Faded Allure: How Municipal Bonds Went From Cash Cow To a White Elephant --- Wall Street Sours on Them And Investors Grow Wary Following Tax Changes --- Federal Inquiries Don't Help
Seymour Roth tries to be nice, even when the brokers call his Fayetteville, N.Y., home at dinner time.</br></br>Politely and patiently, he tells one from a New York securities firm, not for the first time, "No, I do not want to buy any tax-free bonds. Thank you very much."</br></br>At first glance, Mr. Roth would seem to be a municipal-bond salesman's ideal prospect. A resident of a high-tax state who has prospered financially running Roth Steel Corp., a scrap-iron processor, he likes the tax-exempt income derived from helping to finance public-works projects.</br></br>The brokers are wasting their time, however. Concerned about the effects of higher interest rates and the possible lack of liquidity of the market, Mr. Roth in October sold almost half his six-figure holdings in municipals in favor of investing in tax-exempt money-market funds. "Don't get me wrong -- I love to clip those bond coupons, and I love getting those checks from New York state," he says, "but the market's in turmoil."</br></br>There are many people like Mr. Roth these days. Even among investors flush with cash diverted from the jittery stock market, "it's a tough time persuading anyone to go into munis," says Peter Wagner, an Oppenheimer & Co. broker.