Muni Bond Default to pierce NY RE?

I've been thinking a lot about this. A default on general obligation bonds issued in New York is not the likely outcome. New York's issue is a spending one, not a revenue one. One of the reasons to buy a G.O. bond is that it's backed by the full taxing power of the municipality(and states can't declare bankruptcy).

Meredith Whitney made a lot of irresponsible and unsupported statements on 60 minutes. There will be belt tightening and bonds may get downgraded, but short of a small city going bust, or a hospital or building bond going bust, I think the threat is exaggerated.

The more likely outcome is states and cities gaining control of their retirement benefits.

RS -- The first sentence of your comment is not supported by the rest. Because states cannot declare bankruptcy (and it is a longshot that the ban would ever be changed), the most obvious risk is that states are going to continue to squeeze cities, so the latter are certainly at risk for a default as states get more desperate. Even if one assumes, for the sake of argument, that the issue "is a spending one, not a revenue one," there is only so much that can be done on the spending side.

Yea, it's not a slam dunk call. I just see a change in the law as not in the cards. The most likely scenarios are
-increase in taxes
-federal bail-out
-cut in spending

In this case only NYC muni's are triple tax free to city residents. do we think NYC is going to default ? I don't.

A federal bailout of NYC? Ha! Give me a list of Republicans who will vote for that.

RS: I can't speak to whether Meredith Whitney's claims are accurate and I guess only time will tell but I do know that there are others that agree that there will be many municipal defaults -- obviously not states because they are not allowed to do so. I think Kyle Bass is well respected and he agrees that there will be muni defaults. Jim Chanos, obviously. I believe Doug Kass is in that camp. I'm sure there are others.

of course. but apt23, this is one of those things that doesn't mix well with RS's world view. doesn't work for the value of his property. or investments.

there will very likely be no change in the law allowing states to declare bankruptcy. so what's the next logical conclusion? cities, which can do so, will be forced to do so by some states (think albany vs. nyc).

it's all a question of timing. i would be surprised but not shocked to see NYC unable to meet its muni obligations sometime over the next five years.

Jim Chanos makes a better intellectual argument on China.

so says RS, without any substance.

AR: I agree about NYC. We all know that the pension obligations for our public servants are out of control. Chanos' observation that bond holders would be penalized before police and firemen makes sense-- and was eye opening for me because I hadn't thought about it in those terms. Ireland made bond holders whole and the Europeans are outraged that the govt essentially guaranteed the bonds and the EU is now on the hook. I don't think you will be seeing that happen again anytime soon. And I doubt bond holders in the US will come away unscathed.

Moody's also is forecasting distress in muni's. This just out in financial times.

http://www.ft.com/cms/s/0/01c136f6-3d2d-11e0-bbff-00144feabdc0.html?ftcamp=rss#axzz1EYFuSRDn

From Moody's:

“Because market participants have generally viewed that [municipal debt] as a risk-free area, [the question is] whether an individual credit problem can create a broader confidence problem. That’s where the systemic implications come in and what we and others are trying to be alert to.”

Apt 23. The number of muni defaults Whitney is predicting makes the depression look mild.

San Diego. think California and Illinois for then onset of the problem.

rs, apt23 isn't quoting Whitney.

Whitney doesn’t have specific numbers backing up her now- famous prediction, she said in a Jan. 30 interview. “Quantifying is a guesstimate at this point,” she said. “I was giving an approximation of a magnitude that will bear out to be correct.”

“A lot of this is, You know it, but can you prove it?” Whitney said Jan. 30 over a breakfast of scrambled egg whites with a chicken-apple sausage, a side of salsa and peppermint tea at the Four Seasons Hotel in Midtown Manhattan. “There are fifth-derivative dimensions that I don’t think I need to spell out to my clients,” she said.

Bloomberg News reported in October that about two-thirds of her stock picks since starting her company in 2009 had fared worse than market indexes. Visa Inc. fell 14 percent after she called it her “single best buy,” and Capital One Financial Corp. tripled after she urged clients to sell.

A 2008 Fortune cover story ranked Whitney 1,205th out of 1,919 equity analysts the previous year, based on stock picking. The magazine said that “evaluating Whitney solely on the timing of her buys and sells misses the point,” because her arguments are interesting.

http://www.bloomberg.com/news/2011-02-01/whitney-municipal-bond-apocalypse-is-short-on-default-specifics.html

again, this thread isn't about whitney, however you might like to malign her.

nice diversionary tactic, though.

Meredith Whitney at least has one supporter in her controversial prediction of a wave of muni bond defaults. Jim Chanos tells CNBC that he agrees at least in principle that the state of municipal ...

Jim Chanos makes some good points. Nobody reads the muni-bond prospectuses and they rely too much on the rating agencies and there will be some bad munis. It's just not the NYC or NY State story.

Great, more from Chicken Little23.

Apt23, I partly do agree with Moody's about investor perceptions. Munis are typically bought by extremely risk averse investors looking for steady income and capital preservation and typically and older crowd. The fear of default may be worse than the actual defaults that occur. What's likely to happen are weak bond prices and increasing yields..Candy for the hedge funds that scoop up discounted muni bonds.

