Posted on 1/12/2011, 4:01:23 PM by SeekAndFind
Meredith Whitney is on Squawk Box this morning, and we're 100% sure she'll be talking about the muni det fiasco she sees in 2011.
We'll be covering key highlights live.
* The conversation starts with JPMorgan and the dividend discussion. Rather than paying out cash, she favors JPMorgan acquiring in Asia, in particular standard chartered. This is the time to make major strategic acquisitions.
* On the housing mess and where we are in the process? "Who knows?" Certainly the robosign issue has been put to bed.
* Now she's talking the big topic: munis... "We've never said that any stated would be default." It's municipalities that are the big risk. Michigan has even said many municipalities will default. It's not so alarming when you put it in broader context. The people who are contesting it are the muni bond brokers." The gist: nothing about her view should be seen as all that radical.
* There will be defaults and cuts across the board.
* Carl Quintanilla asks a tired question about why all the healthy states are "red" and all the sick states are "blue" which is absurd since Florida is one of the sick states, and has been red at the local level, and because Texas is clearly ill as well.
* This is all going to come to a head in June when Federal support disappears.
(Excerpt) Read more at businessinsider.com ...
42,000 issuers....100-200 fail? Whoopdedoo.
BTW....just picked up some escrowed CA munis yielding 9.75% BEFORE TEY!!!!!
Although not invested my understanding is that municipal bond debts are nearly impossible to default. That is if a government runs out of money its bond obligations remain and will be paid no matter how long it takes. I’m referencing the 1841 state defaults as examples.
There have been many of such entities fail over the years. Quite often, their charters are voided and they are merged into adjacent government entities WITHOUT the liabilities transferring upon their demise.
I like to call this "Whistling past the graveyard."
http://en.wikipedia.org/wiki/Chapter_9,_Title_11,_United_States_Code
Thank you. So can it be concluded that state bonds are no where near as risky as (local) municipal bonds?
If Joe Weisenthal really thinks Texas is a sick state, he is an idiot. Even the clowns in the Texas legislature should be able to easily take care of the so-called Texas “deficit” without raising taxes. It is very simple: spend less.
Or "Knowing the fix is in." :)
It is not particularly hard to estimate risk with munis.
Start with the axiom that worst case, the federal government will change the law allowing for extensive defaults. Even then, bonds are not first on the list of possible defaults, which would likely be pensions.
This may begin with a federal default, mentioned recently in a letter by Treasury Secretary Geithner:
Some States have State laws that protect bondholders, which would buy more time in the case of a potential default.
But from that point is when you look at what States are obviously poorly managed and are heading into disaster. Simply enough, do not invest in them, despite promised high yields.
This is exacerbated by the possibility, recently proposed by Newt Gingrich and others, to permit States to go into bankruptcy.
Bankruptcy is a whole different kettle of fish from default. Were such a federal law to be passed, it wouldn’t matter what yield a bad State offered, it wouldn’t be enough. Not just because it could be defaulted, but because the bonds could be tied up in court for years.
Relatively, yes. However, only those backed by the "Full Faith and Credit" of the State. There are "State Bonds" which are backed by particular revenue streams. If the revenue drys up..., you know the rest of the story...
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