TOP WEBSITES FOR INCOME INVESTORS (KIPLINGERS)

KIPLINGER'S | March 2016

9 Top Free Sites for Income Investors

Five years ago, Kiplinger’s turned to longtime investment writer and in-house income guru Jeff Kosnett to launch a newsletter designed to steer income-starved readers to the best investments for dependable, spendable income. Today, Kiplinger’s Investing for Income continues to attract a growing army of satisfied readers.

How does Jeff uncover opportunities for his subscribers month after month? Of course, he spends a lot of time interviewing money managers and mutual fund masterminds, as well as the men and women who actually run real estate investment trusts (REITs) and master limited partnerships (MLPs). And he mines the Internet, searching for great ideas and studying the raw data to identify broad trends and profitable prospects. We asked Jeff to share with Kiplinger.com readers his favorite free sources for reasoned discussion and hard-to-find financial data. Bookmarking these sites will be a valuable step toward making you a more successful investor.

 

Closed-End Fund Center

Web address: www.cefa.com

Key data: Discounts and premiums to net asset value

Best for: Sorting and screening 629 closed-end funds

The keys to understanding any closed-end fund are data about current and historic discounts and premiums to net asset value, distribution rates, whether and how much the fund borrows (leverage), and total return on net asset value. This site offers all of that and more, plus the tools to sort and screen more than 30 varieties of funds in too many ways to count.

Kosnett Comment: CEFA’s tables show each fund’s distribution yield next to its income yield. The two won’t match, but they should be fairly close. If the income figure is low but the distribution is high, the fund is selling assets or issuing new shares to maintain the illusion of a fat yield. It could be headed for a distribution cut.

Eaton Vance Monthly Market Monitor

Web address: www.eatonvance.com

Key data: The numbers on all aspects of income investments

Best for: Total returns and average duration of bonds

This fund company’s site is loaded with free stuff. The best is the monthly monitor (accessible in the site’s Institutional Investors section): 40-plus pages of charts and tables about all aspects of stocks, bonds, bank-loan funds, commodities, industry sectors and more. All this — including total returns and average duration of more than 20 kinds of bonds — is nicely laid out on single pages.

Kosnett Comment: The page called “fixed income spread analysis” uses simple bar charts to show the current and past yield advantage of various categories, such as junk bonds or preferred stocks, over Treasuries. When the spread is unusually narrow, there’s more risk. When it’s wide, it’s usually a good time to invest.

FRED

Web address: www.stlouisfed.org

Key data: 382,000 statistical series from 82 sources

Best for: Financial data, graphs and charts from the government and everywhere else

If you want to see a trend in, say, inflation, growth, interest rates or stock-market returns for just about any period, you’ll find it here. This takes the place of any almanac, encyclopedia or reference book — and it’s updated daily. FRED is the acronym for Federal Reserve Economic Data and is the brainchild of the Federal Reserve Bank of St. Louis.

Kosnett Comment: You may go weeks or months without using this, and then you’ll refer to it several times in one sitting. It’s comforting to know that someone has gone to the effort of assembling all this info in one place.

SEE ALSO: 7 Promising Dividend Stocks Yielding 5% or More

FRED

Investing in Bonds

Web address: www.investinginbonds.com

Key data: Real-time market data on bond trading action and prices

Best for: Owners (or potential owners) of individual corporate and municipal bonds and anyone else who wants to see how bonds are priced and what they are yielding at any given time

Kosnett Comment:The Securities Industry and Financial Markets Association (SIFMA), the bond dealers’ trade association, runs the site and has a news feed as well. Some of the commentaries, though, are dated.

Robert W. Baird & Company

Web address: www.rwbaird.com

Key data: Relative yields of municipals and Treasuries

Best for: Analysis of taxable and tax-free bond markets

The managers of Baird Core Plus Bond fund and other excellent no-load income funds publish a combination of basics with just enough financial-market-speak to keep the pros happy with their Capital Markets Perspective. The insights live at Baird’s corporate site (address above) not the Baird Funds' consumer site. Offerings include both tax-free bond and taxable-bond commentaries. A recent subject is the tight supply of new bonds, which keeps prices high and yields low. There is also a colorful market commentary called, ahem, The Bull and Baird Blog.

Kosnett Comment: Baird’s municipal bond letter illustrates such basics as the ratio of tax-free bond yields to Treasury yields and the equivalent yield you need to earn on a taxable investment to net the same after-tax income.

Pimco

Web address: www.pimco.com

Key data: Outlooks and forecasts from the fixed-income behemoth (with $1.43 trillion under management) formerly known as the Pacific Investment Management Company

Best for: Investors who like to see commentaries and explanatory articles that put the market’s gyrations in perspective. For example, an article called “Emerging Markets Trying to Turn the Corner” makes the case for some, but not all, investments in those countries. The Pimco blog about the issues of the day is well-presented and with graphics.

Kosnett Comment: The departure of Bill Gross from Pimco changed this site from his soapbox to more of a team effort.

EMMA

Web address: www.emma.msrb.org

Key data: Muni bond trading details

Best for: Screening the tax-free bond universe for top yields

Electronic Municipal Market Access, from the Municipal Securities Rulemaking Board, shows every municipal bond trade, plus key background information about thousands of issuers. If you own tax-exempts, you can see a price graph for each bond based on months of trades, just as you can chart a stock or a fund. You can also screen the tax-free bond universe in detail. For example, when you search for all AA-rated Arizona water and sewer bonds due between 2024 and 2029, up pop the yields and other particulars.

Kosnett Comment: EMMA is easier to navigate if you know your bond’s CUSIP number.

REIT.com

Web address: www.reit.com

Key data: Historical returns and other performance information for real estate trusts going back to their invention in the 1960s.

Best for: Avid real estate investment trust fans and anyone who wants to see new offerings and news tidbits about the industry and its members. The site is run by the National Association of Real Estate Investment Trusts (NAREIT).

Kosnett Comment: It would be good if NAREIT would link to a resource that provides up to the minute data on the individual REITs’ net asset values and prices to book value. You need a brokerage link to that kind of research.

TCW

Web address: www.tcw.com

Key data: Monthly updates by sector, such as the High Yield and Mortgage Market updates. Find it all under Insights from TCW, a global asset management firm.

Best for: Bond fund investors, especially if you dabble in risky or unusual areas like junk bonds, mortgages and bank loans. There are also excellent forecasts and commentaries from the portfolio managers and analysts.

Kosnett Comment: This is some of the best perspective on individual bond-market segments and what’s driving them up or down.

Tax Free Municipal Bonds - What to Buy Now (Barrons)

Where to find good opportunities in munis

BY Jack Hough,

Barron's

Copyright © 2012 Dow Jones & Company, Inc. All Rights Reserved.

Barron's — 12/01/12

Municipal bonds are not the bargain they were two years ago, but there's still good value to be had, especially compared to U.S. Treasuries. Some do's and don'ts.

Taxes for high earners look likely to rise next year, but those who feel the urge to park money in tax-free municipal bonds should shop carefully.

Plenty of investors have had the same thought since Election Day. A popular exchange-traded fund of these bonds, iShares S&P AMT-Free Muni Bond, has gained 1.5% since then, and 5.2% year-to-date. That might sound like small potatoes, but as bond prices rise, yields fall, and a muni universe that was recently an obvious bargain is now an iffy one.
Compared with Treasury bonds, munis still look cheap—but so does nearly everything else that carries a rate of return. Triple-A general-obligation munis, backed by the taxing authority of the issuer, yield 1.74% at 10-year maturities, a bit more than the 10-year Treasury's 1.62%. Historically, muni yields have tended to be only 85% to 90% of Treasuries', with investors making up the difference in tax breaks, says Dan Heckman, a fixed-income strategist at U.S. Bank Wealth Management.

Demand for munis is dominated by retail investors who are easily scared off and slow to return. Indeed, yields got so juicy two years ago, after a prominent analyst warned of widespread defaults, that even investment funds focused on providing taxable income with corporate bonds were dipping into munis. The default crisis didn't materialize, and now munis have retuned to pre-scare levels.

The muni discount versus corporate bonds is gone, says Chun Wang, a portfolio manager at Leuthold Weeden Capital Management. Since 1979, munis have yielded a median of 1.15 times as much as corporates, once their yields are adjusted to taxable-bond equivalents based on 35% tax rates, according to Wang. As recently as the end of October the ratio was 1.25. Now, it's 1.10.

However, investors who have put off their muni shopping until now can still find good deals using a targeted approach. Here are some dos and don'ts:

Don't just create an evenly laddered muni portfolio, with bonds coming due every few years. Yields on the short issues are well below the rate of inflation, which will erode wealth over time. Instead, favor intermediate maturities where yields take relatively sharp jumps.

For example, many buyers ask their brokers for 10-year bonds; it's a nice round number. That creates a minor demand bubble there, says Matt Fabian, managing director of Municipal Market Advisors, a Concord, Mass., research service. Recently, 12-year, AAA-rated bonds yielded 2.20%, versus 1.48% for nine-year ones. Investors who buy the 12-year paper get the higher yields, plus an added benefit: As the bonds age three years, they may rise in price, so that their yields match those for nine-year issues. This "roll-down" effect works only if rates stay where they are.

Do delve into bonds rated a couple of notches below perfection. Defaults by municipalities are rare, relative to those by corporations, and the percentage of funds recovered by investors in the case of default is typically much higher. Look to A-rated bonds for good value from a risk/reward perspective, says Peter Hayes, head of the muni group at BlackRock. From 1970 through 2011, the default rate for these munis was just 0.04% over 10-year periods, versus 2.22% for comparably-rated corporate bonds, according to Moody's.

