The Federal budget negotiations and potential revenue measures are creating significant uncertainty going into year end. So what’s going on, and how are we positioning our clients’ portfolios to take advantage of the uncertainty? Proposed changes include limiting income tax deductions to 28% of AGI for families earning $250,000+, increasing taxes on capital gains and dividends, and raising the top marginal tax rate from 35% to 39.6%. Last week, Citigroup wrote that the impact of the 28% cap on deductions may reduce the value of the municipal bond market by about 5%, or $200 billion, as investors demand higher yields to compensate for a partial loss of tax-exempt status. Further, Merrill Lynch research shows the 30-day rolling volatility for the 10yr AAA muni has declined 6bps, to 32bps, a recent low. At the same time, the yield on the 10yr AAA muni reached a new historical record low of 1.47%. The combination of significant policy risk, low volatility and low yields has SNW positioning our clients’ portfolios conservatively. We expect volatility to increase as the fiscal cliff negotiations continue. We would consider a sell-off in the municipal bond market as an opportunity to purchase quality bonds.