60 is not a lot out of 1.4 million muni issues, silly folks.

There's something to understand about people who make career calls like Whitney did about the banks or others did about the crash of 87, the tech bubble or the housing bubble. These people are "different". They are more prone to make predictions far away from the consensus. In other words they often make a career out of predicting tail risk events that have low probabilities of occurring(at least as judged by the market). When they are correct, since so few were with them they make head-lines. But what we tend to see is most of these people routinely fail to keep up their batting average. Robert Prechter made head-lines years ago, and now barely draws a crowd. Meredith Whitney has been struggling to make another earth shattering prediction come true since striking it out on her own. Lots of hedge fund managers achieve notoriety after making a huge bet that pays off, and then settle down into mediocrity when failing to achieve repeat success.

> 60 is not a lot out of 1.4 million muni issues, silly folks.

A lot always starts with a little, silly folks.

The muni market is enormous with a size of over $2.9 trillion and over 55,000 different issuers, according to the Municipal Securities Rulemaking Board.

In a Moody’s study that covered 1970-2009, only 54 of the 18,400 municipal bonds they rated had defaulted. Of those, only 5 involved general obligation debt.

In a Fitch study covering the period from 1999-2009, only 10 entities defaulted, which equates to an average annual default rate of 0.04% over those 10 years.

Even during the Great Depression the default rate for municipal bonds only reached 1.7%.”

Read more: http://www.businessinsider.com/putting-the-muni-bond-panic-into-perspective-2011-1#ixzz1EcSROqec

Sounds like Meredith is watering down her comments after realizing she was pulling a Fonzie and jumping the shark. Now these defaults take 15 years.

---------
In an interview with FT -- which concerns her latest research on pensions, taxes, and the negative drag that will be created, she says that her giant doom prediction was for: “approximation for the current cycle and should be over the next five, 10, 15 years.”

Read more: http://www.businessinsider.com/meredith-whitney-impact-of-pensions-on-the-economy-2011-5#ixzz1MhCNnXjM
-----

she definitely predicted it would be much earlier about 6-8 months ago

Muni bond market has rallied big time last several months. Only part of this can be explained by Treasury yields coming down.

meredith whitney is hated by the street cuz she talked smack about the banks and the real estate/construction/mortgage/securitization machine, entities upon which many thieves and innocents depended....and she was right

reminds me of comments that it was al gore's fault that florida real estate went south, after prices got hit in 2005 after increased hurricane incidence

her calls since havent been great but neither are those of most of her peers

the muni situation has a stink to it--only time will tell if it can be muddled through

beware the "candy" you consume--next time it may end end tasting pretty fecal

She made a great tail-risk call. However people who go around predicting black swans are almost always wrong and often fall to obscurity over time.

The Muni market has rallied for a number of reasons: lack of supply, no major defauls as was predicted, rally in treasuries, fear of removal of tax breaks on all future munis, no place else to put money, reduction of withdrawals from muni funds

as I have said before and have been poo-pooed, muni's are a great investment for the past 3 years and will remain so at least until mid - 2012

AAA yields are 0.25% for one year going up to 1.36% for five years & 2.87 for ten years

Great investment? NO
Better than Treasuries ? YES

Yes the world is made up of muni and t bills. FLMAOzzzzz. Stick to hoarding cream cheese fktard.

Btw. If I was a younger man and not Arnold S., I'd get more utility banging some nameless euro chick in Bali than earning 25bps..... But Ho shit, riversider sale on cream cheese at fairways. Don forget the depends.

Paging "Cassandra" Whitney

http://blogs.wsj.com/marketbeat/2011/06/14/paging-meredith-whitney-state-headcount-lowest-since-1999/

State governments are partying like it’s 1999! If by “partying” you mean “firing people.”

State employment levels are the lowest since 1999, RBC Capital Markets muni strategist Chris Mauro wrote in a note yesterday crunching numbers in the May jobs report.

And as a percentage of the general population, state employment is the lowest since 1976, Mr. Mauro added.

To Mr. Mauro, this is evidence, contra Meredith Whitney, the Cassandra of the muni market, that municipalities will be OK:

Have u ever run a business riversider? Flamozzzz. It ain't the $/hr. Flamozzzzzz

Clamidia!!!!! FLMAOzzzzz

Did apt23 catch chlamydia from w67thstreet? What is Wbuttocks' role in all of this?

maybe the municipalities are desperate? knowing how much shit they have coming?

or maybe, RS, you don't think there's a pension problem?

w67th, wiki your stds, would you? clamidia sounds like one of pippa's friends.

> clamidia sounds like one of pippa's friends.

A little Scottish / English rivalry?

This is too long to post in full, but here's the first bit.

http://www.bloomberg.com/news/2011-07-15/muni-default-plunge-belies-whitney-prediction-as-borrowers-shun-insolvency.html
"Time is running out on the credibility of Meredith Whitney, who has yet to acknowledge that her eight-month-old prediction of widespread defaults this year in the market for state and local government debt is proving unfounded.