Don't buy all home-state bonds. A New Yorker who buys his state's bonds gets the federal tax break offered by most munis, plus a break on state taxes (and maybe even local ones if he lives and buys in New York City). But bonds from outside states bring the benefit of diversification.

New Yorkers can put 70% or more in home-state bonds because of high taxes, decent state finances and a deep universe of local bond issuers to diversify among. California has weaker finances, but coastal cities are doing better than inland ones, and state taxes are headed to shockingly high levels, up to 13.3%. Buyers there should also favor in-state munis. Rhode Island and Connecticut, on the other hand, have weak economies and limited muni supply, so residents should limit their in-state buying to 40% or 50% of their portfolios.

Do shop for out-of-state bonds from states that don't have income taxes, like Texas, Florida, Nevada and Washington. They lack strong local demand, leaving yields a touch plumper.

Do keep fees low, but don't assume index mutual funds offer the best deals. The bonds they track tend to stay in high demand, while active fund managers can look for higher yields among less-popular issues. Fidelity Tax-Free Bond
gets a "gold" rating from Morningstar and ranks among the top 15% of peers for 10-year performance. Fund expenses are 0.25% of assets per year—the same as for the aforementioned iShares index exchange-traded fund.


Do seek help selecting individual bonds. Thanks to falling rates and a dearth of new issues, many bonds can be called away before maturity at lower prices than they currently sell for, which can trip up the uninitiated.

Above all, don't buy munis in hopes of scoring short-term gains when taxes rise. That's already priced in. Probably the only thing that will drive a big muni rally from here is if Congress trims the tax break on muni interest, while grandfathering in existing bonds. Barring that, buyers should expect to get their bond interest and not much more.

Learn from Mitt Romney's Tax Return (WSJ)

WEEKEND INVESTOR
JANUARY 28, 2012.

What You Can Learn From Mitt's Tax Return

By LAURA SAUNDERS
There are some very clear lessons for taxpayers that can be gleaned from Mitt Romney's most recent tax returns that the candidate released recently. WSJ's Laura Saunders spells out the details on Mean Street. How did they do it?

That is the question many Americans are asking of Mitt and Ann Romney's 2010 tax bill, disclosed on Monday evening. While the couple paid almost $3 million in taxes, that amounted to less than 14% of their $21.6 million income.

The Romneys' rate was far lower than the average of 24% paid by the top 1% of U.S. earners, according to the nonpartisan Tax Policy Center.

The couple's 2010 filing presents a rare glimpse into how the ultrawealthy can use the tax code to their benefit, and offers important lessons for others.

The biggest: the powerful tax benefits of capital gains, which are taxed at a top rate of just 15% if the underlying investment is held for more than a year.


GOP presidential candidate Mitt Romney paid a 14% effective income tax rate in 2010 after making $3 million in tax-deductible charitable donations and drawing most of his income from investments. Mitt Romney is working hard to make voters dislike Newt Gingrich and President Obama. But Mr. Romney has yet to crack a tougher nut: persuading voters to like him. Neil King has details on Lunch Break.
."There's a saying in Texas: If you don't have an oil well, get one," says Janet Hagy , a certified public accountant practicing in Austin, Texas. "I tell my clients, 'If you don't have capital gains, get some.'"

Another lesson: Get good tax help. The Romneys' 1040 return is 203 pages long, with different "schedules" and 20 different forms attached, some of them multiple times—not the sort of work typically done by a neighborhood Joe.

Says David Kautter of the Kogod Tax Center at American University in Washington: "The only schedules missing [from the Romneys' return] are the ones for fishermen, farmers and the elderly. Maybe Mitt should get some cows so he can have a 'full house' of schedules."

Some have suggested that, despite their low tax rate, the Romneys might have paid a few thousand extra dollars in tax. Among other things, they take no mortgage-interest deduction—a write-off claimed by 80% of taxpayers who itemize—or deductions for a home office, a car or travel expenses.

But given the complexity of their filings and the public scrutiny they were sure to endure, overpayments were far preferable to underpayments, experts say. The Romneys must file several separate returns for the "blind" trusts the couple set up to manage their investments, any of which could present snags. (The wealthy often do this when they are running for office, in order to avoid the appearance of conflicts of interest.)

Experts who have parsed the returns say the Romneys' advisers have been tax-smart without crossing legal lines. "The trustee has clearly gotten good advice and managed to reduce the Romneys' taxes in many perfectly legal ways," says Tom Ochsenschlager, a former official at the American Institute of CPAs who now teaches at American University.

Former IRS Commissioner Fred T. Goldberg, who examined the filings for the Romney campaign, characterized them differently: "This return reflects a trustee who spent a lot of care and time finding investment opportunities with the potential for substantial appreciation. By their very nature, these investments generate capital gains."

The returns don't disclose everything about the Romneys' finances. The couple isn't required to report their underlying wealth, investment returns or fees as a percentage of invested assets, for example.

But the filings do lift the veil on how the wealthy can use the tax code to their advantage. Here are some lessons the experts have gleaned.

A. Avoid salary, wages and tips to the extent possible. The Romneys reported no such compensation, which is taxable at rates up to 35%. In addition, these types of pay are subject to payroll taxes: a 6.2% Social Security tax (lowered to 4.2% in 2011) and 1.45% in Medicare tax, both of which the employer matches. While the Social Security tax is capped each year at a certain income level ($110,100 for 2012), the Medicare tax isn't.

Some experts believe "carried interest," or profits such as those from investments that Mr. Romney received as a partner at Bain Capital, should be taxed as compensation at rates up to 35%. Currently, those profits usually count as capital gains and are taxed at a top rate of 15%.

B. Muni-bond interest isn't the be-all and end-all. Many wealthy people turn to municipal bonds for tax-free income, but the Romneys reported only $557 of tax-free interest in 2010—and $3.3 million of taxable interest.

Kenneth Brier, an attorney at Brier & Geurden in Needham, Mass., notes that Massachusetts has a flat tax of 5.3%, making munis less attractive there than in high-tax states with graduated rates such as New York or California. And because the Romneys' overall tax rate is so low, the after-tax difference between munis and taxable bonds might not be large enough to justify investing in munis, Mr. Ochsenschlager says.

Some of the taxable interest on the Romney's 2010 return came from U.S. Treasurys; such interest isn't subject to state taxes.

C.Strive for "qualified" dividends. The Romneys' 2010 return reports $3.3 million of qualified dividends, which are taxed at a top rate of 15%. (There is another $1.6 million of nonqualified dividends, taxed like interest income.)

What makes a dividend "qualified"? In general, the dividend must be from a stock held at least two months and paid by any domestic corporation or most foreign corporations. The dividend can't come from a stock that a brokerage firm has lent as part of a short sale, says Robert Willens, an independent tax expert in New York.

D. If you have a "Schedule C" business, think twice before claiming a home-office deduction.The Romneys didn't take one on either of two Schedule C forms, which are for business results reported on personal returns. The Romneys used their Schedule C forms for director's fees and speaking fees.

Not only do home-office deductions raise red flags at the IRS, but they can come back to haunt taxpayers when the home is sold: Part of the gain on the home's sale may not be eligible for the $250,000 or $500,000 tax exclusion because taxpayers who took depreciation deductions in prior years have to reduce the exclusion by that amount.

In addition to raising taxes in many cases, this poses a record-keeping problem, Mr. Ochsenschlager says.

E. Generate income from long-term capital gains. The biggest factor in the Romneys' super-low tax rate is their outsize income from capital gains: $12.6 million in 2010. Most of that consisted of long-term gains, which, like qualified dividends, are taxed at a top rate of 15%.

The benefits don't end there. While the tax code gives wage earners almost no flexibility as to timing, the capital-gains rules offer unparalleled flexibility. Investors can often time when they take a gain or loss, and losses may be used to offset gains so that no tax is due. There are few restrictions: For example, a loss on land held as an investment can offset the gain from a stock.

Net capital losses can shelter up to $3,000 a year of ordinary income from tax, and losses can be carried forward indefinitely to shelter future gains. Canny investors or their advisers often "harvest" losses during market downturns, reacquire the investment after 30 days and use those losses to offset future gains, Mr. Willens says.

On Schedule D of their 2010 return, the Romneys' original long-term capital gain of $16.8 million was reduced by $4.8 million of carried-over long-term capital losses.

F. Know the score on itemized deductions. One way the Romneys resemble many other taxpayers is that they didn't get a medical-expenses deduction. Only expenses above 7.5% of adjusted gross income are deductible; for the Romneys, that hurdle amounted to $1.6 million, while they reported medical expenses of just $14,176.

The Romneys did make tax-wise charitable contributions. They gave away nearly $3 million, almost 14% of their adjusted gross income, about half in cash and half in other forms.

All of their contributions were fully deductible, whereas the biggest givers are subject to limits. Billionaire Warren Buffett, for example, gives away such vast sums each year that much of it can't be deducted from his income tax (though the gifts will be out of his estate).

Making noncash gifts—such as appreciated stock or other assets—often is a smart move for people like the Romneys because they can skip paying capital-gains tax on any appreciation, while getting a full deduction.

