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    Lebenthal on Munis
    Lebenthal on Munis
    Lebenthal on Munis
    Ebook157 pages2 hours

    Lebenthal on Munis

    By Jim Lebenthal

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    IF YOU KNEW WHAT I KNOW... Would you buy a municipal bond for the subways in New York City that’s rated AA-, or only A? Would you care what a bond is for as long, as it’s a general obligation backed by the issuer’s full faith, credit, and taxing power? Would you pay 109 for a bond, a premium of $90 for every $1,000 face value, knowing you’re going to get back only $1,000 at the end??Would it be crazy to buy a 30-year bond at age 80? Would you read “these bonds are not a debt of the state” as a fair warning, Buyer Beware??Tax free municipal bonds. Would you buy them at all? STRAIGHT TALK FROM THE MAN WHO PUT MUNIS ON THE MAP FOR THE INDIVIDUAL INVESTOR. Would telling you the whole story about investing in municipal bonds, and making sure you know the risks involved, kill the sale? “I’ll take my chances,” says Jim (Municipal Bonds Are My Babies) Lebenthal. For 45 years, Jim Lebenthal wrote and starred in the Lebenthal family’s municipal bond business commercials - information nuggets that educated the public and turned munis into a household word, wherever his face and voice were seen and heard. Outraged by what Wall Street had done to the financial markets with reckless abandon, and Bernie Madoff with malice aforethought, Jim gives equal time in Lebenthal On Munis…Deciding, "Yes…" or "No!" to the Whys and Why Nots for investing in his "babies." "Balancing the heady appeal of tax exemption with the payment record of municipal bonds in the Depression and the volatility of resale prices during the inflation tortured '70s and '80s, isn’t optional for a broker," says Lebenthal. "Full Disclosure is the law." In Lebenthal on Munis, Jim carries out that law, even if Full Disclosure means turning Jim and his babies, thumbs down. DECIDING, "YES…" OR "NO!"

    LanguageEnglish
    PublisherOpen Road Media
    Release dateMay 27, 2014
    ISBN9781497631120
    Lebenthal on Munis
    Author

    Jim Lebenthal

    Jim Lebenthal is chairman emeritus and former president of Lebenthal & Company, a full‑service investment firm in New York City that specializes in municipal bonds. Advest, Inc., purchased Lebenthal & Company in December 2001. Prior to joining his family firm in the late 1960s, Lebenthal held many of the most coveted jobs in the country. He was a filmmaker for Walt Disney—receiving an Academy Award nomination in 1959 for Best Short Feature. He was the Life Magazine Hollywood correspondent, and wrote advertisements for Ogilvy & Mather and Young & Rubicam.

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      Book preview

      Lebenthal on Munis - Jim Lebenthal

      Lebenthal_Munis-lowres.jpg

      Lebenthal on Munis

      Jim Lebenthal

      Disclaimer: The Publisher and the Author make no representations or warranties with respect to the accuracy or completeness of the contents of this work and specifically disclaim all warranties, including without limitation warranties of fitness for a particular purpose. No warranty may be created or extended by sales or promotional materials. The advice and strategies contained herein may not be suitable for every situation. This work is sold with the understanding that the Publisher is not engaged in rendering legal, accounting, or other professional services. If professional assistance is required, the services of a competent professional person should be sought. Neither the Publisher nor the Author shall be liable for damages arising herefrom. The fact that an organization or website is referred to in this work as a citation and/or a potential source of further information does not mean that the Author or the Publisher endorses the information the organization or website may provide or recommendations it may make. Further, readers should be aware that internet websites listed in this work may have changed or disappeared between when this work was written and when it is read.

      Contents

      Preface. Because Disclosure Isn’t an Option. It’s the Law.

