Michigan munis getting a bad rap?

Investment advisers say that despite the state's history of economic turmoil and ongoing risks, Michigan-issued financial products represent a good opportunity for invetors.

For example, "Michigan Municipal bonds are being painted with a broad stroke, while important and positive aspects of the bonds are going unnoticed,” says Leon LaBrecque, managing partner and founder of LJPR, LLC, a Troy-based firm managing more than $350 million in assets.

With the turmoil in the markets, LaBrecque and business partner, Brad Reynolds, CFA, have observed a historic shift in the premium on municipals, particularly Michigan munis.

Munis are selling at a vast premium to Treasuries," he says. "We think this premium is unusual and provides some opportunities." Following are some observations from a new white paper detailing what LaBrecque terms the "real story" on MI Municipal Bonds:

-- There is apparent mis-pricing of risk in Michigan munis. The entire market is being painted with one broad brushstroke. Michigan, as I can attest first-hand, is a very diverse state in geography and economy.

-- Ratings are helpful, but not determinative. We’re carefully looking at the issues and the municipalities individually.

-- The muni insurers are in turmoil. In fact, many of the insurers are junk status themselves.
Tax rates are going up for many investors, and this makes munis more attractive. Of particular interest to me is the Health Care Bill, which adds a 3.8% Unearned Income Medicare Contribution tax on dividends, interest and capital gains in 2013. Muni interest is exempt, making the tax-equivalent yield even more attractive to high bracket individuals.

-- The interest rate environment is unique. The yield curve is at a record steepness, and we see opportunity while staying reasonably short as protection against inflation.

-- Quality is king. With most munis priced the same, a savvy analyst can find very strong issues providing yield very similar to those that deserve a risk premium. There appear to be quality good yield issues.

-- Liquidity is queen. Municipalities are facing revenue crunches, probably in the magnitude on and average of -10- 15% for 2011 and 2012 and maybe longer. They need money and will borrow. We think BABs are a short term solution to the liquidity issue.

-- The market is dislocated and somewhat inefficient. We are seeing ‘fire-sale’ prices on some issues. In addition, we see that the lack of a central unified market presents opportunistic buying. We buy on the bid (wholesale) for our portfolios: the spreads tend to be pretty big now.
To view Leon’s and Brad’s entire White Paper, click here. To view their current executive summary of the Michigan Municipal Market, click here.

LJPR, LLC is an independent wealth management firm headquartered in Troy, MI. For more information about the firm, including the firm’s blog, visit their site. Leon C. LaBrecque is an attorney, CPA, CFP®, and CFA (Chartered Financial analyst). Leon is CEO and chief strategist for the independent wealth management firm, LJPR. Brad Reynolds, CFA is a partner in the firm and the firms’ chief investment officer. Together, Leon and Brad have been analyzing and investing in (to the tune of about $100M) individual Bonds, particularly Michigan municipal bonds. Leon LaBrecque’s direct e-mail is leon.labrecque@ljpr.com. The Firm’s telephone is 248-641-7400.

Education's role in recovery outlined

Higher Education: A Solution to the Michigan Crisis" is the topic of a free public forum at 3 p.m. Thursday, Sept. 30, on the campus of Western Michigan University in Room 210 of the Bernhard Center.

Speakers include Michael Boulus, executive director of the Presidents Council of State Universities of Michigan; David Hecker, president of the Michigan affiliate of the American Federation of Teachers; and Dr. Howard Bunsis, chair of the Collective Bargaining Congress of the American Association of University Professors.

Commentators for the forum will be two University faculty members, Dr. Ron Kramer, professor of sociology, and Dr. C. Dennis Simpson, WMU professor of physician's assistant. Introductions will be made by WMU President John M. Dunn; Dr. Peter Krawutschke, Faculty Senate president; and Dr. Paul Wilson, WMU-AAUP president.

The event is sponsored by the WMU chapter of AAUP and the WMU Faculty Senate.

For more information, contact Dr. Allen Zagarell, WMU-AAUP vice president, at allen.zagarell@wmich.edu or (269) 345-0151.

Engineering fair set for Kalamazoo

Representatives from dozens of employers, including several Fortune 500 companies, will be participating in the 15th Annual Engineering and Applied Sciences Fair from 10 a.m. to 3 p.m. Thursday, Sept. 30, at Kalamazoo's Western Michigan University.

The fair does not require prior registration and will take place at the University's Parkview Campus near U.S. 131 and Parkview Avenue in Kalamazoo. Although open to the public, it is intended primarily for current WMU students and recent alumni who are studying in or have graduated from engineering-related fields.

During the fair, attendees will have a chance to meet representatives from a variety of organizations, make initial contacts, and discuss current and projected opportunities for full-time employment as well as co-op and internship positions. They should dress in professional attire and bring copies of their resumes.

Among the employers participating in the 2010 fair will be: Adecco Technical and Engineering, Consumers Energy, Domtar, Gentex, Halliburton, Innotec, Kellogg, Parker Hannifin, Perrigo, Post Foods, Michigan Civil Service Commission, Stryker, U.S. Army Health Care and Verso Paper. Employers wishing to join those organizations may still do so by visiting www.experience.com/emp/cf_details?fhnd=4616 and registering to participate.

Chris Sell, WMU career development specialist in Career and Student Employment Services, says networking with potential future employers is a natural part of career planning for students.

"Any chance students have to highlight their course projects, leadership activities and co-op experiences strengthens the prospect for employment," Sell says. "And WMU students do well compared to many others. Employers are consistently impressed with the quality of our students and their ability to hit the ground running."

For more information, visit www.wmich.edu/career/events/career_fairs.html or contact Chris Sell at christopher.f.sell@wmich.edu or (269) 276-3263.