For example, say a higher-bracket taxpayer has 100 shares of stock bought years ago for $30 a share that is worth $80 when he donates it. If he sold the stock, paid tax and gave the remaining cash to charity, it would receive $7,250 and he would have a deduction of the same amount. If he gives the stock directly to the charity, it would receive $8,000, and he could deduct the full $8,000. (Some restrictions apply.)

G. Capital gains and dividends can help trigger the AMT. Long-term capital gains and qualified dividends are taxed at 15% and aren't subject to the alternative minimum tax.

The AMT takes away the value of deductions, such as the one for state taxes, when taxpayers are deemed to have too many write-offs. But a large percentage of capital gains and dividends in a taxpayer's overall income mix can cause a taxpayer to owe AMT.

The reason: With capital gains and dividends off limits, deductions loom large relative to other income, and that triggers AMT. The Romneys paid $232,989 in AMT in 2010 and lost the value of their state tax and other deductions, according to Jay Starkman, a CPA in Atlanta. "Without that, their tax rate would have been even lower," he says.

H. Beware of small benefits requiring large tax-prep efforts. The oddest line on the Romneys' 2010 return is a tax credit for $1 of "General Business Credit." Don Williamson of American University's Kogod Tax Center says the credit could be for hiring a disadvantaged youth or qualified veteran and it flowed through from an investment partnership.

But likely it cost far more than $1 just to fill out the three-page Form 8300 for the return. Mr. Williamson says he sees this problem all the time. Often tax-prep fees are disproportionate to an investment's tax benefit or the income it produces, he says—especially with larger investment partnerships.

One other lesson: For the wealthy, offshore investments can save onshore taxes. Robert Gordon, head of Twenty-First Securities in New York, a firm specializing in tax strategies, points out that the Romneys' 2010 return has 17 different filings of IRS Form 8621. Each indicates an investment, perhaps a hedge or private-equity fund, held in an offshore corporation.

These are legal arrangements, Mr. Gordon stresses. They can have significant tax advantages for the wealthy who live in high-tax states—especially Massachusetts, because its flat tax allows no deductions.

Investments held offshore in what is known as a "blocker corporation" can allow U.S. taxpayers to pay less tax than if the same investment were made through an onshore entity, Mr. Gordon says.

He offers an example. Say a partnership based in the U.S. invests $100, $80 of which is borrowed. It earns $5 of profits and has $4 in interest expense, for $1 of net pretax profit. In Massachusetts there isn't an interest deduction, so the entire $5 would be taxable.

If the investment were held in a fund based in the Cayman Islands, however, only $1 would be taxable in Massachusetts. Federal deductions subject to limits would also be preserved, Mr. Gordon says.

Write to Laura Saunders at laura.saunders@wsj.com.

Corrections & Amplifications
Part of the gain on a home sale might not be eligible for an income-tax exclusion of $250,000 or $500,000 if the taxpayer with a Schedule C business has taken depreciation deductions for a home office. An earlier version of this article said the percentage of the sales price attributable to the home office wouldn't be eligible for the exclusion

10 Ways to Invest Tax Free (Forbes)

10 Ways to Invest Tax Free (Forbes)

William Baldwin, Forbes Staff

Taxes|2/10/2011

For the moment, taxes on portfolios are modest. The federal rate is 15% on most dividends and on long-term capital gains. Come 2013, though, the rates shoot up.

Without a law change, the maximum federal tax on interest, dividends and short-term gains will go to 44.6%. That consists of a 39.6% stated rate, the 1.2% cost of a deduction clawback and a 3.8% surtax to pay for health care. The max for long gains will be 25% (but 23% for assets held for more than five years). Add state taxes to all of these.

What’s an investor to do? Take defensive measures. Here are ten ways to pocket investment income without paying tax on it.


Set up a kiddie Roth


Did your daughter earn $4,000 last summer that she needs for college? Were you going to leave her at least $4,000 in your will? Start your bequest now. Hand her $4,000 that she can use to fund a Roth IRA. Tell her not to touch it until she is 60.

She’ll get 40 years of tax-free compounding. (At 7% a year, this would turn $4,000 into $60,000.) You’ll get money out of your estate, probably saving on state inheritance taxes.

.

Buy an MLP

Master limited partnerships that own energy assets like pipelines tend to pay pretty good dividends (in the neighborhood of 5%). Those dividends, at least initially, are largely sheltered by depreciation deductions. The quarterly cash, that is, is considered a nontaxable “return of capital.”

After a decade or two this tax shelter is exhausted, but if you die owning these shares your heirs get to start the process over with a new, higher tax basis.

Go Ugma

Use the Uniform Gift to Minors Act (a.k.a. Uniform Transfers to Minors Act) to set up a brokerage account for your son or daughter. The first $950 of annual income is free of tax; the next $950 is taxed in the kid’s low bracket.

The downside is that at age 18 Junior takes ownership and might not spend the money on college, as you intend. So fund the account modestly­—$30,000 is plenty—and concentrate the holdings on investments that (a) generate a lot of taxable income and (b) are compelling additions to the overall family portfolio. The idea is to make full use of that $1,900-a-year shelter while parting with a small amount of capital.

Here are several examples of investments that make sense in a diversified portfolio and that spew out a lot of ordinary income:

–exchange traded funds that hold a lot of Ginnie Maes and the like (MBB) or the whole bond market (BND).

–the ETF for junk bonds (JNK).

–high-yielding blue chips like Verizon, AT&T and Pfizer.

–preferred stocks.

Two cautions. (1) To avoid gift tax wrinkles, limit each year’s contribution to $26,000 per child ($13,000 if you are single). (2) Don’t set up Ugmas if you think your kid will qualify for college financial aid. Any assets in the kid’s name will be snatched by aid officers.

.

Open a 529

A Section 529 plan lets you accumulate investment income tax free, provided the proceeds are used on schooling. Drawback: Sometimes stiff fees erase the income tax saving.

The account is likely to be a good idea where the costs are low (as in Utah) or there’s a break on state income tax for parents chipping money in (as in New York).

As with Ugmas, 529s are not a good idea for families likely to get tuition assistance.

.

Own commercial real estate

As long as your building doesn’t have too much of a mortgage, depreciation deductions will make a good chunk of your rental income free of current income tax. There’s more on the economics of these deals here.

.

Own muni bonds

Interest on the general obligations of state and local governments is free of federal income tax. In most states you also get a pass on state income tax for home-state bonds. Caution: Some states are in financial trouble. Check out the Forbes Moocher Ratio before buying.

.

Give away stock profits

You put $3,000 into Netflix, wait at least a year, then give away the shares to charity when they’re worth $8,000. You get a deduction for the whole $8,000. Your $5,000 gain is never taxed.

Two other ways to shelter appreciated property from capital gain taxation: leave it in your estate, or give it to a low-bracket relative.

Bequeathed property benefits from a step-up, meaning that gains unrealized by an owner at the time of his death permanently escape income taxation.

Low bracket taxpayers (people who would be in a 25% or lower bracket if all their capital gain were taxed as ordinary income) get a free ride on long-term capital gains. But if the donee is a son or daughter 18 or younger (23 if in school), beware the kiddie tax, which applies to investment income over $1,900 a year.

.

Capture losses

When the market is down, swap out of losing positions into similar but not identical ones. For example, you could exit an S&P 500 index fund and immediately buy the Vanguard Megacap Index Fund. In this fashion, you can run up a capital loss carryforward that will make future capital gains tax free. For more on loss harvesting, go here.

.

Buy a safe


If your $400 investment saves you $45 a year in safe deposit box fees, you’ve got an 11% yield, tax free. The only exception on the tax side would be if you are one of those rare birds in a position to deduct miscellaneous items like the rental on a strongbox to hold your gold coins. Miscellaneous deductions are usable only to the extent they exceed 2% of your adjusted gross income; not many taxpayers get anywhere near this threshold.

.

Be a cheapskate investor

Are you paying someone 1.5% a year to have your assets managed? Cut this cost in half by haggling. A dollar saved in this fashion is a dollar earned free of tax, unless you are claiming miscellaneous deductions, which is unlikely.


--------------------------------------------------------------------------------

This article is available online at:
http://www.forbes.com/sites/baldwin/2011/02/10/ten-ways-to-invest-tax-free/
America's Most Promising Companies

The Best and the Worst States for Muni Bonds (Barrons)

Barron's Cover | MONDAY, AUGUST 29, 2011
Good, Bad and Ugly
By JONATHAN R. LAING There's hope for states that accept structural change, but pain for those that won't. Are you listening, Illinois and California?



For most states, fiscal 2012 is shaping up as a brutal year. They've already had to close a collective gap of more than $100 billion between their projected revenues and previously budgeted expenses, mostly due to anemic sales taxes and personal and corporate-income levies. And all this comes after three years of large budget shortfalls, during which most of the low-hanging fruit in expenses had been plucked and rainy-day funds and other reserves had been plundered.

Likewise, just about all of the $165 billion in federal stimulus money that had helped to close state budget gaps since the 2008-09 financial crisis has been spent. Thus, the cuts for fiscal 2012, which for most states began last month, promise to be particularly painful, leading to employee layoffs and reduced human-services spending on programs such as Medicaid.

Education will bear the brunt, as states are forced to trim their funding to public universities and K-through-12 school districts. The latter, particularly in low-income areas, will especially suffer from the lagged effect of the housing bust on a falling property-tax take.

Yet there's hope amid the gloom for many of the states, and for the $1.5 trillion state municipal-bond market. Tax revenue has begun to rise again, after falling cataclysmically for five straight quarters during the Great Recession.

