibility to provide an acceptable rating to any security.

The second thing you need to know is that a bond price of $9,400 per $10,000 of face value is incredibly high for this piece of junk. I can buy those bonds all day for $8,000 per $10,000 face value.

This picaroon is taking you to the cleaners and bragging to the other rogues in the office how he "bagged that old fart who was so grateful that he wanted to kiss my ring."

The third thing you need to know is that the municipal bond market is a place where traders can really sock it to the public because municipal securities are an unregulated security. They're not part of an auction process like IBM, Lockheed or Pfizer, where all trades are transparent and buyers can view every transaction that occurs. There are only $20 million of that 5.75 percent Tustin Bond outstanding and I doubt there are five brokerages in the county that know this issue. And certainly there's no way you can know if the last trade was $7,000 per $10,000 or $8,000 per $10,000 face value.

The fourth thing you need to know is that this may not be the time to buy municipals. Most states (especially California) are now facing a permanent reduction in tax revenues that will force their legislatures to reduce the size and scope of their state's services. During the past eight years, many states have increased their spending some 60 percent to 80 percent, many of their bureaucracies that have grown cumbersome and intolerable in those years then will be dismantled. Frankly, it's about time. So I think you'd be well ahead of the game waiting until this time next year before investing in municipals. I believe prices will be lower and yields for good quality issues will be higher.

And finally, I wish you well and hope the doctors put you back together in Bristol fashion. Jonesboro has uncommonly superb medical facilities so you're in great hands. But one piece of advice: Be as nice as you can to everybody in the hospital, no matter how difficult it might be, because you will never know who's going to pull out your catheter.

Please address your financial questions to Malcolm Berko, P.O. Box 8303, Largo, FL 33775 or e-mail him at mjberko@yahoo.com. To find out more about Malcolm Berko and read features by other Creators Syndicate writers and cartoonists, visit the Creators Syndicate website at www.creators.com.

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