I wrote a couple years ago about the fifty state tax experiment that is taking place right now:
"consider a division of the country into zero income tax states with stingy welfare regimes that productive people flee to, and ultra high income tax (double-digit %) states with crippling regulation that productive people flee from, in the context of Bill Bishop's Big Sort. Which states' muni bonds do you want to own? Which states do you want to own property in? What if a group of these productive states issued a currency?"Muni bonds would be a good way to implement this bet. A California or New Jersey muni closed end fund yields the same or less than an Arizona or Texas CEF!
Look at these maps: Annual Income Lost/Gained due to Interstate Migration as a Percentage of State Income, 2009 and State Debt Per Capita, Fiscal Year 2009. Also, Annual Income Lost/Gained Due to Interstate Migration, 1999-2009.
MI, NY, NJ, IL, CA are deep in debt and losing productive population to low-tax, low-debt, low-regulation FL, AZ, TX, and southern states.
A correspondent observes,
"Conservative old money goes to munis when retail gets too excited. Sells them at the bottom and buys stocks. Works every time."The investor base for munis is retail investors in high tax brackets, but many of them sold out last year because of Detroit and Puerto Rico headines, and because the conventional wisdom is that interest rates can only go up. So yields went up and the closed end funds are trading at discounts to NAV.
Meanwhile, there's basically a red/blue state divide on credit quality. The blue "failure states" are losing tax base and population to the pro-market states with natural resources. This is not priced in to the yields at all.