In fact, state-tax revenue in fiscal 2011's first quarter was up 9.3%, on average, over the year-earlier figure, reports the respected Nelson A. Rockefeller Institute of Government at the State University of New York at Albany. This was the fifth straight quarterly improvement. To be sure, the revenue picture could darken if the U.S. economy double-dips. (The numbers in each category in the tables accompanying this article generally are based on the most recent and comprehensive data available, and so their dates don't all coincide. However, they do paint a good picture of each state's relative position against the others.)

And since the 2010 elections, new governors, mostly Republican, have come to the fore, unbeholden to the public-employee unions that have used political muscle to win cushy contracts and fat retiree pension and health benefits. The roster of new-breed, social-Darwinist figures includes the likes of Scott Walker of Wisconsin, John Kasich of Ohio, Rick Scott of Florida and Chris Christie of New Jersey, all following the successful path of two-term Indiana Gov. Mitch Daniels. Even prominent Democrat and New York Governor Andrew Cuomo, scion of a family steeped in Franklin Roosevelt's New Deal, has pushed state unions to accept contracts with a three-year wage freeze and five unpaid furlough days in the current fiscal year.

The governors want the unions to contribute more to their pension funds and health plans to ensure the systems' soundness. Controversially, Walker and Kasich even have tried to convince the unions to surrender or reduce their collective-bargaining rights. Moreover, many states are creating new tiers of public employees provided with much less munificent pension and health-care plans. Retirement ages are being boosted, automatic cost-of-living adjustments to pensions are being eliminated, pension vesting periods are being increased and shenanigans like income-spiking at the end of careers to fatten benefits are being banned. Such moves will do much to ameliorate a long-term pension and retiree health-benefit funding gap that The Pew Center on the States puts at $1.26 trillion.

At the same time, some states, including New York, are trying to cap and slow property-tax hikes. And while such governors as Walker, Christie and Scott are putting the axe to spending, they're also cutting taxes on corporations and the wealthy, with the aim of boosting employment and investment. Wisconsin even scaled back its earned-income tax credit for 152,000 working families ($518 for a family of five), to partially defray the cost of tax cuts for big earners. Trickle-up economics is in vogue in these states.

The process has been messy and, sometimes, noisy; witness the union demonstrations at the capitol building in Madison, Wis., in February. Yet the municipal-bond market has rallied sharply since late last year, when banking seer Meredith Whitney set off a panic by predicting that there would be as many as 100 major muni-bond defaults in calendar year 2011, totaling $100 billion or more, because of state and local financial problems. Through Aug. 12, a recent Bank of America Merrill Lynch report notes that defaults have been modest this year, at $757.8 million, or just 0.026% of total outstanding municipal debt. And most of the troubled issuers have been small ones that depend on revenue from special-assessment districts, housing developments and hospital complexes, not general tax revenues.

To Howard Cure, director of municipal research at Evercore Wealth Management in New York, it's "inconceivable" that any state will default on its general-obligation debt. According to Cure, the only risk that investors run in state debt, beyond the risk that could arise if interest rates jump, would come from credit downgrades or a change in market perceptions of a state's financial prospects, which could quickly push down prices of existing state bonds.

To help investors, the tables Barron's has compiled show how all 50 states rank, based on seven key financial and economic variables. The data were compiled by Janney Capital Markets and Evercore. The states are sorted by their Standard &Poor's credit ratings to make comparisons easier.

Our first statistic shows the amount of federal spending each state receives as a percentage of the state's gross domestic product. The source can be: defense or nondefense work; procurement contracts; grants; and salaries and wages paid to state residents by Uncle Sam. This reading is particularly timely, in that federal outlays face cuts for years to come, due to growing budget-deficit stringency.


Here, a couple of triple-A names -- Virginia and Maryland -- stick out. Federal spending accounts for 29.8% of Virginia's economy and 28.5% of Maryland's, far above the 19.7% that's the average in the U.S. Just think of all the federal employees who live in Arlington or Bethesda but work in Washington, or of the hordes who labor in the vast office parks outside the Beltway, filled with government consultants and federal contractors. The credit-rating firm Moody's has both states on "negative outlook" in the wake of the national-debt anxiety.

Medicaid as a percentage of total state spending is another key indicator. Nationally, the program, which provides health care for the poor, accounts for 21% of all state spending -- and will loom much larger if the Obama health reforms are upheld by the courts and fold in millions of currently uninsured into Medicaid, for which the federal government picks up about half the tab. Already, however, like Pac-Man, the program has ferociously eaten away at state financial resources due tomedical-cost inflation and rising enrollment.

Here, comparisons are difficult, because some states, like California (22%) and Illinois (33%), offer a far more extensive range of services than, say, Texas (8%). The Lone Star state also benefits because some members of its large Hispanic population are reluctant to sign up for government programs due to citizenship issues.

States with large urban underclasses also tend to have higher Medicaid rolls. That has swelled their spending -- New York's by 28%, Pennsylvania's by 28% and, of course, Illinois' (above). Not surprisingly, to curb the rise in Medicaid costs, states like New York are considering moving away from their current fee-for-service payment systems to managed care.

Tax-collection growth is where the rubber meets the road for most states. Many of the stars in this respect are benefiting from rising prices for oil, food and minerals. North Dakota had a 46% jump in first-quarter fiscal 2011 collections, boosted by exploitation of the gas- and oil-rich Bakken shale shelf. Alaska, with its tax take up by 16.7%, likewise benefited from higher oil prices.

Even some Rust Belt states -- Michigan (up 20.9%) and Ohio (up 22%) were helped, in part, by improved manufacturing. But, tax increases were the biggest factor in the improved revenue numbers. Illinois (up 13.7%) raised personal income and corporate levies at the beginning of calendar-year 2011. California, on the other hand, saw a package of emergency tax increases expire at the end of fiscal 2010, and thus realized a paltry 5.7% rise in tax receipts in fiscal 2011's first quarter, and there's little reason to believe that the situation has improved. So the no-longer-so-Golden State could face additional budget shortfalls in the current fiscal year.


Overall, however, tax-supported state debt as a percentage of state gross national product has hardly reached alarming levels. Even states like Connecticut and Hawaii, whose debt exceeds 10% of their gross domestic products, aren't basket cases. Both centralize more functions that local governments do elsewhere, so the figures are a bit deceiving.

The same doesn't hold true for the chronic underfunding problems of state public-employee pension plans. The public-employee pension funding gap accounts for around $660 billion of the aforementioned $1.26 trillion retiree-benefits shortfall tabulated by Pew. And unlike retiree health care, pension benefits are harder to fix.

Particularly shaky are states like Illinois, with only 51% of its pension obligations funded, and California, with 81%. Their dysfunctional state governments, allied with public-employee unions, are seemingly incapable of making needed reforms. Several times in recent years, Illinois has floated bond issues to make its pension contributions, only to find that it paid more in interest on them than it made on its investments.

The last two factors in our tables are the percentage of mortgages in foreclosure or seriously delinquent -- meaning 90 days in arrears -- as of fiscal 2011's first quarter, and the state's unemployment rate.

Florida, Nevada, Arizona and California still have big mortgage problems, stemming from the faux housing boom of the George W. Bush years. That encouraged local governments to wildly expand, using soaring property-tax revenue, and individuals to spend more, by taking out home-equity loans. When the boom ended, the spending did, too, and joblessness soared. Based on June numbers, the states with the worst jobless rates were Florida (10.6%), and Michigan and South Carolina (both 10.5%).

In sum, our tables should provide some clues for muni-bond investors puzzling out where to invest. But the most important factor isn't listed -- a state's willingness to embrace structural change. In that regard, Illinois and California bring up the rear.

.E-mail: editors@barrons.com

Copyright 2011 Dow Jones & Company, Inc. All Rights Reserved

Taking Social Security While Working (from Smart Money)

Retirement by Robert Powell (Author Archive)
How to Collect Social Security and Keep Working


BOSTON ( MarketWatch ) — When it comes to retirement, the average American age 65 and older generates nearly two-thirds of their total income from a combination of earned income and Social Security, with the rest coming from pensions and personal assets.

But despite the fact that millions are earning income and collecting at the same time, there's still plenty of confusion over how Uncle Sam goes about taxing and reducing Social Security benefits for workers. Consider, for instance, some of the reasons why it can be confusing:

First, if you retire before the normal retirement age and start collecting Social Security benefits early, your benefits are reduced not only for starting early, but also as your earnings rise. In fact, if you work and collect before the so-called full retirement age, you'll lose $1 of Social Security benefit for every $2 earned over $14,160 in 2011.

Second, in the year that you reach full retirement age, your benefits are reduced $1 for every $3 earned over $37,680 in 2011, or least that's the case until the month you reach full retirement age.

Finally, once you're at full retirement age, your benefits are not reduced, but as much as 85% of the benefits could be taxed if your income is above a certain amount.

According to the Social Security website, if you file a federal tax return as an individual and your combined income is between $25,000 and $34,000, you may have to pay income tax on up to 50% of your benefits. And if your combined income is more than $34,000, up to 85% of your benefits may be taxable. If you file a joint return, and you and your spouse have a combined income that is between $32,000 and $44,000, you may have to pay income tax on up to 50% of your benefits. And if your combined income is more than $44,000, up to 85% of your benefits may be taxable. If you are married and file a separate tax return, you probably will pay taxes on your benefits.

