If you are a closed-end investor, try a tax-free fund like Nuveen Insured Municipal Opportunity Fund (NYSE:NIO), trading at a 10% discount to its net asset value and yielding over 6% paid monthly.

Or, to avoid annual expenses and have the certainty of a final value on a particular date, buy individual tax-free bonds.

But whatever you do, buy them now. Let me count the reasons why you should…

Three Reasons Why Municipal Bonds Make A Good Investment Now

1. Ten-year municipal bonds, while down from the historic premium they reached a few months ago, are yielding as much as 10-year Treasuries. But while Treasuries are taxable, munis are not.
2. Most municipal bonds are safe. Yes, a few areas – particularly in California and Alabama – are troubled. But the historical default rate on municipal bonds is just 0.3%.
3. Taxes will soon be going higher. A lot higher.

Yes, I know that when President Obama was Candidate Obama, he promised a tax cut for 95% of Americans. But that was then.

The Fallout From The Government’s Massive Spending Spree

Since that time, we’ve seen the federal government…

• Ride to the rescue of General Motors and Chrysler.

• Pass a massive $787 billion economic stimulus.

• Spend hundreds of billions more to recapitalize banks, bail out insurance companies and “fix” the mortgage market.

Now, the Obama administration is proposing the biggest changes to the healthcare system since the advent of Medicare in 1966. It’s planning to spend billions more to lighten our dependence on foreign oil and reduce carbon emissions. And it’s urging policy makers to rewrite the rules governing the entire U.S. financial system, spending who knows how many billions more.

As for candidate Obama’s promised tax cut, I’m reminded of the remark former Clinton aide George Stephanopolous once made to Larry King, “The President kept all the promises he intended to keep.”

The consequences of all this new federal spending and encroachment into the private sector won’t be fully apparent for years to come.

But the wild fiscal imbalance is already crystal clear. Washington politicians will soon demand that you sacrifice even more of your paycheck so that they won’t have to sacrifice the near erotic charge – and high incumbency rate – they get from spending it.

This is ironic when you consider that to a large extent it was government that landed us where we are today…

The Buck Stops With The Federal Government

Sure, the mortgage boom and housing market bust was due in part to shameless lenders, greedy borrowers, and unscrupulous Wall Street types. But who set the stage for them?

Who took short-term interest rates to the cellar, creating a massive incentive for consumers and investors to borrow? The federal government.

Who gave real estate investors a $500,000 tax exemption on their profits from flipping houses every two years? The federal government.

Who passed laws criminalizing banks’ failure to lend to subprime borrowers? The federal government.

Who set up quasi-government institutions Fannie and Freddie  – or, as I prefer, Phoney and Fraudy – to warehouse those bad mortgages, leaving taxpayers to pick up the tab? The federal government.

And what will we get as a result of this supposed “failure” of the free market system? More federal government.

I’m not sure whether to laugh or cry. But I am sure our Founding Fathers must be spinning in their graves.

How To Combat The Growth Of Government… And Taxes

Thomas Jefferson said, “That government is best which governs least.”

George Washington said, “Government is not reason, it is not eloquence, it is force.”

No wonder polls show that more than 60% of Americans are skeptical of increased government intervention in the economy.

They suddenly recognize that we’re in for a lot more government, a lot more “market failure”… and a lot more taxes.

Sadly, there isn’t much you can do about it… except buy munis now.

Source:  How To Fight Back Against The Government’s Imminent Tax Hikes

• Who took short-term rates to the cellar, creating a massive incentive for consumers and investors to borrow?
• Who gave real estate investors a $500,000 tax exemption on their profits from flipping houses every two years?
• Who passed laws criminalizing banks’ failure to lend to subprime borrowers?
• Who set up quasi-government institutions Fannie and Freddie … to warehouse those bad mortgages, leaving taxpayers to pick up the tab?

You got it… The same people who are now howling about how the ‘free market’ (such a thing hasn’t existed for quite some time) got us into this mess.

Alex says Team Obama’s spending plans and its hostile takeover of what’s left of the free market mean the middle-class can expect their taxes to “go higher… a lot higher.”

Alex, for those of you who don’t know him, is the chairman of InvestmentU.com and the investment director of The Oxford Club, an index-beating network of private investors and entrepreneurs.

He says the best way to combat higher taxes is to invest in tax-free, municipal bond funds. Here are three solid reasons why you should consider tax-free munis:

1. Ten-year municipal bonds, while down from the historic premium they reached a few months ago, are yielding as much as 10-year Treasuries. Treasuries are taxable. Munis are not.
2. Most municipal bonds are safe. Yes, a few areas – particularly in California and Alabama – are troubled. But the historical default rate on municipal bonds is just 0.3%.
3. Taxes will soon be going higher. A lot higher.

