mousseau, john april 0711
DESCRIPTION
Peter Demirali Managing Director &Portfolio Manager Managing Director & Portfolio Manager Chairman & Chief Investment Officer New Jersey 800-257-7013 One Sarasota Tower 614 Landis Ave. 2 N. Tamiami Trail, Suite 303 Vineland, NJ 08360 Sarasota, FL 34236 FloridaTRANSCRIPT
Florida New Jersey 800-257-7013
One Sarasota Tower 614 Landis Ave.
2 N. Tamiami Trail, Suite 303 Vineland, NJ 08360
Sarasota, FL 34236
U.S. MUNICIPAL BONDS
IN WORLD MARKETS
John Mousseau, CFA Managing Director &Portfolio Manager
Peter DemiraliManaging Director & Portfolio Manager
David KotokChairman & Chief Investment Officer
Chart 2
Florida New Jersey 800-257-7013
One Sarasota Tower 614 Landis Ave.
2 N. Tamiami Trail, Suite 303 Vineland, NJ 08360
Sarasota, FL 34236
©Copyright 2011 Cumberland Advisors
®. Further distribution prohibited without prior permission.
U.S. STATE & LOCAL GOVERNMENT (SUB-SOVEREIGN)
DEBT MARKET
• $2.9 Trillion in U.S. Dollars
• State and Local General Obligations, State and Local Agencies (Housing,
Public Utilities, Water, Education, Economic Development, others)
• Does Sub-Sovereign = Subprime?
• Historical Default Rates
• Recent Developments (Build America Bonds, Global Rating Changes, Bond
Insurers)
• Outlook
Chart 3
Florida New Jersey 800-257-7013
One Sarasota Tower 614 Landis Ave.
2 N. Tamiami Trail, Suite 303 Vineland, NJ 08360
Sarasota, FL 34236
©Copyright 2011 Cumberland Advisors
®. Further distribution prohibited without prior permission.
WHAT IS A MUNICIPAL BOND?
• It is a bond issued by a state, state or local agency, or local government (city or town).
2 types of municipal bonds
• General Obligation (G.O.)
The bond is secured by the issuer’s full faith, credit, and taxing power.
• Revenue Bond
The bond is secured by revenue from tolls, user charges, or rentsderived from the facility financed. Examples include turnpikes/tollroads, water and electric authorities, education and dormitoryauthorities, housing authorities, economic development authorities, portauthorities and others.
• Historically, most municipal debt issued is exempt from federal incometaxes. Recently, the Build America Bond (BAB) has significantly increasedthe amount of taxable municipal supply and attracted substantial interestinternationally.
Chart 4
Florida New Jersey 800-257-7013
One Sarasota Tower 614 Landis Ave.
2 N. Tamiami Trail, Suite 303 Vineland, NJ 08360
Sarasota, FL 34236
©Copyright 2011 Cumberland Advisors
®. Further distribution prohibited without prior permission.
CLD4
Quarterly Data 3/31/1952 - 12/31/2010 (Log Scale)
458
614
822
1100
1472
1970
2636
3527
4720
6315
8450
11307
15129
458
614
822
1100
1472
1970
2636
3527
4720
6315
8450
11307
15129 Total Marketable and Nonmarketable Federal Government Debt ( ) 12/31/2010=14025.22
Components of US Government Debt (USD Billions)
2
4
9
18
36
72
141
277
541
1057
2063
4027
7857
2
4
9
18
36
72
141
277
541
1057
2063
4027
7857Government-Sponsored Enterprises (GSE) Debt ( ) 12/31/2010=6378.81
24
36
54
80
119
176
261
386
571
844
1248
1846
2729
24
36
54
80
119
176
261
386
571
844
1248
1846
2729State and Local Government Debt ( ) 12/31/2010=2464.74
1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010
Copyright 2011 Ned Davis Research, Inc. Further distribution prohibited without prior permission. All Rights Reserved.
. www.ndr.com/vendorinfo/ . For data vendor disclaimers refer to www.ndr.com/copyright.htmlSee NDR Disclaimer at
Chart 5
Florida New Jersey 800-257-7013
One Sarasota Tower 614 Landis Ave.
2 N. Tamiami Trail, Suite 303 Vineland, NJ 08360
Sarasota, FL 34236
©Copyright 2011 Cumberland Advisors
®. Further distribution prohibited without prior permission.
Chart 6
Florida New Jersey 800-257-7013
One Sarasota Tower 614 Landis Ave.
2 N. Tamiami Trail, Suite 303 Vineland, NJ 08360
Sarasota, FL 34236
©Copyright 2011 Cumberland Advisors
®. Further distribution prohibited without prior permission.
DOES SUB-SOVEREIGN = SUBPRIME?
• No! Historically, investment grade municipal bonds have had exceptionally
low default rates.