Even though all this might be confusing, there are some ways to increase your after-tax income from all your sources of income — be it earned income, Social Security, dividends, interest income, capital gains, pension income and the like. What's more, there are some ways to think differently about the interaction between earned income and Social Security benefits.

At a recent MarketWatch roundtable discussion, two of the nations' top retirement-planning experts offered tactics to consider to when deciding whether and how much to work in retirement, as well as whether and when to start taking Social Security benefits.

Never a net negative to work and to collect

"I find there are a lot of myths and misconceptions out there about what it means to have earned income still in retirement, and what the tax implications are," said Michael Kitces, who is the editor and publisher of The Kitces Report as well as director of research at Pinnacle Advisory Group. "And frankly, I've never seen a situation where there was actually a net loss for working. There are a lot of folks who have this idea of 'I can't work in retirement because it may make my taxes go up and I may have more of my Social Security taxed or I may have to impact IRAs or do something else, so maybe I won't work.'"

And so the first thing that you have to realize, according to Kitces, is that you never get a net negative for working and collecting Social Security. "If you work and you bring additional earned income into the household, there is more money there," he said. "You don't get to keep all of it, Uncle Sam will take a piece, and you may impact a couple other parts of the retirement pie as well, but it's never a net negative."

Elaine Floyd, Certified Financial Planner®, director of retirement and financial life planning at Horsesmouth, and author of "135 Social Security Questions Answered: What Savvy Advisors Need to Know, as well as The Financial Advisor's Guide to Savvy Social Security Planning," agreed.

"It always pays to work," said Floyd. "People are under the impression that if they earn more than $14,160 a year that they're going to be penalized. Well, it's really important, when you get into your 60s, to understand what the earnings test really is."

For starters, if you're over full retirement age, there is no earnings test, Floyd said. The earnings test comes into play only if you apply for Social Security before you turn full retirement age. And for those who have to deal with the earnings test, where for every two dollars you make over $14,160, one dollar of your Social Security will be withheld, it's important to understand what happens to that amount that's withheld, she said.

"Some people have heard that you get it back," she said. "You don't really get it back. You do, however, get a credit, and it's important to understand that credit for the actuarial reduction."

Floyd used this example during the roundtable discussion: If you start Social Security at 62, she said, you'll get 75% of your primary insurance amount and get a 25% reduction. "So let's say you get a job and you receive one Social Security check and then you make enough after that to have all of your benefits withheld," she said. "What happens when you turn 66 is that your benefit will be recalculated, and it will be nearly the full $2,000, so you're getting that 25% actuarial reduction that they took away, you're getting that back, basically. So that's really important for people to understand — that if you apply early, if you end up having an opportunity to work, take that opportunity and work and not worry about the Social Security."

Never earn delayed credits

Floyd said another point to consider when taking Social Security before full retirement age, or what is also called normal retirement age, is this: "The fact that you applied before full retirement age means that you can never earn delayed credits, so you will, at full retirement age, get your full benefit amount, but no delayed credits. So this is why it's really, really important for people to think hard about applying for Social Security before full retirement age, because it really limits your options."

For his part, Kitces said you should think about paying taxes and reduced benefits this way:

"The taxation of Social Security essentially creates a rule," he said. "If your income is high enough, a portion of your Social Security benefits will be taxed, and in essence, the higher your income is, the greater the percentage is."

"So once we reach an initial threshold, which varies depending on whether you're single or married, you start increasing the taxation of your benefits 50 cents on the dollar. When we get to an upper threshold, we start increasing the taxation of our benefits at 85 cents on the dollar.

And what does that means in practice? "If we earn an extra thousand dollars and we're at the upper threshold, not only do we have another thousand dollars of income we have to report on, but now we have to take $850 of Social Security benefits, and put that on our tax return, and we're going to have to pay taxes on a portion of the Social Security benefits as well," said Kitces.

At some point, "We're taxing 85% of the entire amount of Social Security benefits, which is the cap, and that's as high as we can go," Kitces said. "And from that point forward, there's, in essence, no further impact for higher earnings on causing more of your Social Security benefits to be taxed."

And that, he said, is where some of the confusion exists about earning income and Social Security benefits. "The worst-case scenario is I'm paying taxes on the dollars I earn and I'm paying some taxes on the Social Security benefits that are now also being taxed because my income is higher," he said. "And for most folks at that level, your tax bracket is probably going to be 15% and maybe 25%, and so your worst-case scenario is still I'm going to pay 25% on my income, I'm going to pay another 25% on the Social Security benefits that I just phased in, which was only 85% of them, so I only pay a portion of that 25, and the net point that we get to is still nothing close to taking home less income than you would have had, had you not worked. It simply means you get a little bit of a higher tax burden for a chunk of income as you're causing some Social Security benefits to become taxed."

To be sure, you don't want to pay more than your fair share of taxes if you are working while collecting. So Kitces and Floyd did say that there are tactics to consider. For instance, you consider adjusting your IRA withdrawals. Or you might consider investing in municipal bonds, since the interest income from taxable bond could cause more of your Social Security benefits to be taxed than otherwise.

Still, Kitces and Floyd think you shouldn't let the tax tail wag the earning income dog while collecting Social Security benefits. "We might do other things around the margins to help not make that tax situation impact it even further, but we're still at the point where a dollar you earn puts a bunch of money in your pocket that you didn't have before," said Kitces. "Whether you end up paying tax rates of 15% or 20% or 25% or 30% or 35% or 40%, if we add everything in, and there's estate tax liability and all of it is coming on your income and 85% of your Social Security, you still never get close to the point of 'I just wish I hadn't earned the dollar.'"



Read more: How to Collect Social Security and Keep Working - SmartMoney.com http://www.smartmoney.com/personal-finance/retirement/how-to-collect-social-security-and-keep-working-1300723105203/#ixzz1HLZMwOwm

Best bargains in Muni Bonds Now (Barrons)

How to Play the Panic in Muni Bonds
By RANDALL W. FORSYTH

For several months, panicked investors have been pulling cash from muni-bond funds. For investors of means, that presents an opportunity to lock in high tax-free yields for a decade or more.

Since mid-November, panicked sellers have yanked about $26 billion from muni-bond funds, disrupting a usually orderly market. For investors of means, that presents an opportunity to lock in high tax-free yields for a decade or more.

Doing so, however, takes more care than buying a muni exchange-traded fund or closed-end fund.

The undeniable crisis in public finances has moved from the political background to the top of the news in recent months. The demonstrations by Wisconsin public employees protesting the governor's drastic measures to close the state's budget deficit are only the most dramatic examples of the fiscal pressures being felt all across the nation.

But the budget problems in states and localities are not nearly as dire as those of the sovereign debtors in Europe, though you might not know that from the coverage in the popular media. Most notably, analyst Meredith Whitney predicted an imminent day of reckoning for state and local governments in a December interview with CBS News' 60 Minutes. "You could see 50 sizable defaults," she asserted. "Fifty to 100 sizable defaults. More. This will amount to hundreds of billions of dollars' worth of defaults."


Last week, a consulting firm formed by "Dr. Doom," Nouriel Roubini, chimed in with a similar forecast of $100 billion of defaults, which had no discernible impact on the muni market.

Whitney's unsupported prediction of default -- vastly in excess of that seen in the Great Depression of the 1930s -- helped push muni prices down about 10% for long-term bonds. Her assertions have been met with a deluge of criticism from muni-bond professionals, as well as in the pages of Barron's and on Barrons.com. Yet many pricing anomalies persist. Investors willing to buy individual bonds and hold them to maturity can get yields as high as 5% on highly rated paper. That's equivalent to a taxable yield of nearly 7.7%.

The bonds themselves provide the assurance of repayment of principal at maturity, which provides a measure of confidence even as their prices may fluctuate. Mutual funds, whether equity or fixed-income, are worth only what they fetch that day; there is no assurance that they will recoup their losses and return the original investment.

Among the securities to look for are bonds backed by clearly defined sources of money, including thruways, water and sewer systems and state lottery revenues.

Profiting from Panic
Other factors also conspired to make for a perfect storm for municipal bonds. The Treasury market -- which determines the broad trend in other bond markets, including munis -- also has been under pressure until recently as yields rose on increasing fears over inflation and investors' preference for risk assets. In addition, the end of the Build America Bond program on Dec. 31, which provided a federal subsidy to states and localities issuing taxable bonds, added to pressures. The BABs program meant less issuance of traditional tax-exempt securities, which had bolstered their prices and kept a lid on their yields. The sunset of BABs at the end of 2010 lifted that lid. The BABs program also was important in broadening the municipal market to institutional and global investors not interested in income free from U.S. income tax, the main lure for American individual investors.

The carnage is particularly visible in the iShares S&P National AMT-Free Municipal Bond exchange-traded fund, a quick and easy proxy for the muni market. It shed more than 10% in value from its peak in August to its trough in January and still trades 6.4% below its high.

In the process, extraordinary values have emerged as yields on tax-exempt municipals rose to equal or even exceed those of taxable Treasury or corporate bonds. Taking in munis' tax advantage, high-quality tax-exempt bonds exceeded the after-tax yields on junk bonds. Around the muni market's nadir in January, tax-free yields on investment-grade California general-obligation bonds were higher than the yields on lower-quality, fully taxable bonds of Mexico or even Colombia.

While that portion of the investing public who take their investment cues from TV were stampeding out of munis, savvy and sophisticated investors were going the other way. And even as a backlash against the doomsayers for their unsupported predictions of multibillion-dollar defaults increased, they dismissed their critics as peddlers of munis merely defending their turf.

