Dr. Doom's firm expects $100B in muni defaults

By Matt Robinson and William Selway
March 2 (Bloomberg) -- About $100 billion of U.S. municipal
bonds will default during the next five years, according to
Nouriel Roubini’s consulting firm, less than the “hundreds of
billions” predicted for 2011 by Meredith Whitney.

so that is 20bn a yr...current rate is about 10bn a yr or 0.2% of the market...so the new rate will be a 0.4% default rate...i will take that anyday of the week

Guess what happens to the yields when you *double* the default rate.

um...nothing, especially when 98% of all defaults occur on NON RATED munis.

I am not even going to start in with you on this one, because I will just make you look silly

Ouch

> um...nothing, especially when 98% of all defaults occur on NON RATED munis.

you're really assuming that still holds in a muni crisis?

this sounds a lot like "it's only subprime"....

Mark Zandi says no defaults:

http://www.businessweek.com/news/2011-02-27/moody-s-zandi-says-risk-of-widespread-muni-defaults-near-zero-.html

A default rate of 0-0.4% is very low. On top of that recovery rates on munis is much better than mortgages.

You probably should be in muni funds. This will spread out any defaults. Find funds that are highly rated and are insured with a decent amount of pre-funded bonds.

Avoid areas experiencing the highest mortgage defaults. People who don't pay their mortgage probably don't pay their taxes. There are problems out there and cuts will need to be made, but Meredith Whitney was throwing out a big number to get her name out there. And she has not been doing so well since striking out on her own.

http://online.wsj.com/article/SB10001424052748704728004576176920129696938.html

For Munis, Calm After Storm

The battles roiling state capitals are being largely ignored by the municipal-bond market, which has been coasting through a period of relative calm.

The stability of the market for bonds issued by state and local governments is in contrast to late last year, when a selloff spooked investors and led to tens of billions of dollars of redemptions from municipal-bond funds.

That selloff, one of the biggest in decades, appears in retrospect to have been driven at least in part by little-noticed factors not directly connected to the financial condition of government borrowers—including a downgrade on a November day that the bond market was closed.

Over the past month, municipal-bond yields, which move opposite to prices, have been inching down. And panic appears to have subsided, with investors withdrawing a fraction of the amount from municipal-bonds funds that they took out at the start of the year.

From report:

A consulting firm founded by economist Nouriel Roubiniis predicting close to $100 billion of municipal bond defaults over the next 5 years, causing $35 billion of losses over several years. Most defaults will occur among special government projects and revenue dish generating entities that are considered viable. Defaults will be restricted to unrated issues and junk-rated revenue.

Here's a prediction--Source "ME"
Muni defaults will occur in municipalities hard hit by foreclosures. This means cities in southern California

Not necessarily...most will occur on non-rated and non-traditional munis...such as this one in Greenwich (hardly a mecca for foreclosures). That is why you stick to investment grade muni funds and you will have losses...

A block from Greenwich, Connecticut’s main street, where Saks Fifth Avenue and Tiffany stores vie for shoppers, sits the hedge-fund capital’s YMCA, brought to the brink of insolvency after building an Olympic- size swimming pool.

More than five years after it began, a project to expand and update the landmark Y remains unfinished as the cost soared 60 percent to $41 million. The Y halted construction and defaulted on $20 million of municipal bonds, leaving it to negotiate with creditors such as JPMorgan Chase & Co. (JPM) as it tries to raise more money in a town that’s home to some of the wealthiest people in America.

Not necessarily...most will occur on non-rated and non-traditional munis...such as this one in Greenwich (hardly a mecca for foreclosures). That is why you stick to investment grade muni funds and you will have losses...

I don't see the two points of view as necessarily contradicting each other. I can see losses on both types.