Defaults fell 60 percent in the first half of 2011 compared with the same period last year, including a $12.5 million Austin, Texas, apartment project that made a late payment in June, according to Distressed Debt Securities Newsletter.

Whitney, the analyst who rose to prominence by predicting Citigroup Inc.’s 2008 dividend cut, predicted “hundreds of billions of dollars” of municipal defaults within 12 months in a Dec. 19 “60 Minutes” broadcast, fueling a wave of selling in the $2.9 trillion market. Instead, the number has fallen as cities slashed spending to balance budgets and state lawmakers stepped in to guard against insolvency and local bankruptcies.

“The data is not helping Meredith,” said Matt Fabian, a managing director at Municipal Market Advisors, a financial- research company based in Concord, Massachusetts. “It’s always been a possibility there would be a wave of defaults. You can’t say that it’s zero but it’s given no sign of starting.”

From January through June, defaults fell to 24 totaling $746 million, according to the newsletter from Miami Lakes, Florida-based Income Securities Advisor. That compares with 60 in the first half of last year, totaling $2.29 billion, and 144 in the first six months of 2009, at $4.89 billion."

It's tough making a career out of forecasting three sigma events

Don't worry. WHen Whitney is discredited once and for all, she can always get a job on Fox News. They are always looking for more blonde anchors.

Come on..It's not like she made this call on 60 minutes or something

When will Karen Weaver take the fall for all those dire housing predictions she made in 2009? According to her, 50% of homeowners should be underwater by now.

Bloomberg is back with a bit more Meredith bashing...

http://www.bloomberg.com/news/2011-09-29/whitney-gets-one-out-of-billions-right-with-wrong-market-call-muni-credit.html

"Brighton, Alabama, a city of 2,945 near Birmingham, stands out as the only U.S. municipality to miss a general-obligation debt payment in 2011, less than a year after Meredith Whitney predicted “hundreds of billions of dollars” of defaults.

Instead, defaults this year are about a quarter of the $4.3 billion tally in 2010, according to Bank of America Merrill Lynch research. Municipal debt has returned 9.1 percent in 2011, beating Treasuries’ 8.2 percent, with tax-exempt yields close to the lowest in more than two years, the bank’s index data show.

To make sure they have money to pay their debts, municipalities nationwide are selling assets, cutting employees and slashing capital spending. Seven straight quarters of growing state and local-government tax revenue are also easing fiscal strain in the $2.9 trillion municipal-debt market.

“We just haven’t seen the uptick” in defaults, said John Hallacy, Bank of America Merrill Lynch’s head of municipal research in New York. “Municipalities have to balance their budgets and make hard decisions. A lot of them care about their ratings because they want market access.”

..."

This bit is pretty funny. She completely misses the point that this is not a static situation where municipalities stand by and let their finances go down the drain but rather that they can and do react to reality by cutting spending. The "across the board" cost-cutting examples that she points to aren't support for her theory, they're the reason that her theory isn't working out.

"Whitney, speaking Sept. 27 at the Council of Institutional Investors conference in Boston, stood her ground.

“I would say nothing different from what I said” in December, she said in response to a question from the audience. “You have evidential examples to point to across the board, from those states that cut programs, from those states that cut jobs.” "

sidelinesitter, does this mean that apt23 was wrong again?

Meredith who?

She is flailing. Cutting jobs, cutting spending, does not matter to bondholders. Interest and principal payments do. Her audience is bondholders, not the general public.

Does anyone know if she's signed anyone on to her muni bond rating service? Seems an abysmal failure.

Vanguard NY LT Muni Fund up 7% not including 4% tax free dividends...that's nice

Meredith Whitney is eating crow today....

The debt of US states and local governments are beating Treasuries and corporate bonds for the title of best performing US fixed-income asset class in 2011.

http://www.ft.com/intl/cms/s/0/e7e13b6c-2987-11e1-8b1a-00144feabdc0.html#axzz1gsjQ03gB

Vanguard NY LT Muni Fund up 9.16% not including 4% tax free dividends, which about equals a 15.5% return for 2011 ytd...not too shaby

http://www.nytimes.com/2012/03/11/nyregion/deficits-push-municipalities-to-desperation.html?pagewanted=1&_r=1&sq=New york city medicaid finance&st=cse&scp=1

bullish!!

meredith whitney's already been burned at the stake, yet hse may be vindicated, despite her poor timing

http://www.nytimes.com/2012/03/11/nyregion/deficits-push-municipalities-to-desperation.html?pagewanted=1&_r=1&sq=New york city medicaid finance&st=cse&scp=1

“You probably don’t want to hear this but in everything and anything I’ve done my target has never been municipal bonds,” Whitney told The Bond Buyer in an interview last week. “I never focused on the municipal bond market. I more focused on state arbitrage if anything.”

http://www.bondbuyer.com/issues/122_111/meredith-whitney-interior-states-will-drive-growth-discusses-book-1052497-1.html