Other disinterested and distinguished observers have pointed out how undervalued munis are.

MKM Partners' chief economist and strategist, Michael Darda, who made a perfectly timed call to buy deeply depressed but high-quality corporate bonds at the depths of the 2008 financial crisis, called valuations on munis "increasingly compelling" with higher prospective after-tax returns than medium-grade corporate bonds or equities.

David Rosenberg, chief strategist at Gluskin Sheff, one of Canada's top wealth-management firms, adds that only single-B junk corporates provide the same after-tax yield as investment-grade munis. "I can't think of a security that is going to provide a U.S.-based investor a 7% annual return for the next decade with such little risk attached -- not equities, not corporates, not commodities. I still think this is the biggest opportunity out there in the investing world today and the most glaring price anomaly."

As the pace of fund liquidations has slowed to about $1 billion a week from $4 billion at the worst of the exodus in January, the muni market has begun to recover, with the iShares muni ETF up about 5% from its mid-January trough. In addition, issuers of municipal bonds deferred new offerings amid an inhospitable market.

Despite the undeniable value that munis represent, the dilemma remains for investors. As the news coverage of the budget battle raging in Madison, Wis., dramatically shows, state and municipal finances never have been under such stress.

But, as Clifford D. Corso, chief executive and chief investment officer of Cutwater Asset Management, points out, debt service makes up a small part of the expenses for states and localities -- in contrast to the sovereign debtors of Europe, for which interest and principal payments place a huge burden on their budgets.

The impact of the budget cuts being played out in state capitals and city halls across America will fall on public schools and the poor, as Howard Cure, director of municipal research at Evercore Wealth Management, a New York firm that manages separate accounts for high-net-worth individuals and families, ruefully observes.


Moreover, muni pros agree that states and localities have powerful incentives not to default in order to maintain their access to the capital markets. That is a direct contrast to the mortgage market, to whose parlous condition the municipal market has been compared, not entirely aptly. Borrowers whose mortgage balances are greater than their homes' values have engaged in what's euphemistically called "strategic defaults."

Yet the pressures on municipal finances are "episodic, not systemic," Cure adds. In other words, not every city is in the same dire straits as Harrisburg, Pennsylvania's capital, which averted default through by an advance from the state.

The greater risk in municipal bonds, most market professionals agree, is the same as for all fixed-income securities -- higher yields resulting from a more ebullient economy, rising inflation or both, which would be expected to lead to further losses. That has them taking some tacks that may appear counterintuitive.

Ken Woods, who heads Asset Preservation Advisors in Atlanta, which specializes in fixed-income management for high-net-worth individuals, is targeting a slightly longer duration for his clients' portfolios, which are concentrated in the intermediate-maturity range.

But for lengthening duration -- in a structure called a barbell -- he is concentrating on the very shortest maturities, under two years, and relatively longer ones out to eight-to-12 years. In the process, he's avoiding the middle of the range, which would be hurt the most by an increase in short-term interest rates by the Federal Reserve.

Corso of Cutwater Asset Management is taking the same barbell approach, concentrating on the short end and the long end of the market and avoiding intermediates. That is a strategy to deal with the extreme steepness of the muni yield curve -- the much greater yields paid on the longest maturities relative to shorter ones, which are anchored by the Fed's targeting of the overnight federal-funds rate near zero.


THIS ISN'T EUROPE
Headlines blare news of state and local budget woes, but many munis promise handsome returns. Especially appealing: bonds issued by agencies facing only modest retiree benefit costs.


Sample Portfolio
Maturity S&P Moody's Book Yield*

Texas A&M University 5/15/2012 AA+ Aaa 0.57%
San Antonio TX Elec & Gas 2/1/2014 AA Aa1 1.38
State of Pennsylvania GO 2/1/2014 AA Aa1 1.22
State of South Carolina GO 3/1/2016 AA+ Aaa 1.81
State of Utah GO 7/1/2016 AAA Aaa 1.85
Sutter Health - California 8/15/2016 AA- Aa3 3.37
Salt River Arizona Power Authority 1/1/2018 AA Aa1 2.53
State of Virginia GO 6/1/2019 AAA Aaa 2.54
Ascension Health - Michigan 11/15/2019 AA Aa1 3.87
State of Delaware GO 3/1/2020 AAA Aaa 2.75
State of Maryland GO 3/1/2021 AAA Aaa 2.90
Water/Sewer District of Southern California 3/1/2022 AAA Aaa 3.50
State of Texas GO 4/1/2023 AA+ Aaa 3.49
Massachusetts Institute of Technology 7/1/2023 AAA Aaa 3.42
State of North Carolina GO 5/1/2024 AAA Aaa 3.53
NYC Transitional Finance Authority 2/1/2025 AAA Aa1 4.17
Massachusetts Bay Transit Authority 7/1/2026 AAA Aa1 4.17
NYC Water/Sewer Authority 6/15/2028 AA+ Aa2 4.42
Charlotte NC Water/Sewer 7/1/2030 AAA Aaa 4.23.
Harvard University, Mass. 12/15/2031 AAA Aaa 4.27
Tallahassee, Fla. Health Facilities 12/1/2030 NA Baa1 6.43%
Halifax Hospital Medical Center, Fla. 6/1/20206 A- BBB+ 5.70
Northampton City, Pa., Hospital Authority 8/15/2024 BBB+ A3 5.58
Michigan Hosp. Fin. Auth. (Ford Health) 11/15/2039 A A1 6.28
Iowa Higher Ed. Ln. Auth. (Grinnell Col.) 12/1/2020 AAA Aaa 3.12
State of Washington GO 1/12/2020 AA+ Aa1 3.00
Illinois Fin Auth. (Swedish Covenant Hosp.) 8/15/2029 BBB+ A- 5.81
Denver City & Co Sch Dist. Colo 12/1/2021 AA- Aa2 3.30
*As of 03/02 Sources: Cutwater Asset Management & Asset Preservation Advisors
.
The muni yield curve's steepness parallels that of the Treasury market out to 10 years, but it becomes even more extreme for lengthier maturities. Two-year triple-A munis yield about the same as the two-year T-note -- as of March 3, around 0.72%. At 10 years, the muni yields 3.20% vs. 3.52% for the Treasury. But in 30 years, the muni yields 4.72% vs. 4.60% for the Treasury. For a taxpayer in what for now is the top federal tax bracket of 35%, the top-grade muni yields the equivalent of 7.26%, the same as better-grade corporate junk.

If, or when, the steepness of the muni yield curve corrects, with short- and intermediate-term yields likely moving higher, those on the short end of the barbell will be trading as near-cash equivalents and will be able to be redeployed at higher returns.

Historically, the long end typically doesn't move much in those circumstances, so the investor picks up significant yield with little price movement. In the less likely event the curve flattens from the long end, the lengthier maturities would rally.

Woods also is emphasizing medium-grade (triple-B and single-A) bonds to a greater extent since going down the quality scale provides greater-than-usual pickups in yield. But he does that for only some 15%-20% of portfolios, with 80%-85% in double-A or triple-A bonds instead of his usual 85%-90% in top grades.

Another emphasis is on longer-term, high-coupon callable bonds. For instance, instead of buying a bond maturing in eight or 10 years, Woods might buy a bond due in 18 years but callable in eight years with a high enough coupon to ensure it is called. These so-called kicker bonds provide a higher yield and lower volatility than comparable non-callable bonds. That's in part because they trade at a significant premium to par, and individuals not steeped in the arcane math of bonds are loath to pay above par.

Cure of Evercore emphasizes bonds outside the battlegrounds of budget deficits and future pension and retiree health-care benefits. While the news focus is on states and cities, there are thousands of bonds that are issued by various agencies. These securities have structures with clearly defined sources of money, either dedicated tax payments or revenues from the projects they finance.

In New York, Cure explains, personal-income-tax payments are dedicated to payment of bonds of the Housing Finance Agency, the Dormitory Authority and Thruway Authority. In Florida, there are bonds secured by state lottery revenues, which have to cover debt service three times.

Revenue bonds to finance essential services such as water and sewer systems also have the virtue of being relatively immune to vagaries in the economy, which affect income and sales-tax revenues. In addition, localities which depend on real-estate levies have been depressed by the drop in house prices.

Meanwhile, those authorities also have relatively few employees and lower future retirement liabilities than, say, school districts.

And just think of the satisfaction you'd get paying the toll on George Washington Bridge if you owned bonds of the Port Authority of New York and New Jersey, which operates the Hudson River crossing.

.E-mail: editors@barrons.com

Copyright 2010 Dow Jones & Company, Inc. All Rights Reserved
This copy is for your personal, non-commercial use only. Distribution and use of this material are governed by our Subscriber Agreement and by copyright law. For non-personal use or to order multiple copies, please contact Dow Jones Reprints at 1-800-843-0008 or visit www.djreprints.com

States in Trouble (Daily Beast)

50 States in Debt

#1, Rhode Island
Debt 2009: $9.2 billion
Projected 2012 Budget Shortfall: $290 million
GDP 2009: $47.8 billion
Debt/GDP Ratio: 19.19%
Unfunded Pension Liabilities: $4.4 billion (39%)
Unfunded Health Care & Other Liabilities: $788 million (100%)

On the chopping block: Rhode Island’s judges and court workers are trudging along despite a lack of funds cutting paid work days per week and 53 positions that remain unfilled. “This is not a time for expensive initiatives and hefty new capital projects. It is a time to do the very best with the limited resources we have,” said Chief Justice Paul A. Suttell. The states court system has responded to budget shortfalls in part by disposing of cases on backlog.

