Put a Cash Cow in Your Portfolio

An investor in municipal bonds, it was long thought, also had to own a winter home in Palm Beach and play polo in his spare time. Only the very rich, the reasoning went, would invest their money at low rates in order to receive tax-free interest. However, as inflation has pushed more and more middle-class Americans into higher tax brackets, there has been a growing curiosity about these complex securities. Bond Salesman James Lebenthal has spent ten years trying to raise the public consciousness about municipal bonds, and has gone about the task in an unorthodox way. Instead of relying on dull technical advertisements in financial publications, Lebenthal appears in his own television commercials, declaring that “bonds are my babies.” Such tactics have helped transform his small New York City firm, Lebenthal & Co., into one of the U.S.’s largest municipal bond dealers that sell only to individuals.

“Nobody buys municipal bonds out of love for financing the home-town sewer system,” says Lebenthal, 54. Instead, in an ever changing series of advertisements that all carry the same message, he drives home the lesson that municipal bonds can pay hefty returns to people who earn $50,000 a year or more. In one memorable commercial earlier this year, for instance, Lebenthal was seen holding paper cows made out of folded bond certificates. “We’ve been selling a cow that instead of milk gives money,” he declares in his precise, didactic tone. “So put a little moola in your portfolio and get yourself a cash cow.” The message is getting across. Lebenthal & Co.’s sales have been growing at about 20% a year and reached an estimated $400 million in 1982.

All municipal bonds are exempt from federal taxes. They are especially attractive to residents of the state or city selling them, because then they are usually exempt from state and local taxes as well. For example, a New York City couple with a taxable income of between $45,800 and $60,000 will be in a 51% bracket in 1983 if federal, state and local income taxes are all counted. So a New York State or city bond that pays 10% interest will produce as much money as a taxable investment yielding 20.4%. As Lebenthal points out, however, a bond’s value fluctuates with interest rates and economic conditions. He warns that if individuals must sell before maturity when the bond market is in a decline, they could take a loss. With state and local governments expected to issue record volumes of bonds in 1983, Lebenthal plans to be busier than ever. Though his firm has just 32 sales people, a tiny force compared with giants like Merrill Lynch, he brags: “Pound for pound, we may sell more municipal bonds than any other firm in America.”