      1. Second in Safety Only to U.S. Treasuries, Son. Verily! Verily!

      2. Income, and No Tax: How Long Can a Good Thing Last?

      3. In Pursuit of a Knowable, Quotable Fixed Rate of Return:. Yield to Maturity

      4. Never All Short, Never All Long, Never All Wrong

      5. Degrees of Sincerity in the Commitment to Pay

      6. How Much Is That in Dollars?

      7. When the Flag Touches the Ground

      8. Matching One You with a Million and a Half Possibilities

      9. The MuniProfiler A Model of Lebenthal in a Bottle

      10. Triple-A Insured 1971–2008

      11. Auction Rate Securities: the Risk that Wouldn’t Go Away

      12. By Their Deeds You Shall Know Them.

      13. Who Reads the Prospectus, Anyway? (Hey, It’s Only Your Money!)

      14. How to Slow Down a Fast-Talking Bond Salesman

      15. To the New Kid in Sales (and Talking to Investors Over the New Kid’s Shoulder)

      16. Munis Doing Just Swimmingly in Waste-Water Treatment Plant Cleaning Up Our Rivers and Streams

      Epilogue. Build America Bonds Go To War

      The Entertaining and Highly Informative Lebenthal Glossary

      Preface

      Because Disclosure Isn’t an Option. It’s the Law.

      I WAS BORN just one year before the crash. My mother and father were the husband-and-wife team of Louis and Sayra Lebenthal, founders of Lebenthal & Company, Municipal Bonds for the Individual Investor. I remember an almanac Dad first compiled in the thirties and kept up-to-date with woodcuts of tornados and natural disasters through which municipal bonds had kept right on paying.

      Despite the National Industrial Recovery Act being struck down by the Supreme Court, its Blue Eagle sticker is still remembered by survivors of the Great Depression.

      Those icons of the safety record of municipal bonds in the face of calamity—the great Chicago Fire, the San Francisco earthquake, the Galveston hurricane connect me to rough times municipal bonds have weathered, past and present. I’m thinking of visits to Lebenthal & Company with the Depression in full swing. I can still see beaten men in fedoras selling apples out on the street downstairs…while upstairs in our window on the fourteenth floor, our National Industrial Recovery Administration (NRA) Blue Eagle window sticker proudly proclaimed to one and all—from the fourteenth floor yet—We Do Our Part.

      An exciting first impression of municipal bonds from a vintage Lebenthal & Company brochure.

      It was a scene out of that Edward Hopper painting, Office at Night. There was our Miss Dodd, bookkeeper-stenographer-telephone operator, plugging in calls at the switchboard. Dad clutching the upright telephone in one hand, the receiver up to his ear in the other…the office goldfish surfing the fish tank for something to eat…me, for pre-TV fun and excitement, linking paper clips together in an endless chain, which the customers men, to their grief, would not discover until the next time they reached for a paper clip…or filling paper cups of water just to watch bubbles glug-glug up the water cooler jug. Closing time Saturdays was 3 o’clock. Dad would cover the canary cage, push the elevator button, and as we left, say, Good night! to the elevator man. That bothered me. Dad, it’s still afternoon. Why are we saying good night? Oh, son! Dad exclaimed.

      That I should ever end up in such an office scene was out of the question. So, after graduating Princeton, I took the glamour road with dream jobs at Life magazine, NBC, Disney, Young & Rubicam Advertising, and Ogilvy & Mather. (For more about fifteen years and tons of fun working for Henry Luce, Walt Disney, and David Ogilvy, while avoiding the family bond business, read Confessions of a Municipal Bond Salesman, John Wiley & Sons, Inc., publisher.) Guilt finally got me pondering, What am I doing here? Why was I making other companies famous instead of putting my family’s name on every tongue and building an empire for Lebenthal? Ever since Dad’s death in 1951, Mother kept the company going, barely hiding the hope that one day, I’d…Well, let’s just say that when I finally did cave in and join her selling odd-lot municipal bonds to the little guy with a thousand dollars or so to invest at a time, she let it out: At last you’ve gotten all that other foolishness out of your system.

