Richard Ciccerone, director of municipal research at Kemper Securities, won the municipal bond generalist honors in 1992.

Tough competition was provided by the second team of Robert Chamberlin of Dean Witter Reynolds (1991 First Team All-American), Frank Trumbour of Loews/CNA Holdings, Robert Muller of J.P. Morgan Securities (1991 First Team All-American), and Sylvan Feldstein of Merrill Lynch & Co. (1992 First Team All-American).

Mr. Ciccereone said, "I've always believed that even if you're a specialist you must be a generalist open to everything around you. It's important to have a comprehensive knowledge of the factors that impact municipal bonds."

Performance-Driven Ambitions

"We have to be innovative and able to sift through all the potential pitfalls that may impact our municipal bonds. Funds and portfolios that have performed the best over the past five or 10 years are those that have purchased stable and improving credits."

During his 15 years as a municipal analyst, Mr. Ciccerone has seen only a scattering of firms willing to make recommendations or relative value judgments. Only a few years ago, when analysts were discussing building a hospital or industry data base, few analysts had access to a personal computer.

"Compare today's improvements to the old pocket calculator," he urged. "Some strategic and research oriented firms are even doing computer modeling for municipal bonds."

For Kemper's more sophisticated buyers, his research department disseminates statewide regional economic performance indicators on a quarterly basis to predict trends in municipal bonds. "We focus on the changes in absolute numbers as a means of highlighting early trends upward or downward that may Richard effect credit quality."

The size and layout of Kemper's research department allows Mr. Ciccerone, as a generalist, to tap detailed knowledge of the local credits. "We have scouts in four cities that can confirm or alert us to trends," Mr. Ciccerone said

Mr. Ciccerone sees challenges ahead in the 1990s in various credit sectors.

"We haven't seen this much interest in GO's since the 1970s. The states have pushed the problems down to local governments; even schools state universities may feel the pinch. Even state hospitals with Medicaid problems could cause credit-quality concerns," he said.

"The new trend is this slow-growth economy phenomenon that is driven by the Tax Reform Act of 1986 that took away tax incentives for speculative real estate growth.

"Problems in state budgets are leading us into a modern urban reform movement and the full embrace of business-driven solutions. Bankruptcy is not a reasonable option, whereas privatization is an alternative. Downsizing and consolidation of government is an alternative, but it is unlikely," Mr. Ciccerone said.

Looking forward, the municipal sector should anticipate seeing a labor shakeout that was seen in the corporate sectors.

The median salary for all employees in government rose 59% from 1980 to 1989, whereas the income levels for all workers in the United States increased only 40%.

"The graying of America only reinforces our concerns about loss of revenues due to Medicaid reimbursement. Hospitals with the highest Medicare are the most vulnerable to weak or negative operating margins," he said.

"We are recommending large suburban hospitals with dominant market share. They're doing things that only teaching hospitals used to do."

Mr. Ciccerone urged analysts to become familiar with all the bond insurance companies. "When looking at bond insurance, you can see its growth has paralleled the expansion of the retail markets. No other single credit comes as close to the bond insurers in size or importance: You must understand both the insurer and the underlying credit."

He refers to insured municipal bonds as a "twin engine jet" with the security being close to the federal insurance backing the certificates of deposit owned by many retail investors. "If one engine fails, the other should be strong enough to safely land the plane."

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