Taking Stock by Malcolm Berko

Illinois Municipals Are Loaded With Risk

Dear Mr. Berko: I’m thinking of buying $50,000 of high-yield Illinois municipals where I can get 8% to 10%. How could Illinois' deficit become so large? I also want to buy 100 shares of Apple. What do you think? -- B.V., Port Richey, Fla.

Dear B.V.: Jacques Marquette and Louis Jolliet traipsed the Mississippi and Illinois rivers in 1673, and Illinois became part of the French empire, though 100 years later, in 1763, possession passed to the Brits after the French and Indian War. Thanks to Jacques and Louis, there’re 12.8 million people living in Lincoln’s land with a $3.1 billion budget deficit, a $200 billion pension liability and a credit rating that makes Venezuela’s finances look robust.

Now, Illinois’ legislators want to raise taxes for the umpteenth time. Moody’s, S&P and Fitch rate Illinois debt a notch above junk, though knowledgeable observers are quick to say “bull.” The rating services colluded with the banks and legislators to eschew a junk rating; banks are not allowed to carry junk-rated munis on their books and could be forced to sell them.

Illinois’ problems are three-fold: an infamously crooked legislature, infamously crooked unions and an expansively ignorant electorate. Of the last 10 Illinois governors, four have spent years living in the federal hotel. They’ve been convicted of fraud, racketeering, perjury, corruption, etc. And many of Illinois’ 177 legislators are of similar persuasion. They’re so crooked they drink coffee with corkscrews. There are few non-millionaires among those 177 legislators, who’ve for decades raped voters for personal gain. Those scumbags get full benefits from the state’s pension fund while most working stiffs will take haircuts. And there are over 20,000 government employees who have unusual relationships with their legislators and pull over $100,000 in annual pension benefits.

Illinois unions are as guilty. Over the years the intransigent unions have bullied legislators for wage and benefit increases. Imagine a school administrator making $69.60 per hour, plus perks, guaranteed! While the hoi polloi meekly accept reduced pension benefits, union leaders’ juicy pensions are untouched.

In my opinion, there’s a 46% probability that Illinois, like Harrisburg, Pennsylvania; San Bernardino, California; Detroit, etc., could enter bankruptcy in the coming four to six years. So I believe every ex-legislator ought to be dunned by the amount his wealth increased while he was in office and for 10 years afterward. I also believe every legislator should be assessed a pro-rata share of his state’s increased debt while he’s in office. That should be a contingency of election. I’d be a nervous Nellie owning an Illinois bond, but if you can afford the risks, go for it.

The Street’s bullish on Apple (APPL-$200). I’m unenthusiastic. Justin Hellman of Value Line reckons APPL could trade between $280 to $380 in three to five years, with earnings of $22 a share and a $5 dividend. I think Justin’s been eating Twinkies under the power lines for too many hours. APPL is running out of gas and is changing direction with a prodigious leap forward (or backward), taking APPL from its natural habitat into areas where it has failed ignominiously in the past.

Sales of iPhones have peaked as the new 5G phones, plus the large foldable phones, have pushed prices over $2,200. Anyone who would who would pay $2,000 for a cellphone must be barking mad. APPL iPhone revenues are down 15 percent, and troubling Chinese connections are pressuring earnings. So, Tim “Apple” Cook, who has nowhere else to turn, is taking his company into the service business. Tim Apple's goal for APPL is to become a cable alternative and to create a news and entertainment behemoth using product purchased from other networks that he hopes will reach over 100 worldwide markets. Tim wants to take APPL where no APPL has gone before. That’s worrisome, and I wouldn’t care to journey with him.

(Please address your financial questions to Malcolm Berko, P.O. Box 8303, Largo, FL 33775, or email him at mjberko@yahoo.com.)