Institutional Investors

On Private Activity Bonds

For about two months, I wondered when I would write this.  Now I know… I’m writing it now.  To all my readers, I am letting you know that Aleph Blog is not ending, but it is changing.  I accepted a writing assignment with The Balance.  I am going to write 4-5 articles for them per month, and correct some old articles as well.  I will publish links to them here.  Like Aleph Blog, The Balance is free, so you don’t have to do anything more than click on the article link here to read it.

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Q2 hedge fund letters, conference, scoops etc

Private Activity Bonds

mohamed_hassan / Pixabay

Why did I do this?  I felt I was getting stale in my writing.  I was a little bored; that’s why I wasn’t writing so much.  I had completed all of my main goals for the blog in 2014, and slowly lost the will to keep cranking it out.

The deal with The Balance is like in that I get compensated.  It is not like in three ways.

  • I write primarily in the third person, like a journalist.
  • They don’t want any stock picks.
  • They assign me topics to write on, and I pitch ideas to them, which they must approve before I write.

I like it.  It forces me to learn new things and write in a new way outside of my comfort zone.  It is a challenge.

I will still write some pieces natively for Aleph Blog, but most of what you will see here will be lead-ins to my articles at The Balance.  I will personalize them here, and say things that I can’t say there, because here I don’t have to be neutral.

Here’s my first piece: Private Activity Bonds As An Investment

Let me simply say here that I am not crazy about Private Activity Bonds [PABs], and municipal bonds generally.  If you have a long enough time horizon to buy and hold a muni bond 20-30 years, then you may as well own stocks.  Aside from that, these aren’t municipalities paying on the PABs — these are private corporations.  It is a “heads they win, tails you lose” situation in many cases.  The credit risk level is higher than an equivalently rated muni.  So, buyer beware, and stick to investments that are simple, because complexity favors the financial structurer, not the buyer of the note that is a part of the financial structure.

But maybe I am wrong.  If you think I missed something, let me know in the comments.

Article by David J. Merkel, CFA, FSA, The Aleph Blog


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