U.S. stocks keep racing to record highs. Money is pouring into exchange traded funds, particularly the equity-based variety and to the untrained eye, all would appear to be well as year-end nears.
That is far from the case for select U.S. towns and cities. Awash in unfunded pension liabilities and struggling to generate revenue to pay their public employees, municipalities across the U.S. are in increasingly precarious financial positions.
While Detroit’s bankruptcy, the largest municipal bankruptcy in U.S. history, was not seen as a catastrophe for the muni bond market and the ETFs that hold those bonds, there is no denying municipalities are struggling and bankruptcies are on the rise. [Getting Back to Fundamentals in Muni Bonds]
That does not mean all muni bond ETFs are to be ignored, but the scenario does underscore the utility of the db X-Trackers Municipal Infrastructure Revenue Bond Fund (NYSEArca: RVNU).
Consider the following news flow just this week, courtesy of Mike “Mish” Shedlock of Mish’s Global Economic Trend Analysis. On Tuesday, Moody’s Investors Service, warned Scranton, Pennsylvania “could be facing the threat of default or bankruptcy thanks to a $20 million budget gap for the fiscal year that begins Jan. 1. Scranton has more than $195 million in outstanding debt, according to Moody’s.”
Scranton has $100 million in unfunded pension liabilities. On Wednesday, Shedlock pointed out the “Chicago Park District has more than $1.4 billion in official debt. This includes $40 million in debt related to retiree health care, $426 million in pension debt and $944 million in other long-term debt.