Readers Respond to Kotok & Mousseau

David R. Kotok
Sun Mar 12, 2023

Many readers responded to John Mousseau’s commentary and my follow up commentary on credit ratings and the needed independence of bond managers and rating agencies.


Readers Respond to Kotok & Mousseau

 John’s original piece is here: 
“Florida Takes Municipalities Out to the Woodshed,”
My follow-up piece is here: 
“Credit Ratings and Risks,”
Many answered with a complimentary word or two — “Thank you,” “Well done” — and we appreciate their responses. Below are some responses that were longer than a few words. 
One industry professional asked for anonymity and noted that rating agencies have had their difficulties in the past. This reader pointed to the ratings during the Great Financial Crisis, when some securities that were once rated AAA quickly lost much of their value and were repeatedly downgraded. Other professionals anonymously pointed out ratings failures pertaining to one issue or another. (The anonymity of those responses is due to the writers’ professional status, which we will protect.)
Kotok and Mousseau accept those critical comments and additions.  We thank those professionals for their efforts to comment. We agree that no rating agency is perfect. In fact, Cumberland performs an independent rating analysis in addition to the ratings we receive from the agencies; we don’t just rely on ratings agencies. 
Mousseau and I also had detractors. We accept reasoned criticism. Some may be unfamiliar with our research approach at Cumberland. Our colleague Matt McAleer reminds us frequently that it is very important to read research by people who disagree with you. That helps you catch a missing item or clarify something or change a viewpoint.
At Cumberland, we respect the study of epistemology regarding how we each apply or fail to apply the methods of learning and critical thinking. We also observe that some detractors haven’t studied that subject. They offer no references or citations but regurgitate opinions sourced in disinformation. We learn from them, too. How? Because they reveal other market forces, and those forces influence prices of securities. What we don’t tolerate is a lack of civil discourse. That is a surefire way to get blocked from the information that Cumberland puts in the public domain at no cost to the reader or viewer. 
Now let’s hear from some readers.

