George Friedlander of Smith Barney, Harris Upham & Co. is the first-team All-American Municipal Bond Portfolio Strategist.

Friedlander achieved a solid win over last year's first-team All-American Strategist, Aaron Gurwitz of Goldman, Sachs & Co.

Neal Attermann of Kidder, Peabody & Co. showed a gain in the polls over the previous year, but not enough to catch Friedlander.

Friedlander's tally was second only to Gary Krellenstein's total in the Industrial Revenue and Pollution Control Revenue Bond category.

The only professional from Wall Street on Representative Beryl Anthony's Public Finance Commission, Friedlander believes institutional investors appreciate being kept abreast of tax and legislative changes, as well as what the changes may mean to municipal markets.

Friedlander's philosophy for portfolio strategy begins with his economic outlook, which he develops from Smith Barney's own economists' views.

Next he looks at interest rates, supply and demand factors, investor psychology, tax law changes, credit trends, and trends in the spreads between municipal bonds and securities outside the industry.

"I keep in mind a sense of history about the markets," he added.

Then Friedlander picks the dominant points that are important to developing a winning portfolio strategy.

"Not every input is equal in importance at any given time," he said.

Currently, Friedlander believes the No. 1 factor for portfolio strategists is the low, short-term interest rate environment. The low rates have steepened the yield curve.

Investors, dissatisfied with low short-term rates on certificates of deposit, are rolling their monies into bond funds. The funds, in turn, are buying municipal bonds on the long-end of the yield curve.

"Small and medium-size investors are more concerned with rate levels," he said, "rather than with rate trends."

These concerns have created "yield curve arbitrage," according to Friedlander, which drives packaged product sales in the municipal markets.

Another factor impacting portfolio strategies is the "bond call phenomenon," Friedlander said, which occurs when portfolio managers see their par bonds being called away and they already have cash sitting on the sidelines. These players are forced to invest and they're also driving demand for tax-exempt bonds higher.

"The bond call phenomenon, coupled with retail investors' concerns with yield, have forced quality spreads to collapse," Friedlander said.

"This is the opposite of what would normally be expected to occur during a recession."

As long as the short-term rates are stable to declining, Friedlander believes the long-end of the curve will remain in good shape.

He added that if short-term rates should spike, then he would be more nervous.

But, Friedlander reported that his current economic scenario calls for the Federal Reserve Board to lower interest rates, with perhaps yet another Fed easing before rates really firm up.

Friedlander recommends buying quality for those portfolio managers that can afford to wait.

"It's frustrating," Friedlander said, "but if you can live with nominally lower yields, this is a marvelous time to be upgrading."

Bond funds, which are marketed to investors based on current yields, may not be able to take advantage of the current environment, he said.

"A solid, essential purpose revenue bond is good to have during times when there are problems with G.O. bonds," Freidlander said.

He added that spreads between the bedrock solid triple-A G.O. bonds and many revenue bonds are at historically low levels.

Friedlander believes that the tighter spreads between the better revenue bonds and G.O. bonds is a secular change, not a temporary change.

"The market is recognizing the strengths of revenue bonds, and the problems of states and local governments has brought this home to stay," Friedlander said.

The worst possible strategy would be to buy G.O. bonds from a state that is about to be downgraded.

He said, "I've been singing the praises of plain vanilla revenue bonds."

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