Skip to comments.California Debt Crisis, Muni Bonds At Real Risk of Default
Posted on 02/10/2010 4:20:59 PM PST by blam
California Debt Crisis, Muni Bonds At Real Risk of Default
Interest-Rates / US Debt
Feb 10, 2010 - 10:36 AM
By: Richard Shaw
Californias finances are a mess. Credit default swap rates put California among the top ten most likely to default among major governments worldwide.
If you are a California resident and think California can solve its own budget problems, or if you think the US government will bail them out, then you might want to own California municipal bonds for the best fit tax shelter and the higher nominal yield. However, if you doubt either of those, you may be better off owning a national or non-California muni fund, and accept a less tax efficient holding with a somewhat lower nominal yield, but with superior credit quality.
Since national muni funds tend to hold California as their largest position (perhaps around 20%), California residents might even want to consider a single state muni fund other than California, instead of a national muni fund, to avoid the California credits altogether.
California Default Probability Among The Worst In the World
According to CMA, which is a leading credit default swap data service, California is the tenth most likely to default major government in the world, with a 26% chance of default. They are in poor company with the likes of Argentina, Venezuela, Pakistan, Latvia, Iceland, Dubai and Greece. Brother can you lend me a dime?
California ranks near Greece, which sent the worlds stock markets into a tail spin last week, and which only relieved that stock price pressure this week when the EU began talking about some sort of assistance. Just imagine if California was seen as on the ropes like Greece.
Thats a big deal. California has the largest state economy in the US, and its economy is larger than all but the top 7 to 10 sovereign nations bigger than Greece.
California, according to CMA, has roughly five times the probability of default as the US (roughly 25% to roughly 5%).
Several countries have lower default probabilities than the US, such as Hong Kong [China SAR] (4.4%) Germany (3.6%), Netherlands (3.5%) and Norway (1.8%).
Thats what the derivatives market says. What does the press say?
If it is all going to crash anyway, I say bring back Gov MoonBeam and a 27 year old Linda Ronstadt.
I remember that and he refused to live in the governors mansion.
Unfortunately, Jerry got old and bald and Linda got old and fat.
Yeah I hear ya but back in the day....with those 27 yr old legs, a few notes of Blue Bayou could have rallied a nation. These days I bet we couldn’t pick her legs out of a line-up that had only her and the Governator.
Don Kirshner - the George Soros of 70’s pop! lol....thx for the link...enjoying it
Are those Eagle and Jackson Browne way over on the right?
"Formed in Los Angeles, California, USA, in 1971, this highly successful unit was formed by musicians drawn from singer Linda Ronstadt's backing group. "
I don't know. See my post #12.
great photo and not because that idiot lifted her dress....that’s David Lindley far left. I see the guy who got fired from the Eagles. Jackson Browne
don felder...that photo might be from an anti-nuke concert. Anti nuclear power
Amazing and true - I did know that. Only because back in my younger days, when I thought beer was one of the major food groups, I heard that background at a party at Don Henley’s house on Caddo Lake in east TX. That day also marked the same day when I stopped glorifying rock stars.
Some say this song is about Don Henley