The complex fires are devastating California, which so far burned more than 1m acres. It has destroyed my father’s home in Vacaville, which is also the location of Silent Stay Retreat Center. Many are facing the consequences of losing their homes, such as possible homelessness (my parents are fine!) financial loss and a loss about how their future will unfold. This crisis, along with the pandemic, has pressed California’s once-famous surplus into a deficit, expected to reach $54B.^1 As the fight against climate change becomes ever more urgent, not all is bad news in light of certain monetary and economic conditions.
California is facing bleak environmental reality. Residents have to grapple with the risks of fires every year as conditions become dryer, hotter, which makes for fire-triggering lightning storms. California has removed its nuclear power plant and replaced it with much greener solar and related infrastructure over the last decade which has been exhausted due to the extreme heat, causing rolling blackouts. ^2
Capital for new and upgrading existing infrastructure is enormous, yet, the good news is that this money can be easily obtained. Despite the global economic weakness from the pandemic, governments have kept interest rates ultra-low, allowing for extremely cheap access to new capital. While the federal government can borrow at .68% interest by issuing a 10-year note, California can borrow at 0-2% interest. A comparable recent 10-year note, issued by Palo Alto’s Unified School District, issued a bond at 0% coupon - yes, it’s a cost free note! Investors make money in this situation by buying the bond at a discount, which in this situation puts the yield to maturity at 1.21%.
As an investor, it may not make much sense buying a 0% coupon note. Notably, there are other options for investors who would like to support California’s rebuild while also benefiting from the tax-free interest from muni bonds. For example, the iShares California Muni Bond ETF (CMF) is currently yielding at 1.96%^3.
At Eureka Wealth Management, I help my clients identify opportunities in the markets when times look tough. I also do retirement planning, insurance, and tax & estate strategies. Call for a free, initial consultation at (760) 537-0791 or online at eurekawealthmanagement.com.
Silent Stay Retreat Center in the news link
^2 FT 8/19/2020 “California plans rolling blackouts to tackle record heatwave”