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Thank you for subscribing to the Blue Haven Capital newsletter. We welcome your questions and comments and can be reached via email at info@bluehavencapital.com
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Question: Fly Ash is a recyclable byproduct of coal combustion. According to the American Coal Ash Association, ash has been used as an ingredient in concrete since Roman times. Volcanic ash, similar to fly ash, was used in the construction of the Roman aquaeducts as early as 312 BC.
What was the reported production of fly ash by U.S. coal-fired power plants in 2006?
A) 250 tons
B) 930,000 tons
C) 72 million tons
D) 200 million tons
Click here for the answer!
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| THE MARKETS
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Stock index performance (Domestic and International)
Domestic Index Performance Year to Date:
Dow Jones Industrial Average................-7.00%
Standard & Poor's 500..........................-9.44%
Russell 2000.......................................-9.90%
International Index Performance Year to Date:
MSCI Japan (in $US)............................-7.81%
MSCI Pacific xJapan (in $US)................-13.02%
MSCI Latin America (in $US)..................-1.92%
Interest Rates:
10 year US Treasuries...........................3.40%
10 year AAA rated municipal bonds..........3.75% |
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| PREREFUNDED MUNICIPAL BONDS
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What is a prerefunded municipal bond?
A municipality often borrows money to pay for projects such as schools, roads, bridges, libraries, police stations, etc. Often, when the municipality borrows money, it does so by issuing bonds which are called municipal bonds. Taxes paid by those living in the municipality are used to pay off the bonds, and this is often how cities and states in the United States finance their various projects. The interest on municipal bonds is frequently federally tax exempt for individuals, making high quality muncipal bonds a sought after security by those who are retired and living on their investment income.
When interest rates drop, municipalities often have the ability to refinance their bonds, much like a homeowner might refinance a mortgage. As a result of this refinancing, bonds that were previously issued can become prerefunded, meaning the bonds are now backed by United States Treasuries, which are considered the safest securities in the world. A person owning a prerefunded municipal bond is fortunate enough to hold a bond that is being paid off by United States Treasuries, yet still offers tax free income.
Recently, prerefunded municipal bonds have been offering an even higher yield than Treasury Bonds. For instance, in late March the yield on a 5 year Treasury was approximately 2.45%, while the yield on a 5 year prerefunded municipal bond was approximately 3.00%. Many investors had a choice: buy a Treasury at 2.45% and pay taxes on the interest, or buy a prerefunded municipal bond at 3.00% and pay no federal taxes on the interest.
We are in an extremely rare situation right now. It is not often that prerefunded municipal bonds yield more than Treasuries or CDs. In fact, it has happened only a handful of times over the last 20 years. Blue Haven Capital is taking advantage of this rare occurence for its clients, and would welcome the opportunity to discuss it with those who are retired, or about to retire, and are looking for advice on their fixed income portfolios.
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| LIVING SMALL?
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Is a smaller home in your future?
The Atlantic Monthly recently had an article titled The Next Slum? which examined the demise of the large lot home. The article claims that in parts of the United States, there is a simultaneous shift away from the large suburban home and towards higher density urban living.
Another consideration is continued suburban living, but on a smaller, less intrusive, scale. Such a theme can be seen in new developments such as Canoe Cottages of Norris Lake Tennessee. These tiny one story homes offer just over 800 square feet on the main floor, use high efficiency hot water heaters and furnaces, eco-friendly paint, and a minimal amount of building materials due to their small footprint.
As baby boomers age and downsize, and as younger people become more concious of the amount of energy they are consuming in their everyday living, perhaps the move to either higher density urban living, or low density/low impact suburban living will continue and even accelerate.
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| THE STOCK MARKET
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Stocks settling down?
It appears that the stock market volatility we had in January, February, and most of March is finally declining. In what Bloomberg News has called "the most aggressive reduction of interest rates in two decades", the Fed has cut the Fed Funds target rate from 5 1/4% to 2 1/4% in exactly 6 months. The result has been a 6% rise in the S&P500 from its February lows, but that still leaves the index down over 9% for the first quarter 2008. As money supply increases, hopes are building that the worst of the credit market turmoil is behind us. Continued diversification across geographic and capitalization ranges is the most prudent course of action. Municipal bonds remain cheaper than Treasuries, and this opportunity will most likely be closing as the markets stabilize.
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Blue Haven Capital is a registered investment advisor focusing on socially responsible investment management for individuals, private foundations, and public charities. If you know an individual or group who might be interested in our services, please forward this email to them!
Best Regards,
Donald Cummings
Blue Haven Capital LLC
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