MDs address business of health care

Michigan physicians will be in the spotlight during an all-day conference Saturday, Sept. 25, at Western Michigan University to promote awareness of the importance of health care and overall well-being of Americans while exploring health care's business side.

Sustaining the Business of Health in America is the focus of the conference, which begins at 8:30 a.m. in Schneider Hall's Brown Auditorium on WMU's Kalamazoo campus and will include remarks by WMU President John M. Dunn. The conference is being offered free of charge and will let doctors and other providers have the floor in discussions about why health care is so expensive in the United States, why the cost is rising so quickly and what new legislation passed by Congress will do.

"For the first time, I'm trying to bring to this conference physicians as speakers, to hear the physicians' opinions," says Dr. Andrew Targowski, WMU professor of business information systems, director of the Center for Sustainable Business Practices and conference co-chair. "The public may not know that those bills are designed mostly by lawyers, and physicians are rarely consulted about health care."

Physicians will join others in a rare presentation mix that also includes business leaders, educators and information technology professionals. Keynote speakers include Dr. Tom George, state senator for the 20th District and a former gubernatorial candidate, who will speak on "Examining the Health Care Reform Bill, 2010," and local family practice physician Dr. Gary Ruoff, who will address "What Is Happening to Caring Physicians?" Dunn will speak on "The Medical School and Revival of Kalamazoo," while Targowski's talk is titled "Well Being, Wisdom and Health Care." Local heart surgeon Dr. Michael Khaghany will be among those serving on a panel of experts.

"Without the input from primary care physicians, any health care program cannot be successful," says Ruoff, a conference co-chair.

Health care is a huge business, Targowski says. At $2.4 trillion each year--three times the budget for the U.S. Department of Defense--it is the largest business in America. But monumental problems with the system remain.

Health care's high cost is exacerbated by large and disproportionate administrative costs, the soaring price of malpractice insurance and unnecessary procedures triggered by the threat of often-groundless lawsuits, Targowski says. Also contributing to the problem are expensive, end-of-life procedures that don't so much save lives as extend the process of dying.

Still another problem involves the inadequate compensation paid by insurers, particularly for primary care physicians, which has resulted in a persistent dwindling of the pool of family doctors, Targowski adds. That trend is sure to become a much larger problem in the years ahead.

"The family physician is disappearing right now," Targowski says. "Only 2 to 3 percent of medical students sign up for family practice specialization because their services are very poorly paid by any kind of insurance company."

The conference also will feature exhibits of medications, products and systems as well as a best papers competition open to business professionals, faculty and students. The event is sponsored by WMU's Haworth College of Business Center for Sustainable Business Practices and the WMU's new Center for Health Information Technology Advancement.

More information is available online at www.wmich.edu/business/healthcare/.

Homebuilding recovery seen for 2011

With houses financing already cheap and prices low relative to income, the Michigan housing sector is poised for a recovery next year, believes Dana Johnson, Comerica Bank's top economist.

Johnson's latest Michigan Economic Brief, released yesterday, notes that homebuilding is a volatile and cyclically sensitive sector. Usually, it reflects overall trends in employment and income as well as financing conditions. Typically, it expands more rapidly than the overall economy in the early stages of expansions, and falls more sharply during recessions. During the first half of this past decade, however, housing went on a tear in many parts of the country, unrelated to the overall economy. Michigan, however, had a relatively mild housing upturn: over that 5-year span, house prices in Michigan 17%, compared to a national increase of 48%.

"Even so, Michigan had a severe housing downturn over the second half of the decade, reflecting the extended and sharp contraction in the state economy," the report observes. "From 2004 through 2007, Michigan suffered a relatively mild one-state recession, due largely to the loss of competitiveness of its auto manufacturing sector. Starting in 2008, however, real GDP in Michigan plunged, as the national recession devastated demand for cars and other manufactured goods produced in the state. The result is that Michigan suffered the largest cumulative decline in real GDP and the highest unemployment rate among the states."

Analysts say the Michigan housing sector has shown some signs of stabilizing this year, but it is not contributing meaningfully to an upturn thus far. Among the positives, total issuance of residential building permits from January through July were 36% above the first seven months of 2009, while permits for the nation are up only 7%.

Another encouraging development, according to Comerica, is the modest decline in the number of foreclosures started in the state. In the second quarter, the percent of foreclosures started fell to 1.4% of mortgages outstanding, the third consecutive quarterly decline. The inventory of mortgages anywhere in the foreclosure process also dropped in both the first and second quarters. Thus, with the number of new homes coming on the market exceedingly low and the number of foreclosures possibly beginning to trend lower, the downward pressure on house prices may be beginning to wane.

"In my view, nothing would do more to promote a durable recovery in homebuilding than convincing evidence that house prices have stopped falling," Johnson states. "It is the real cost of borrowing that should matter to a potential home buyer. For any asset, the real cost of borrowing can be calculated by subtracting from the nominal cost of borrowing the expected change in the price of the asset being purchased. At present, mortgage rates are incredibly low. But the real cost of financing a home purchase is not similarly low, if potential buyers expect
house prices could decline significantly in the period ahead. No matter how low mortgage rates get, it is not a good time to buy if house prices are likely to fall five or 10 percent in the next year or so."

Consumer psychology will play a big role in the direction of the housing sector, however, as Johnson believes meaningful change will occur when people begin to believe that Michigan house prices have stopped falling.

"The missing ingredient," Johnson says, "is confidence. Once people in Michigan become more convinced that their jobs are secure and that house prices have stabilized, demand will begin to build and homebuilding will start contributing to a more broadly based recovery."