Investors Continue Muni Fund Exodus

NEW YORK (TheStreet) -- The municipal bond sell-off continued last
week, with investors pulling $5.75 billion out of such funds,
according to data released on Wednesday.

The Investment Company Institute, which tracks flows in long-term
mutual funds, said that investors put a net $4 billion into the market
during the week ended Jan. 19. $4.6 billion of that went toward
stocks, $3.6 billion went toward taxable bonds and $1.6 billion went
into hybrid bond-and-equity funds.

Municipal bonds was the only category from which investors withdrew
money. Investors have removed $30.5 billion from municipal-bond mutual
funds since the start of November, when concerns about local budgets
started gaining traction.

The sell-off has been attributed to comments by well-known financial
analyst Meredith Whitney after she predicted in September that dozens
of municipalities would default on hundreds of billions of outstanding
bonds this year.

Whitney isn't alone. As municipal budget issues have piled up - and
speculation over states' creditworthiness has increased - *JPMorgan
Chase* (JPM) CEO Jamie Dimon also warned investors to be "very, very
careful" dabbling in muni bonds. George Soros said on _CNBC_ this week
that municipalities' budgets will be the "drama of the next year." And
months ago, *Berkshire Hathaway's* (BRK-B) CEO Warren Buffett also
warned of a "terrible problem" for municipal bonds over the long

But not everyone agrees that the muni-bond market is a mess. Prominent
bond fund managers, including PIMCO's Bill Gross, have disputed
Whitney's analysis.

A blogger known as Bond Girl picked apart Whitney's analysis on
Wednesday, pointing out, for instance, that the 100 largest county and
city issuers don't have even $100 billion in debt outstanding. The
trade publication _Bond Buyer_ notes that as retail investors flee the
muni-bond market, other "smart money" buyers are seeing opportunities
in top-quality bonds with impressive yields.

Nonetheless, equities have been a clear winner over the past six
months as the retail masses flocked from one investment to another.

While the *iShares S&P AMT-Free Municipal Bond Fund* (MUB) and *SPDR
Nuveen Barclays Capital Municipal Bond ETF* (TFI) have lost 6% to 9%
over the past six months, the S&P 500 Index has climbed more than 16%.
The *Dow Jones Industrial Average* broke through 12,000 for the first
time since 2008 on Wednesday.

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