      That was way back in heady 1963, before landlords in the South Bronx started walking away from buildings that were worth less than the bills for back taxes. It was before New York City began borrowing for daily operating expenses. It was before the City declared a moratorium (you can pronounce it default) on the repayment of $1.6 billion municipal notes, and before the flag touched the ground in Washington, Oregon, and Idaho, the home states of the Washington Public Power Supply System (WPPSS).

      My formal education in tax-free municipal bonds began long before inroads were made on their hallowed exclusion from income tax, before the Social Security tax, before the alternative minimum tax on certain municipal bonds deemed private activity bonds, and before the outright ban of tax-exempt bonds for ballparks, convention centers, liquor stores, and private jets. Municipal bonds still had twenty-five glorious years to go before the Supreme Court would knock tax exemption off its constitutional high horse and rule in South Carolina v. Baker that municipal bonds were tax free only by the grace of Congress, not by any constitutional right.

      I sat at a desk across from my mother’s and got on-the-job-training from the master. Today, I own the verities my momma done told me.

      It’s not how much you earn that counts. It’s how much you keep.

      If you’re going to speculate, don’t do it in municipal bonds.

      Municipal bonds are for tax-free income, not to make a killing from market moves.

      A good portfolio diversifies maturities as well as municipalities.

      If you know you’re going to need your money in two, five, ten years, buy bonds that mature in two, five, ten years. Why subject your savings to the vagaries of the market?

      A bond is marketable when you can get a bid on it before maturity from other firms and not just the house you bought it from.

      The best time to invest in munis is whenever you have the funds.

      If it’s knowable, make sure the customer knows it. If it isn’t, don’t pretend.

      Besides listen to your mother, I believe in taking on, taking over, and making whatever you do your own. And, true to form, here I go now making a certain rule of the game my own, as if I were the one who thought it up and not the regulators:

      A broker has a duty to disclose all material information in connection with an investment recommendation…which may be reasonably relevant to an investor to take into consideration in making an informed investment decision…in particular the various risks and level of risk of an investment recommendation.

      —THE NASD (NOW FINRA)

      OBLIGATION OF DISCLOSURE RULE

      Giving you enough information to decide whether you really belong in municipal bonds—and which ones—isn’t a choice that’s up to me to make. It’s the law. And Lebenthal on Munis is going to toughen that law by giving you the information to decide No! as well as Yes, even if it means turning me and my bonds thumbs down.

      Am I afraid that disclosing the why nots, as well as the whys, will kill the sale? I hope only the unsuitable sales that weren’t meant to happen. After all, I am a municipal bond salesman, living by the best money-making claim Lebenthal & Company has advertised in all its eighty-plus-year history: disclosing the risks about municipal bonds, and helping investors decide, ‘Yes…’ or ‘No!’

      1

      Second in Safety Only to U.S. Treasuries, Son. Verily! Verily!

      IN THE YEAR 1963, when sowing oats for me ceased at age thirty-five and seeking happiness and self-fulfillment in municipal bonds began, 75 percent of the new munis coming to market were so-called full faith and credit, unlimited tax general obligation bonds (GOs), considered the blue chips of the bond business.

      GO’s are backed by all the revenue generating powers of the municipality—the main one being the power of the issuer to peg real-property taxes at whatever rate it takes to pay the interest it owes and principal at maturity. For a GO, payment of debt service isn’t an option. It’s a must. And bondholders have prior lien on the property tax, meaning bondholders get paid ahead of everyone else. Theoretically they do. Prior lien could turn out to be academic if the money to pay just plain isn’t there. Yet just the existence of prior lien in Article VIII, Section 2 of the State of New York Constitution inspired me in 1975 to run a full-page ad in the New York Times that laid it on the line: As a New York City bondholder, you get yours, before policemen, before firemen, before school teachers, even before the mayor. By the end of the year, New York City declared the moratorium and reneged on $1.6 billion general obligation municipal notes.

      How Lebenthal & Company sought to reassure investors about the safety of New York City general obligation bonds in the city’s 1975 fiscal crisis. Not so fast, said the SEC.

      That ad grabbed more than just the public’s eye. It also caught the attention of the SEC. So

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