Alex recommends two ways to cash in on tax-free munis. These could be critically important in coming years. As Alex says, “The wild fiscal imbalance is already crystal clear. Washington politicians will soon demand that you sacrifice even more of your paycheck so that they won’t have to sacrifice the near erotic charge – and high incumbency rate – they get from spending it.”

1. Buy them through Vanguard if you are a mutual fund investor. (The average fund company charges expenses six times higher than Vanguard’s.)
2. If you are a closed-end investor, try a tax-free fund like Nuveen Insured Municipal Opportunity Fund (NYSE: NIO) trading at a 10% discount to its net asset value and yielding over 6% paid monthly.
3. Or, to avoid annual expenses and have the certainty of a final value on a particular date, buy individual tax-free bonds.

Alex has uncovered the perfect way to make money in today’s market. It involves ignoring all talking heads on CNBC for the next 45 days.

Just confirm your interest and full address here, and The Oxford Club will FedEx you a $1,500 check. This money is yours to keep. You’ll never have to pay it back.

Alex’s track record so far is outstanding. By following his recommendations from March 9 to March 17, 2009 – one week – you could have tripled your money. And from January 20 to May 5, 2009, you could have turned just $5,000 into $62,968.

• Buy them through Vanguard if you are a mutual fund investor. (The average fund company charges expenses six times higher than Vanguard’s.)
• If you are a closed-end investor, try a tax-free fund like Nuveen Insured Municipal Opportunity Fund (NYSE: NIO) trading at a 10% discount to its net asset value and yielding over 6% paid monthly.
• Or, to avoid annual expenses and have the certainty of a final value on a particular date, buy individual tax-free bonds.

But, whatever you do, buy them – now.

Tax-Free Bonds: Why It’s Time To Buy Them

So, why is now the time to buy tax-free bonds? Let me count the ways:

• Ten-year municipal bonds, while down from the historic premium they reached a few months ago, are yielding as much as 10-year Treasuries. Treasuries are taxable. Munis are not.
• Most municipal bonds are safe. Yes, a few areas – particularly in California and Alabama – are troubled. But the historical default rate on municipal bonds is just 0.3%.
• Taxes will soon be going higher. A lot higher.

Yes, I know that President Obama, when he was candidate Obama, promised a tax cut for 95% of Americans. But that was then and this is now…

In the meantime, we’ve seen the federal government:

• Ride to the rescue of General Motors and Chrysler…
• Pass a massive $787 billion economic stimulus…
• Spend hundreds of billions more to recapitalize banks…
• Bail out insurance companies…
• And “fix” the mortgage market.

Now the Obama administration is:

• Proposing the biggest changes to the health care system since the advent of Medicare in 1966.
• Planning to spend billions more to lighten our dependence on foreign oil and reduce carbon emissions.
• Now urging policy makers to rewrite the rules governing the entire U.S. financial system, spending who knows how many billions more.

As for candidate Obama’s promised tax cut, I’m reminded of the remark former Clinton aide George Stephanopolous once made to Larry King, “The President kept all the promises he intended to keep.”

The Consequences of Federal Spending & Encroachment

The consequences of all this new federal spending and encroachment into the private sector won’t be fully apparent for years to come.

But the wild fiscal imbalance is already crystal clear. Washington politicians will soon demand that you sacrifice even more of your paycheck so that they won’t have to sacrifice the near erotic charge – and high incumbency rate – they get from spending it.

This is ironic when you consider that to a large extent it was government that landed us where we are today.

Sure, the mortgage boom and housing market bust was due in part to shameless lenders, greedy borrowers, and unscrupulous Wall Street types. But who set the stage for them?

• Who took short-term rates to the cellar, creating a massive incentive for consumers and investors to borrow?
• Who gave real estate investors a $500,000 tax exemption on their profits from flipping houses every two years?
• Who passed laws criminalizing banks’ failure to lend to subprime borrowers?
• Who set up quasi-government institutions Fannie (NYSE:FNM) and Freddie (NYSE:FRE) – or, as I prefer, Phoney and Fraudy – to warehouse those bad mortgages, leaving taxpayers to pick up the tab?

The answer? The federal government.

As The Free Market System “Fails”…

And what will we get as a result of this supposed “failure” of the free market system? More federal government.

I’m not sure whether to laugh or cry. But I am sure our Founding Fathers must be spinning in their graves.

• Thomas Jefferson said, “That government is best which governs least.”
• George Washington said, “Government is not reason, it is not eloquence, it is force.”

No wonder polls show that more than 60% of Americans are skeptical of increased government intervention in the economy.

They suddenly recognize that we’re in for a lot more government, a lot more “market failure”… and a lot more taxes.

Sadly, there isn’t much you can do about it… except buy munis now.

