What's Ahead for Munis?

Stonebridge Capital Advisors kicked it up a notch last December, when veteran economist Dan Laufenberg joined the St. Paul firm. Laufenberg, 64, retired last year as chief economist at Minneapolis-based Ameriprise Financial after 22 years at the company and 16 as chief economist. Stonebridge President Bob Kincade says that Laufenberg will work on strategy with the equity and fixed-income portfolio teams, continue to publish his Laufenberg Quarterly, and provide insight and commentary to Stonebridge clients.

We sat down with Laufenberg and Ron Hume, a veteran municipal bond manager at Stonebridge, to talk about economic trends and their effect on the government bond market.

Do you believe the economy is in a recovery right now?

Laufenberg: I think the recovery is well under way. Whether it’s sustainable depends on whether we begin to see some job creation. Jobs, and the incomes they generate, will get consumer spending going again. I do believe the recovery and expansion are sustainable, but the evidence to support this view is not there just yet.

Do you have a sense of the shape of the recovery? A ‘V,’ with a sharp rebound, or, perish the thought, a ‘W’ and a double-dip recession?

Laufenberg: I don’t think it’s going to be a W. I think it will be closer to a V and that we’re on the upside of the V. What we’ll probably see is real economic growth at a pace that’s above the historic norm for a year or more, before slipping back to a trend-like rate of growth.

How has all this affected tax collections by state and local governments?

Laufenberg: Tax collections were really hit hard in 2008, but more so in 2009, which is why we’re seeing tremendous budget deficits in so many states. States have felt the impact of the recession in a number of ways, including the loss of income tax revenue in association with unemployment, out-of-the-money stock options, the elimination of bonuses, and lower corporate profits. Job growth and further gains in the stock market, which are in my forecast, should bode well for state tax revenues in 2010 relative to 2009.