Portfolio manager Cale Smith on investing, Spoke Funds®, and Islamorada in the Florida Keys.

1 – A must-read for investors in municipal bonds from welling@weeden: Dark Vision – The Coming Collapse of the Municipal Bond Market.

Today, no matter what one’s reason for municipal bonds, these are speculative investments.

Read it all here. You may remember that Kate Welling was one of only a few bearish voices back in ’99 right before the tech bubble burst. Hat tip to Zero Hedge.

2 – Here are more signs of stress in the muni market.

3 – Houston is already bankrupt.

4 – And here’s what Warren Buffett said about muni bond insurance in his shareholder letter this year, which I highlighted in my February letter to investors.

When faced with large revenue shortfalls, communities that have all of their bonds insured will be more prone to develop ‘solutions’ less favorable to bondholders than those communities that have uninsured bonds held by local banks and residents. Losses in the tax-exempt arena, when they come, are also likely to be highly correlated among issuers. If a few communities stiff their creditors and get away with it, the chance that others will follow in their footsteps will grow. What mayor or city council is going to choose pain to local citizens in the form of major tax increases over pain to a far-away bond insurer?

If even just a few communities default on their insured debt, many others would likely be downgraded or cut off from the capital markets altogether – whether they risk default or not. Perversely, even healthy municipalities could be left with little choice but to default.

Consider yourself warned.

Q. Why do companies split their stock?

A. A stock split is a decision made by a public company to increase the number of shares outstanding by dividing them into multiple shares. In a 2-for-1 stock split, for instance, every stockholder will receive one additional share for each share currently held. Because stock splits are purely a cosmetic change, however, the price of each share is also reduced during a split.

If a company had 5 million shares trading at $10 before a split, it will have 10 million shares priced at $5 afterwards. As the owner of a stock that splits, the value of your shares remains the same. You get more shares, but each is worth less. It’s like being given two ten-dollar bills in exchange for your twenty.

Less common is a reverse split, which decreases the number of shares outstanding while increasing the share price. This, too, is a mathematical exercise, as the value of an investor’s holdings remains unchanged. From an analytical perspective, neither a stock split nor a reverse split mean very much.

A stock split can have considerable meaning in terms of investor psychology, however. Stock splits often get more attention then they might otherwise deserve because of the signal they send. More specifically, a stock split is often viewed as a bullish sign from company management. After all, it wouldn’t make much sense for a company to split its stock if it expected the price to go down.

That signal probably best explains the rationale behind stock splits. While some splits are done to increase the liquidity of a company’s shares, and others to meet stock exchange requirements, most stock splits are done for one reason: to make a company’s shares more psychologically appealing.

As the price of a company’s shares gets higher, some investors may view shares as unaffordable. A stock split brings the price down to a more “attractive” level. While that’s a completely irrational response, since the value of the stock doesn’t change, companies sometimes do count on emotion rather than logic to attract new investors. Don’t be swayed.

Article from Fortune below, sent in by Kurt in D.C.:

Who cares if Wall Street ‘talent’ leaves?

If lower pay lures some of Wall Street’s finest away, so be it. It’s not as if the best and brightest were doing a good job to begin with.

By Colin Barr

NEW YORK (Fortune) — There’s no need to fear a Wall Street brain drain — despite the crackdown on pay by Washington.

On Thursday, White House pay czar Kenneth Feinberg outlined compensation restrictions at seven firms that got special bailouts, and the Federal Reserve proposed to review pay practices at 28 unnamed giant banks.

Critics warn that reining in pay makes it hard to keep talented employees. Hemmed in, institutions like AIG, Bank of America and Citigroup could lose their best people.

These firms would then perform even more abysmally, if that’s possible, leaving them hard pressed to repay tens of billions of dollars of taxpayer-backed loans.

Still, we say Godspeed to this “talent.” After all, the traders and suits in the corner offices don’t exactly have an unblemished track record. In 2008, Citigroup, BofA and Merrill Lynch (since acquired by BofA) posted a grand total of $51 billion in losses.

Yet even as they were running themselves into the ground, the firms managed to pay out more than $12 billion in bonuses — including 1,606 million-dollar-plus bonuses, according to a report from the New York attorney general’s office.

“Even a cursory examination of the data suggests that in these challenging economic times, compensation for bank employees has become unmoored from the banks’ financial performance,” the report said.

Meanwhile, it’s hard to imagine that defection-hit firms would have a lot of trouble finding qualified replacements in the current job market.

Unemployment has doubled nationally since December 2007, when the recession started. Securities industry employment has fallen 10% nationwide and 14% in New York from a mid-2008 peak, according to Bureau of Labor Statistics data, costing some 90,000 jobs in the U.S.

And Goldman Sachs’ charm offensive notwithstanding, it looks like the official response to runaway pay is just starting.

The Fed’s plan to weigh big banks’ compensation plans against their potential for undermining the economy could eventually put pressure on pay at all the big banks.

“This could be a game changer,” said Simon Johnson, an economist at MIT. “There will be a lot of pressure on them in Congress to stick it to the big firms.”

But maybe the best reason not to fret about talent flight is one familiar to cubicle dwellers everywhere: just because someone has a big, high-paying job doesn’t mean they’re good at it.

Take Bank of America, for instance. The bank’s longtime CEO, Ken Lewis, unexpectedly announced his retirement this month, while agreeing to give back his 2009 salary.

Lewis didn’t say why he was leaving, but it seems that criticism over his empire building, mishandling of the Merrill acquisition and outsize pay got to him. The Charlotte Observer reported he had grown tired of the “mud being thrown on him day by day.”

Another helping or two of that mud could be just what Wall Street needs.