Bond expert tells audience that Katrina didn’t upset market
Published 12:00 am Wednesday, October 25, 2006
By KEVIN CHIRI
LAPLACE – One of the big concerns from the disaster following Hurricane Katrina was immediately in the hands of investment experts, who had to answer a lot of questions from people wondering how their money was doing in relation to New Orleans.
One key question had to do with municipal bonds, which are sold by cities and small towns to finance public projects.
When Katrina hit so many smaller communities throughout Southeast Louisiana, those who had money in municipal bonds were wondering if they would lose their money.
Those questions were answered, along with some interesting information about the economy of Louisiana following the storm, as a LaPlace company had a top national municipal bond expert speak locally.
Rafael Costas, a former past chairman of the California Society of Municipal Analysts who is now a senior vice president for Franklin Templeton Fixed Income Group, was brought to LaPlace by local Edward Jones Investment Representative Robert Hymel Jr.. He told those in the audience that even a hurricane wasn’t enough to ruffle the feathers of the municipal bond world.
“Only a very small number of cities missed bond payments, and that was usually because they had trouble with their computers and getting electricity,” he said. “And all got caught up right away.”
Costas said many people would look at a city like Slidell and wonder how they would pay their bonds with so much devastation, but even those areas bounced back quickly and met their obligations.
“You have to realize that even if you have money invested in municipal bonds, most bond funds are in dozens of places, so there may only be one here or there that has a problem,” he explained. “Our bond funds are in 87 different places, so even when people in Slidell had problems, it doesn’t hurt your overall performance.”
Costas was in town to educate the public about the positive side to municipal bonds, since they are an investment which is allowed to return tax-free income.
“When you consider how much more you make as an after-tax amount, it is usually much higher than other fixed-interest investments like CD’s,” he added.
Costas also gave an overall analysis of the Louisiana economy just over a year following the hurricane.
“The state of the Louisiana economy is doing well and we recently had Moody’s and others upgrade our rating,” Costas said. “We’ve had a huge positive for the state since billions of dollars have come into the state to repair all the damage, and we had the largest tax collection month ever. UNO predicted that Louisiana has had $61 billion come into the state so far.”
Hymel said that right after the hurricane he had a “handful of calls” from people worrying about their investments, but actually probably had some help since the phones were out for a week.
“Yea, that probably gave people time to calm down,” he said. “But I think people were prepared for the worst and then saw they did OK. And now the business here is better than I’ve ever seen it.”