A new book about the post-crisis municipal market should be well received by investors, market participants, and anyone who wants a glimpse into the recent "Adventures in MuniLand."
The book, published by Cumberland Advisors Publishing and written by three of its senior staffers, is a 369-page guide that helps readers understand the changes that market endured during the seven-year period from the end of 2007 and the following financial crisis.
Authors Michael F. Comes, David R. Kotok, and John R. Mousseau, examine how the municipal market transitioned from tranquil, quiet, and "boring" in the half century before the crisis to tumultuous and turbulent at times afterward.
Divided into two parts, Section I - "The Transformation of an Entire Asset Class" - discusses how the financial crisis impacted municipals, and the real economy, following the collapse of two Bear Stearns hedge funds in June 2007.
Section II, meanwhile, is entitled "Munis in Real Time: Lessons on How We Successfully Navigated the Financial Crisis," and is a compilation of the research pieces and commentaries published by Cumberland Advisors from 2008 to 2015.
This section, the authors said, chronicles how the financial crisis impacts a "sea change" in how people view and participate in the approximately $3.6 trillion municipal market, and is meant as a guide to future investments.
From structural changes to a profile of the overall market, in Section I, the team touches on everything muni: from rating agencies, bond insurance, and municipalities in recession, to municipal bankruptcies, case studies on distressed municipalities - like Detroit, Harrisburg, Pa., and Jefferson County, Ala. - and headline risk.
Build America Bonds, the pension crisis, infrastructure spending, New Jersey, and Puerto Rico's daunting challenges, complete with a history of its troubles and a near-term outlook, are also featured in their own chapters.
"Ultimately, it will be up to the leadership of the Puerto Rico government and their ability to pass structural reform and implement their economic growth agenda," the authors wrote. "To the extent the U.S. sees that happening, it will be easier for additional U.S. support to follow."
However, the authors pointed out how vulnerable the commonwealth is to headline risk, because of its stature as a prominent name in many portfolios.
"News generated around Puerto Rico as its credit has deteriorated and as it was recently downgraded to junk bond status elevated headline risk generally and headline risk concerning Puerto Rico debt specifically," they wrote.
Section II, meanwhile, begins in the weeks immediately following the Lehman Brothers bankruptcy and the declining liquidity crisis.
"The closing of bond desks at various dealer firms coupled with selling from hedge funds created a spike in relative yields that has yet to return to normalcy," as of the August 2015 publication of the book, according to the authors.
Other highlights in Section II include "Muni Defaults - Whitney and Roubini," "Policy Madness in Muniland," "Jefferson County Finally Declared Bankruptcy," and "The Good, the Bad, and the Ugly - Muni Bonds in 2013."
The book is dedicated to Peter Demirali, a shareholder, managing director, and portfolio manager at Cumberland, who died in 2012, and includes a forward by Alexandra Lebenthal, chief executive officer at Lebenthal Holdings LLC, who called the book "a necessity" for investors.
Hot off the presses, and the book is already getting a promising response from the industry, John Mousseau, director of fixed income and portfolio manager for municipal investments, said on Tuesday while waiting to board a flight after a conference in Minneapolis.
He said he hopes the book's style a guide for investors and tool for lessons learned will help drive home the overriding message that municipal bonds require more attention than ever before.
"It's not like the old days when you buy bonds and put them away and forget about it," he said.
"The municipal bond market is anything but static - and things change - whether it's headline risk, the erosion of insurers, which we saw during the meltdown, or the erosion of credit quality in general, which are seeing in Puerto Rico," Mousseau explained.
"I think it makes people pay attention a little more," both to the importance of having a financial advisor oversee their portfolios and to municipal finance in general, he said of the book.
The authors will participate in a book signing at Cumberland Advisors' Sarasota, Fla., headquarters on Aug. 25, which includes an interview on Bloomberg Radio.
Mousseau said the team is already working on material for a follow up book, including how the drop in oil prices affected the municipal market, and the continuation of the credit developments among Chicago, Illinois, and Puerto Rico.
Separately, he is also considering writing an issuer-driven educational guide that would feature 50 issuers in 50 states and highlight the financings and operations of prominent municipalities, such as the Florida Turnpike Authority, Kaiser Permanente in California, or the Chicago Metropolitan Pier in Illinois.
