Do you want to buy a BAB?

Under President Obama's 'American Recovery and Reinvestment Act', tax-exempt issuers are allowed to sell taxable bonds. The issuers can either pass on a federal 35% tax credit or take the subsidy themselves as cash. Babs (Build America Bonds) are a new financing tool for municipalities and can be issued until the end of 2010. You may ask, 'why would a tax exempt municipality want to issue taxable bonds?' The answer is as of today, US Government bonds are yielding much less than Municipal Bonds. For example, a highly rated General Obligation bond due in twenty years yields about 4.68% while a similar US Government bond yields 2.92%. The success of BABS will giver issuers a chance to lower their Net Interest Costs (NIC) and therefore help our cities and states. Potential buyers of these bonds include foreign investors, pension funds and tax-deferred portfolios.

Random thoughts.......1Q Earnings Reports this week include Goldman Sachs, Morgan Stanley, Citi, Intel and Google.....the market has the potential to go to 8600-8800 in the short term......financials must continue to lead this rally....if we were to get great earnings from Bank of America or Citi...the shorts better cover.....it appears that the residential housing market is within months of bottoming.....look for the commercial real estate market to continue to struggle into next year.....