Chart 7
Florida New Jersey 800-257-7013
One Sarasota Tower 614 Landis Ave.
2 N. Tamiami Trail, Suite 303 Vineland, NJ 08360
Sarasota, FL 34236
©Copyright 2011 Cumberland Advisors
®. Further distribution prohibited without prior permission.
Source Moody’s
Chart 8
Florida New Jersey 800-257-7013
One Sarasota Tower 614 Landis Ave.
2 N. Tamiami Trail, Suite 303 Vineland, NJ 08360
Sarasota, FL 34236
©Copyright 2011 Cumberland Advisors
®. Further distribution prohibited without prior permission.
Source Moody’s
Chart 9
Florida New Jersey 800-257-7013
One Sarasota Tower 614 Landis Ave.
2 N. Tamiami Trail, Suite 303 Vineland, NJ 08360
Sarasota, FL 34236
©Copyright 2011 Cumberland Advisors
®. Further distribution prohibited without prior permission.
Chart 10
Florida New Jersey 800-257-7013
One Sarasota Tower 614 Landis Ave.
2 N. Tamiami Trail, Suite 303 Vineland, NJ 08360
Sarasota, FL 34236
©Copyright 2011 Cumberland Advisors
®. Further distribution prohibited without prior permission.
Chart 11
Florida New Jersey 800-257-7013
One Sarasota Tower 614 Landis Ave.
2 N. Tamiami Trail, Suite 303 Vineland, NJ 08360
Sarasota, FL 34236
©Copyright 2011 Cumberland Advisors
®. Further distribution prohibited without prior permission.
Chart 12
Florida New Jersey 800-257-7013
One Sarasota Tower 614 Landis Ave.
2 N. Tamiami Trail, Suite 303 Vineland, NJ 08360
Sarasota, FL 34236
©Copyright 2011 Cumberland Advisors
®. Further distribution prohibited without prior permission.
Chart 13
Florida New Jersey 800-257-7013
One Sarasota Tower 614 Landis Ave.
2 N. Tamiami Trail, Suite 303 Vineland, NJ 08360
Sarasota, FL 34236
©Copyright 2011 Cumberland Advisors
®. Further distribution prohibited without prior permission.
BUILD AMERICA BONDSFederally Subsidized Taxable Municipal Bonds
• Build America Bonds (BABs) were created by the American Recovery andReinvestment Act of 2009 (“ARRA” or “Stimulus Act”) in February.
• Permits state and local governments to sell taxable bonds instead of tax-exempt bonds and receive periodic payments from the US Treasury equal to 35% of the interest on the bonds for the life of the debt.
• Congress created BABs to broaden the market for municipal debt and toprovide a more efficient subsidy than tax exemption
Chart 14
Florida New Jersey 800-257-7013
One Sarasota Tower 614 Landis Ave.
2 N. Tamiami Trail, Suite 303 Vineland, NJ 08360
Sarasota, FL 34236
©Copyright 2011 Cumberland Advisors
®. Further distribution prohibited without prior permission.
• BABs program expired December 31, 2010.
• There were no limits on the amount of debt that may be sold as BABs andno restrictions on their structure or maturity beyond the rules applicable totax-exempt bonds.
• From an investor’s perspective, BABs are simply taxable municipal bonds.The Federal interest subsidies are paid directly to the issuers, not toinvestors, and are generally not material in the analysis of thecreditworthiness of BABs.
BUILD AMERICA BONDSFederally Subsidized Taxable Municipal Bonds
Chart 15
Florida New Jersey 800-257-7013
One Sarasota Tower 614 Landis Ave.
2 N. Tamiami Trail, Suite 303 Vineland, NJ 08360
Sarasota, FL 34236
©Copyright 2011 Cumberland Advisors
®. Further distribution prohibited without prior permission.
• On April 15, 2010 triple-A rated University of Virginia sold $250 million of
30-year BABs at a yield of 6.22%, 250 basis points above 30-year US
Treasury yields. UVA has an after subsidy interest cost of 4.04% (65% of
6.22%) and is saving approximately $2 million per year in interest cost (80
basis points) versus issuing tax-exempt bonds.
• At the end of December 2010, states and local governments across the
country had sold over 3500 bond issues of BABs aggregating to more than
$187 billion in par in a large range of sizes and structures
BUILD AMERICA BONDSFederally Subsidized Taxable Municipal Bonds
Chart 16
Florida New Jersey 800-257-7013
One Sarasota Tower 614 Landis Ave.
2 N. Tamiami Trail, Suite 303 Vineland, NJ 08360
Sarasota, FL 34236
©Copyright 2011 Cumberland Advisors
®. Further distribution prohibited without prior permission.
Chart 17
Florida New Jersey 800-257-7013
One Sarasota Tower 614 Landis Ave.