#4, Illinois


Debt 2009: $57.0 billion
Projected 2012 Budget Shortfall: $15.0 billion
GDP 2009: $630.4 billion
Debt/GDP Ratio: 9.04%
Unfunded Pension Liabilities: $54.4 billion (46%)
Unfunded Health Care & Other Liabilities: $39.9 billion (100%)

On the chopping block: The state's mental-health services will lose $91 million in funding during the next fiscal year as a result of Illinois' extreme budget gap. Illinois Human Services chief Michelle Saddler has expressed her worry over the effect of the large cut, saying, "I'm concerned that we will see a real public-health crisis and real public-safety crisis with these cuts."




#6, New Jersey


Debt 2009: $56.9 billion
Projected 2012 Budget Shortfall: $10.5 billion
GDP 2009: $483 billion
Debt/GDP Ratio: 11.78%
Unfunded Pension Liabilities: $34.4 billion (27%)
Unfunded Health Care & Other Liabilities: $69 billion (100%)

On the chopping block: One of the biggest losers will likely be school districts, which are slated to have their funding decreased by $820 million. With $268 million coming in federal aid, 4,000 teachers may be able to keep their jobs. “Public opinion may well shift a bit when school is back in session, once parents start seeing the effects,” said Ben Dworkin of the Rebovich Institute for New Jersey Politics.

#23, New York


Debt 2009: $122.7 billion
Projected 2012 Budget Shortfall: $9.0 billion
GDP 2009: $1.1 trillion
Debt/GDP Ratio: 11.22%
Unfunded Pension Liabilities: $0
Unfunded Health Care & Other Liabilities: $56.3 billion (100%)

On the chopping block: With the threat of a shut down in Albany and the state’s finances verging on desperate, the state legislature finally passed a budget in early August. The state's public schools may also be nearing desperation, as the cuts proposed by Governor David Paterson include chopping $1.1 billion for state aid to schools.




#28, Nevada


Debt 2009: $4.4 billion
Projected 2012 Budget Shortfall: $1.5 billion
GDP 2009: $126.5 billion
Debt/GDP Ratio: 3.51%
Unfunded Pension Liabilities: $7.3 billion (24%)
Unfunded Health Care & Other Liabilities: $2.2 billion (100%)

On the chopping block: The Governor Guinn Millenium Scholarship program, which provides up to $10,000 toward college tuition for high school seniors, lost $12.6 million in funding last year as Nevada legislators closed the state's budget gap for the current fiscal cycle.





#40, Virginia


Debt 2009: $24.3 billion
Projected 2012 Budget Shortfall*: $2.3 billion
GDP 2009: $408.4 billion
Debt/GDP Ratio: 5.95%
Unfunded Pension Liabilities: $10.7 billion (16%)
Unfunded Health Care & Other Liabilities: $2.6 billion (66%)

On the chopping block: Health Care. New federal money will soften the blow of the loss of health coverage for low income Virginians, but the $293 million the state received is still $100 million less than lawmakers were banking on.

*Virginia operates with a 2-year budget.



#41, Florida

Debt 2009: $38.9 billion
Projected 2012 Budget Shortfall: $3.6 billion
GDP 2009: $737.0 billion
Debt/GDP Ratio: 5.28%
Unfunded Pension Liabilities: -$1.8 billion (-1%)
Unfunded Health Care & Other Liabilities: $3.1 billion (100%)

On the chopping block: The judicial system. Staff have been relieved, basic maintenance has been cut, programs for drug offenders have been reduced, and one Tampa courthouse is infested with vermin. All that hasn’t stopped the 1st District Court of Appeal in Tallahassee which is building a $48 million courthouse complete with 60-inch LCD flat screens for each judge.





#48, Texas


Debt 2009: $30.4 billion
Projected 2012 Budget Shortfall: $13.4 billion
GDP 2009: $1.1 trillion
Debt/GDP Ratio: 2.66%
Unfunded Pension Liabilities: $13.8 billion (9%)
Unfunded Health Care & Other Liabilities: $28.6 billion (98%)

On the chopping block: Texas has one of the better debt-to-gdp ratios at the moment, but its legislature is still having trouble coming up with the cash for the next two years of operating expenses. That could mean unpaid furloughs, salary freezes and four-day work weeks for state employees. "There's not any fat left," said Andy Homer of the Texas Public Employees Association. "This is cutting to the bone."



#50, Nebraska


Debt 2009: $2.5 billion
Projected 2012 Budget Shortfall: $314 million
GDP 2009: $86.4 billion
Debt/GDP Ratio: 2.91%
Unfunded Pension Liabilities: $755 million (8%)
Unfunded Health Care & Other Liabilities: n/a

On the chopping block: Students are going to have to pony up more money for tuition at all University of Nebraska campuses, according to a budget proposal released by president J.B. Milliken. With less money coming from the state, "I'm concerned about the investment in education," Milliken said.

What is going on with municipal bonds? The End of BABs (Build America Bonds) (from WSJ)

Muni Bonds Continue to Tumble
A Rush to Sell Build America Bonds Before They Are Gone.

By Romy Varghese and Kelly Nolan
Of DOW JONES NEWSWIRES

Prices of municipal bonds fell sharply for the second day Tuesday, driving yields on long-term bonds to the highest points in more than 18 months, as investors worried about the impact of the end of a federally subsidized borrowing program.

The yield on a closely watched index of high-grade, tax-exempt 30-year muni bonds rose to 4.84%, its highest level since March 2009, according to Thomson Reuters Municipal Market Data. The yield on 10-year bonds climbed to 3.24%, the highest since June 2009. Yields move inversely to prices.

.The market took a hit Monday as well, as the expiration of the Build America Bond program by the end of the year looked increasingly likely.

An extension of the program, which provides a 35% interest-rate subsidy from the federal government on taxable bonds issued by municipalities, on Monday wasn't included in legislation introduced in the U.S. Senate that continues Bush-era tax cuts.

Since the government started the BAB program in April 2009 as part of its economic stimulus, more than $165 billion of these bonds have been sold, accounting for about 22% of all new municipal debt, according to data from the U.S. Treasury Department.

Many municipal-bond market participants expect that, without BABs, state and local governments will issue more tax-exempt bonds next year and may overwhelm investor demand for that debt. This would force states and cities to raise their rates to attract buyers.

About $100 billion in long-term tax-exempt bonds would return to the market next year, estimated Robert Nelson, managing analyst at Municipal Market Data.

"With the loss of leveraged buyers of municipal bonds in 2008, there has been a dearth of demand for long maturity munis--this is where BABs came in and diverted this issuance to the taxable market," Nelson said. "Now without BABs the market is left to deal with the same supply/demand imbalance that plagued munis in 2008 and early 2009."

He added that long-term yields have generally returned to the same level seen at the outset of the Build America Bond program last year.

States with some of the lowest credit ratings have been especially battered by the recent muni-market turmoil.

The spreads on Illinois 10-year maturity general obligation bonds grew from 1.60 to 1.90 percentage points from Nov. 1 through Monday above a benchmark triple-A bond with the same maturity, according to Municipal Market Data.

Spreads on California general obligation bonds increased from 0.97 to 1.30 percentage points over the same time frame.

Meanwhile, municipal borrowers are plowing into the market with BAB deals in the last few market days of the year.

"We are hitting the market as quickly as we can because it's only going to get worse," said Harold Downs, treasurer of the Metropolitan Water Reclamation District of Greater Chicago.

Because of the market conditions, the water district is shrinking the size of its bond sale this week from $500 million to $280 million, he said. Most of the offering is BABs.

The Metropolitan Water District of Southern California is planning to sell $250 million in BABs this week, moving up part of a $450 million deal it had originally scheduled for the spring, said Brian Thomas, the water district's assistant general manager and chief financial officer.

"I think the market is still favorable if you look back over the last 10 years, but if you look compared to a month ago, it's a much more difficult market," Mr. Thomas said.

Higher yields may ultimately help stabilize the market by attracting buyers, said Dan Solender, director of municipal bond management at investment firm Lord Abbett in Jersey City.

And amid the volatility, some analysts are encouraging investors to buy municipal bonds from creditworthy issuers. Munis are now offering higher yields than U.S. Treasurys of comparable duration, which is the inverse of the usual relationship, noted Dan Loughran, senior portfolio manager at OppenheimerFunds. "Prices in the municipal bond market may continue to be volatile in the near term, but we believe relief is likely waiting in the wings once the New Year gets underway," he wrote in a report.

—Jeannette Neumann contributed to this article.
-By Romy Varghese, Dow Jones Newswires; 215-656-8263; romy.varghese@dowjones.com

Downgrade: Miami Municipal Bonds (Miami Herald)

Posted on Thu, Jun. 17, 2010
Standard & Poor's downgrades Miami bond rating by two notches
BY PATRICIA MAZZEI
pmazzei@MiamiHerald.com

A key agency has downgraded cash-strapped Miami's bond credit rating, a shift that will leave the public footing a higher bill for big-ticket projects, including parking garages for the new Marlins ballpark.
Standard & Poor's Ratings Services dropped two of the city's critical bond credit ratings by two notches, making it more expensive for Miami to borrow money at a time the city is scrambling to keep its budget afloat.
``That will have a significant impact on the cost of projects,'' said Tom Tew, a Miami securities attorney who has represented the city in the past. ``This is just another straw on the camel's back.''