Gordon wrote, 
Thanks as always for taking a stand in an area germane to client welfare and sensible, prudent conduct of your specific business. Calling it like it is never goes amiss, although it can seem unfashionable at a time like this when obscuring facts becomes lucrative.
Over the years I've been reading your public communications, first as onlooker and lately as client, Cumberland has consistently looked to me like a good citizen. It's what I want and expect of everyone in society, and it does me good to witness a business share its reasoned judgments on matters that affect not only financial success but the good of all of us. It's not easy to do what you do and, as you pointed out today, can be unpopular.
Ken cautioned,
David, I think where you lose valuable credibility is when you agree to get quoted by Yahoo Finance in their recent horrible hit piece on Governor DeSantis. You are a good money manager; you should stay away from the sewer articles.
Kotok comment: Any journalist who asks gets my personal view. Rick Newman calls it as he sees it, in my view, and he is a tough journalist. Unlike other media outlets that are now caught in knowingly spreading falsehoods, Yahoo has, in my experience, occupied the dominion of truth (pun intended). 
Mike responded,
David, I spoke with John [Mousseau] about this at recent muni event in Naples.
I share your concerns. The reactions of muni participants seem to have gotten caught up in the polarization of everything in [the] current environment.  Too-frequent reactions: “Oh, you just don’t like DeSantis”; “ESG is just nonsense anyway”; “But what about gun deaths in Chicago?”   In addition to the significant issues this raises for the market, my personal pet peeve is that this polarization is making my stance as an ESG sceptic more difficult.  Thanks to you and John for using your platform to highlight this issue and providing me with a sanity check.
Bill replied,
David, thank you for this post, which was excellent! There is one part of it that I found surprising. Before I was CIO of XXXX's domestic property casualty companies, I was the head of the municipal bond department, which had $62 billion of the securities in its portfolios at the peak. Ronald Forbes, professor emeritus at the University of Albany, and the late John Peterson of the GFOA's research center jointly wrote a paper funded by the National Science Foundation in the 1970s that demonstrated that for straight G.O. issues with no refundings, competitive bids had lower interest rates than negotiated issues. I believe subsequent papers in later years also documented this. John Mousseau's piece on the Pasco County, Florida issue you referred to was also right on. John may know better in recent years, since I retired in 2010, but negotiated issues were required for G.O.s when only refundings were involved or if the issue was unusually large or had potentially negative circumstances affecting it.
Lindsey concurred,
The unfortunate reality is social politics is really muddying the water across the board, and of most concern is that social politics has derailed the Republican Party. That's my 2 cents, anyway.
Kotok comment: It isn’t only Republicans; Look at California and the Walgreen’s affair.  We have both political parties now engaged in this destruction called a political culture war.  In my view, it is time to throw out the perps in both parties and replace them.
John wrote,
Good morning, David…I cannot help but wonder how much of the Florida public actually understands the issue or even more basically is aware that it’s going on. The same could be said for the American public in general.  In my opinion, DeSantis has gone off the rails on more than this subject, and it is scary that he is being considered as a presidential candidate. In many ways, it seems like he is Trump on steroids. May be smarter, but more dictatorial.  In our form of democracy, one of the biggest risks is having all three governing components be of the same party. It can certainly lead to a form of dictatorship and vindictiveness that we are currently seeing and experiencing in Florida.
Dean found fault: 
Nice try! You’re not fooling anyone. You wear your politics on your sleeve, full stop. Would be refreshing for you to just admit that, instead of this weak attempt to obfuscate. Shame on you. 
Frank reflected,
"It is up to the citizens in each jurisdiction to determine if they want to incur these types of costs that are imposed by market forces as a response to culture-war politics."  You'll recognize your own quote, which clearly requires citizens to be informed of, and comprehend, financial consequences of decision making. When distracted by shibboleths like Woke or the rantings of power-hungry individuals (not only Americans, not only men, not only white) that whip up emotional responses, the informed, comprehending base falls to a vanishingly low few. (It starts at a fairly low point, too, and those who use politically charged words and rants know what they want to accomplish.)
How can citizens become informed and comprehend consequences best? Not, I suspect, by lecture or treatise, but by simple example. E.g., "You guys gotta know that if your retirement depends on somebody else's judgment, and your pols don't let them do their job, when you try to collect your pension, you're gonna find you got screwed."  Well-educated and intelligent people shape the mass of humanity by the way they present stuff. Mostly, the facts make very little difference to most folks.
Sam wrote,
Good for you guys. I don’t know a single person (or celebrity news interpreter) who defines Wokeness the same as another. But some sure can tell about it anyway — thank you.
Everette responded,
Thanks again for the clear, reasoned article. I wish the politicians had something to do rather than try to get elected or reelected. 
Phil wrote, 
Awesome tone, but let’s not move to Texas!
Fred wondered, 
Where do they find these politicians in Florida? We keep our local news from Michigan when we are here. What makes news in FL is bizarre!

In addition to these replies from readers, we want to offer a few other readings that pertain to the themes discussed in the Mousseau and Kotok commentaries. This first one is about Disney and how they ignored the culture war politics. It reflects business thinking about the political nonsense and madness disrupting our country. There is one thing missing from this article from Inc., which is that new investment is now influenced by the behaviors of political miscreants. Decision making about where to establish new business locations takes into consideration whether the local governance structure will interfere with a previously agreed-upon contract or business arrangement if a political expediency is found. We are starting to see that already in the United States as businesses are altering the way they make choices about where to do business. For proprietary reasons and client confidentiality, we are not going to reveal names or specific examples. See “Disney’s Response to Florida’s New Law Is a Master Class in How to Handle a Crisis,”
Rick Newman of Yahoo Finance examines how culture-war politics is playing in corporate America: “How Ron DeSantis misreads Corporate America,”
Bruce Mehlman of Mehlman Consulting offers advice for businesses contending with culture-war crossfire: “Business Leaders Need Smarter Strategies to Navigate Culture Wars,”
Finally, Graffiti’s breakdown of blue and red state tax distribution disparities is a provocative addition whether you agree or disagree: “Red States aren't victims, they're flush with Blue State money,”



David R. Kotok
Chairman & Chief Investment Officer
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