Good investing

Alexander Green

Source: Tax-Free Bonds: Why Now is the Time to Buy Munis

Alex says tax-free municipal bonds are now yielding 140% of their Treasury equivalents. And as Barack Obama moves closer to winning the US election demand for these bonds should soar as high-income earners look to avoid the coming tax hikes.

Alex thinks this is a no-brainer. You can play this either through buying muni bonds directly, or via mutual and closed-end funds such as Nuveen Insured Municipal Opportunity Fund (NYSE: NIO).

This from Investment U:

Since the financial panic hit in earnest over the past two weeks, all sorts of interesting opportunities have developed with varying degrees of risk. Today I want to point out one that is so rare it is without precedent. I’m talking about the current yield on municipal bonds relative to Treasuries.

As you know, investors have flocked to Treasuries as a safe haven during the current economic storm. T-bills are yielding less than a half of one percent. Ten-year and 30-year Treasuries are yielding about 3.5% and 4% respectively.

Yet municipal bonds of 15-year and higher maturities are currently yielding more than 5%.

Why is that so unusual? Because the interest from municipal bonds is exempt from federal taxation. As a result, munis ordinarily offer yields at 90% of the level of Treasuries. Today they are yielding as much as 140% of Treasuries.

“Valuations have really gotten out of whack,” says Paul Breenan of Nuveen Investments, who manages more than $13 billion of municipal bond assets. “They’re at historic levels we’ve never seen before.”

2 Reasons To Buy Municipal Bonds Right Now

Besides the higher yields, there are two other reasons you should buy tax-free municipal bonds right now:

• One is that this month, Moody’s is about to begin rating municipal bonds the same way it rates corporate bonds. “There will be an uplifting of credit quality of many muni securities,” says Jim Colby, senior municipal strategist for fixed income at Van Eck Global. “Chances are that when Moody’s changes its ratings, you’ll get higher credit ratings and better prices.” Under the new system, many A-rated bonds will become AAA-rated. That will cause the price of those bonds to rise.
• The other reason to buy municipal bonds now is that it looks like Senator Obama will win the election next month. He has pledged to raise the top marginal tax rate. So it’s reasonable to expect a major uptick in the demand for tax-free bonds in the year ahead.

Why aren’t these investors swooping in to buy these bonds already? Some of them are. But a big source of muni buying is typically banks and insurance companies. Right now these companies are de-leveraging. Selling assets, in other words, not buying. This has pressured the market, creating the juicy tax-free yields we see today.

The Best Ways To Play The Municipal Bond Phenomenon

What are the best ways to play this unusual municipal bonds phenomenon?

• The first, of course, is to buy individual municipal bonds. If you own an individual bond, there are no annual expenses and you are assured of receiving $1,000 per bond at maturity. Pick your bonds depending on which state you live in. If you live in a high tax area like New York or California, for instance, you will definitely want to own your own state’s bonds to avoid both state and federal income taxes. Follow the link to get information on your state’s individual municipal bonds.
• Another way to own munis is through Vanguard mutual funds. Why Vanguard? Because it has the lowest expenses in the industry. (The average mutual fund company charges expenses six times as high as Vanguard.) It’s a simple equation: The lower your annual expenses, the greater your net returns. Follow the link for a complete menu of Vanguard tax-free municipal bonds.
• Yet another way to buy tax-free bonds is through a closed-end fund like Nuveen Insured Municipal Opportunity Fund (NYSE: NIO). This fund also holds a portfolio of tax-free bonds. The annual expense ratio is 1.15%. Although this is higher than Vanguard, it is actually cheap by closed-end fund standards. Many closed-end funds have expenses that total more than 2% per year. And NIO offers something that Vanguard cannot. You currently have the ability to buy this fund for 33% less than the net asset value. In other words, you can buy a dollar’s worth of assets for sixty-seven cents.

And you should. The deep discount is causing the fund to yield 7% tax-free. (If you’re in the top tax bracket, the taxable equivalent is over 10%.)

If the market price moves back to net asset value when things settle down, which is likely, you’ll have a 33% capital gain down the road as well.

The Risks of Buying Municipal Bonds

What are the risks of buying these municipal bonds? There are two mainly:

• The first is that all this government spending turns out to be inflationary and so bond yields rise. That would cause bond prices to decline, at least temporarily.
• Then there is the risk of default. But this is pretty negligible.  According to Moody’s, the 10-year default rate on all investment-grade bonds is 2.1%. For AAA-rated corporate debt it is 0.52%. The default rate for investment-grade municipal bonds is a scant 0.07%.

In short, these are three good ways to capitalize on the credit crisis that is gripping the nation.   They won’t last forever. So you ought to take advantage of them now.

Source: Municipal Bonds: A True Once-in-a-Lifetime Opportunity