Standard & Poor's lowered the rating for general obligation bonds -- usually backed by property taxes -- from A+ to A-, and the rating for bonds backed by other revenues from A to BBB+. The rating agency cited the city's climbing employee pension costs and unwillingness to raise taxes as reasons for its negative credit outlook.

``They have skepticism of the ability of the city to reduce expenses,'' City Manager Carlos Migoya said Thursday.

``I feel very confident that we'll be able to do that,'' he added -- possibly through employee union negotiations or layoffs.

The most immediate fallout: Funding for the city to build surface parking lots and four garages at the Marlins' new home in Little Havana.

Miami plans to float $104 million in bonds next month to finance the garages. Because of the lower bond rating, it will cost the city $15 million more to pay off those bonds over the next 30 years, the city manager estimated.

Migoya said that is about $15 million less than the garages would have cost over three decades if the city were building during boom times with higher construction prices.

The bonds will be paid off with money from a variety of sources, including a convention development tax generated by hotel sales and the average $10 the Marlins will pay the city to buy almost all of the parking spaces.

The manager said the credit downgrade should not delay construction. Work began this month after the city borrowed $3 million from a capital fund and received a $20 million bridge loan. The Marlins hope to begin play at the new ballpark on Opening Day in April 2012.

The rating downgrade is the latest dark financial cloud over the city.

Two months ago, another agency, Moody's Investors Service, shifted the city's credit outlook from a stable to a negative position, an indication that Miami's bond rating was poised to take a hit.

Miami leaders have had to raid the city's reserves to plug budget holes, including using $54 million from the rainy-day fund earlier this year to balance the 2009 budget.

The U.S. Securities and Exchange Commission continues to scrutinize whether the city hid its financial troubles from investors over the past three years, a review with potentially far-reaching budget implications.

Last week, city leaders discussed a controversial doomsday scenario: laying off more than 1,100 employees to fill a $100 million budget hole. Commissioners have sounded wary of raising taxes to cover the shortfall.

Against this backdrop, credit agencies are under pressure across the country to redo municipal bond ratings as home sales and property taxes -- local governments' main source of revenue -- tumble in the slumping economy.

Standard & Poor's noted Miami's historical difficulty with cutting expenses, and said cutbacks probably would not be enough without structural changes to labor contracts.

``The city's financial flexibility has been greatly reduced by growing fixed costs and limited tax-raising flexibility and willingness,'' the agency's report said, adding that the absence of ``considerable expenditure reductions could lead to further credit deterioration.''


Read more: http://www.miamiherald.com/2010/06/17/v-print/1687104/standard-poors-downgrades-miami.html#ixzz0rGPlYEtM

Which States are in the Worst Shape (FDIC)

FDIC State Profiles are a quarterly data sheet summation of banking and economic conditions in each state.

http://www.fdic.gov/bank/analytical/stateprofile/index.html

States in Trouble: Pension Obligations and Credit Ratings (Barrons)

Barron's Cover | MONDAY, MARCH 15, 2010
The $2 Trillion Hole
By JONATHAN R. LAING | MORE ARTICLES BY AUTHOR

Promised pensions benefits for public-sector employees represent a massive overhang that threatens the financial future of many cities and states.

Your State Tax: Municipal Bond Interest (The Bond Buyer)

Florida Dirt Bonds Default (Daily Business Review, Bloomberg)

"Florida community development district bonds defaulting faster than any U.S. tax-exempt debt"

Daily Business Review: News Item

Posted using ShareThis

Which States are in the Most Financial Trouble (CNN)

10 states face financial peril

Dropping tax revenue, rising unemployment and yawning budget gaps are wreaking havoc in states from Arizona to Wisconsin, a new report shows.

By Tami Luhby, CNNMoney.com senior writer
Last Updated: November 11, 2009: 3:42 PM ET

NEW YORK (CNNMoney.com) -- The same economic pressures that pushed California to the brink of insolvency are wreaking havoc on other states, a new report has found.

And how state officials deal with their fiscal problems could reverberate across the United States, according to the Pew Center on the States' analysis released Wednesday.

The 10 most troubled states are: Arizona, California, Florida, Illinois, Michigan, Nevada, New Jersey, Oregon, Rhode Island and Wisconsin.

Other states -- including Colorado, Georgia, Kentucky, New York and Hawaii -- were not far behind.

The list is based on several factors, including the loss of state revenue, size of budget gaps, unemployment and foreclosure rates, poor money management practices, and state laws governing the passage of budgets.

These troubles have forced these states -- as well as many others -- to raise taxes, lay off or furlough state workers and slash services. These actions can slow down the nation's recovery, especially since these 10 states account for one-third of the country's population and economic output.

"Decisions these states make as they try to navigate the recession will play a role in how quickly the entire nation recovers," said Susan Urahn, managing director of Pew Center on the States.

In a separate study released Wednesday, the Center on Budget and Policy Priorities found that states will likely have to make steep cuts in their fiscal 2011 budgets, which start next July 1 in most states. That's because the critical federal stimulus dollars will run out by the end of 2010.

These cuts could take nearly a percentage point off the national gross domestic product and cost the nation 900,000 jobs, the study found.

10 troubled states
Here's a summary of what Pew found is plaguing each of the states:

California: The Golden State's housing collapse -- and resulting unemployment surge -- has plagued the state's economy. The weakening economy prompted revenue to fall by nearly a sixth between the first quarters of 2008 and 2009. State lawmakers have limited ability to deal with California's massive budget gap due to several voter-imposed restrictions, including requirements that all budgets and tax increases pass the legislature by a two-thirds majority.

Arizona: The state depends heavily on a growing economy to bring in tax revenue, and lawmakers don't have a lot of leeway to address budget deficits thanks to voter-imposed spending constraints. Lawmakers relied on one-time fixes to balance its budget instead of making long-term changes.

Rhode Island: The Ocean State has among the highest unemployment rates in the nation and among the highest foreclosure rates in New England. High tax rates, big budget deficits and a lack of high tech jobs are hurting its chances to pull out of the doldrums. State government has a poor record of managing its finances

Michigan: The state never climbed out of the recession that started in 2001, and matters only became worse during the Great Recession. Two of the Big Three Detroit-based automakers went bankrupt in 2009, sending shockwaves through a state on track to lose a quarter of its jobs this decade. The recession accelerated drops in state revenue, and has left Michigan's government trying to deal with today's problems on a 1960s-sized budget.

Nevada: Nevada is one of the recession's big losers as its gaming-based economy suffered. Year-over-year revenue has fallen for two consecutive years, a record. But changing tax laws is tough because some are written into the state constitution.

Oregon: Oregon's leading industries, such as timber and computer-chip manufacturing, have been hit hard in the recession. Lawmakers have approved more than $1 billion in new taxes to keep it afloat. But voters in January will have the final say on another $733 million in new income taxes.

Florida: For the first time since World War II, Florida's population is shrinking -- bad news for an budget built on new residents flocking to the Sunshine State. Lawmakers raised $2 billion in new revenue this year, but could face a similar shortfall next year.

New Jersey: The Garden State, which has been plagued by years of fiscal mismanagement, spends more than it collects in revenue. The collapse of Wall Street, which supports about one-third of New Jersey's economy, has only made matters worse.

Illinois: Since the last recession earlier this decade, the state piled up huge backlogs of Medicaid bills and borrowed money to pay its pension obligations. The state's current budget still relies heavily on borrowing and paying bills late.

Wisconsin: Wisconsin has a long history of budget shortfalls. It also borrows frequently to cover operating expenses, among other measures. Unemployment is climbing as manufacturing, the state's largest sector, sputters.

More stimulus needed
The Center on Budget and Policy Priorities, a liberal research group, says the states need additional federal fiscal relief to avoid budget cuts that will hurt both the economy and people. State and local spending accounts for about one-eighth of the GDP.

Already, less than five months into fiscal 2010, several states are looking at additional budget cuts. Rhode Island announced Tuesday it is facing a revenue shortfall for the current fiscal year of $130.5 million. Gov. Donald Carcieri said the state must examine its aid to local governments, since it has already cut personnel and social service programs.

And in California, Gov. Arnold Schwarzenegger said Tuesday that his state is facing a budget gap of up to $7 billion. The state will likely announce across-the-board spending cuts in January.

"So we just have to hang in there, tighten our belts and live within our means," he said.

The center would like to see the federal government allocate another $50 billion, while economist Mark Zandi said about half of that would be needed. Congress should pass the additional aid now since states are currently crafting their fiscal 2011 budgets.

States received billions of dollars in funding from the Obama administration's $787 billion stimulus package, including $87 billion for Medicaid and $48.3 billion for maintaining education and other key services.

The stimulus funds plugged about 30% to 40% of the budget gaps states were facing, and created or saved more than 300,000 jobs, said Iris Lav, the center's senior adviser.

But the economic downturn is greater than administration officials expected when the Recovery Act was passed in February, Lav said. That's why more assistance is needed now.

Budget projections show that states could face deficits as large as $260 billion in 2011 and 2012 after stimulus funding is exhausted. State economies usually take up to two years longer to recover after the nation's fiscal health begins to improve.

New budget cuts and tax increases "will be a serious drag on the economy at just the wrong time," said Mark Zandi, chief economist at Moody's Economy.com.Without assistance, the economy could slide back into a recession, he said.

First Published: November 11, 2009: 1:00 PM ET







Find this article at:
http://money.cnn.com/2009/11/11/news/economy/states_economies