2 N. Tamiami Trail, Suite 303 Vineland, NJ 08360
Sarasota, FL 34236
©Copyright 2011 Cumberland Advisors
®. Further distribution prohibited without prior permission.
Chart 18
Florida New Jersey 800-257-7013
One Sarasota Tower 614 Landis Ave.
2 N. Tamiami Trail, Suite 303 Vineland, NJ 08360
Sarasota, FL 34236
©Copyright 2011 Cumberland Advisors
®. Further distribution prohibited without prior permission.
“Build America Bond Plan Gains Obama Backing With
Lower Subsidy”
• “Repairing Market”
Build America Bonds “were successful in helping to repair a severely
damaged municipal finance market, making much needed credit available
at lower borrowing costs for infrastructure projects that create jobs,”
Treasury Secretary Timothy Geithner said in an e-mailed statement last
week. “By making Build America Bonds a permanent and expanded
financing tool for state and local governments, we’re investing in our
country’s long- term economic growth in a cost-effective way.”
Chart 19
Florida New Jersey 800-257-7013
One Sarasota Tower 614 Landis Ave.
2 N. Tamiami Trail, Suite 303 Vineland, NJ 08360
Sarasota, FL 34236
©Copyright 2011 Cumberland Advisors
®. Further distribution prohibited without prior permission.Source: Bloomberg
Build America Bonds (BABs) vs. Tax-Exempt Munis
0
1
2
3
4
5
6
7
8
150
170
190
210
230
250
270
290
310
Spread To Worst Bond Buyer 40 Yield to Call 30 yr. Treasury BABS Yld to Worst
Chart 20
Florida New Jersey 800-257-7013
One Sarasota Tower 614 Landis Ave.
2 N. Tamiami Trail, Suite 303 Vineland, NJ 08360
Sarasota, FL 34236
©Copyright 2011 Cumberland Advisors
®. Further distribution prohibited without prior permission.Source: Bloomberg
Build America Bonds (BABs) vs. AA Corporates
3
3.5
4
4.5
5
0
50
100
150
200
250
300
4/3
0/2
00
9
5/3
1/2
00
9
6/3
0/2
00
9
7/3
1/2
00
9
8/3
1/2
00
9
9/3
0/2
00
9
10
/31
/20
09
11
/30
/20
09
12
/31
/20
09
1/3
1/2
01
0
2/2
8/2
01
0
3/3
1/2
01
0
4/3
0/2
01
0
5/3
1/2
01
0
6/3
0/2
01
0
7/3
1/2
01
0
8/3
1/2
01
0
9/3
0/2
01
0
10
/31
/20
10
11
/30
/20
10
12
/31
/20
10
1/3
1/2
01
1
2/2
8/2
01
1
3/3
1/2
01
1
BABS AA Corporates 30-yr
%bp
s
Chart 21
Florida New Jersey 800-257-7013
One Sarasota Tower 614 Landis Ave.
2 N. Tamiami Trail, Suite 303 Vineland, NJ 08360
Sarasota, FL 34236
©Copyright 2011 Cumberland Advisors
®. Further distribution prohibited without prior permission.
About Cumberland Advisors
Cumberland Advisors supervises over one billion dollars in separate account assets for individuals, institutions, retirement plans, government entities, and cash management portfolios. Cumberland manages portfolios for clients in 47 states, the District of Columbia, and in countries outside the U.S. Cumberland Advisors is an SEC-registered investment adviser.
Munis, Taxables, ETFs
Cumberland’s portfolio management efforts emphasize long-lasting relationships and continuous dialogue among clients, their consultants, tax advisors, accountants, estate planners, and their assigned portfolio management contact at Cumberland. Cumberland offers several different investment portfolio management styles. Our investment strategy is described in detail on our website.
Fixed Income
All of our fixed-income offerings are total return strategies, but can take the client’s current income needs into consideration. Our fixed income styles areTax-Free Municipal Bonds, Taxable Bonds, and Short-Term Investment Program
Stocks
Cumberland uses Exchange-Traded Funds to manage global equities. Exchange-Traded Funds (ETFs) are securities that mimic the price performance and dividend yield of an index, or a basket, of securities. Cumberland uses ETFs as building blocks in crafting a portfolio, investing in attractive equity sectors, industries, market capitalization strata, styles, and regions. Our equity portfolios are U.S. Exchange-Traded Funds (ETF) Equity, International Exchange-Traded Funds (ETF) Equity, Emerging Markets Exchange-Traded Funds, and Global Multi-Asset Class Exchange-Traded Funds.
Balanced Accounts
Cumberland can blend the strategies presented above to create a balanced mix of stocks and bonds.
For further information about Cumberland Advisors, please visit our website at www.cumber.com.