Skip to comments.Muni-Bond Default Estimate $100 Billion/Flacks Pronounce Fear "Overblown"
Posted on 03/02/2011 8:05:43 PM PST by DeaconBenjamin
Well-known economist Roubini announced Wednesday that there may be $100 billion of municipal-bond defaults over the next five years. His comments echo analyst Meredith Whitney's claim that there will be an enormous wave of defaults.
"Roubini seems to use more of a doomsday production," said Matt Fabian, managing director of Municipal Market Advisors at The Bloomberg Insurance Portfolio Strategies Conference. "If you are going to make a prediction, be conservative. In terms of defaults, we have seen very few in the market and these have been smaller transactions."
Terry Goode, head of tax-exempt research and municipal fixed income at Wells Capital Management said that it is important, "not to paint the muni-market with one large brush."
Goode explained that defaults in Harrisburg, Pennsylvania and a default on a bond tied to the Las Vegas monorail system are "special situations" that involved private investors. He added that technical factors caused the municipal selloff and fear.
"All this headline risk of budgets does not contribute to wide spread defaults or contagion affect," said Goode. "Defaults peaked in 2008 peaked in 2009, and will be down in 2010. You are going to see some pressure, but we do not see a wide spread defaults."
Joe Darcy, head of the municipalities sector of Hartford Investment Management(HIG) agreed that the credit stresses on the municipal markets right now are normal.
"The reality is that it is the nature of the asset class," said Darcy. "The risk inherent in that stress is manageable for issuers and investors."
Fabian said that $38 trillion of outflows in the municipal bond funds over the past three weeks is mostly due to credit fears and interest rates fears.
I’ve traveled around, to different places, I see a lot of businesses closed, boarded up, this MUST impact the local municipal treasuries with sales down. If it happens at the State Level, it has to show up sooner or later at the City Budget level. Hang on for a tough ride. I was with a group of 90 year old men, sitting for coffee at a senior citizen’s retirement home, they compared their Great Depression with the Obama Depression, they said we haven’t seen anything yet.
By the time QE VI comes around, no one will notice this stuff.
Jeffrey Gundlach who is now the top bond investor in the country or world is predicting defaults anywhere from $10 to 30 billion. He said that if it is modest amount ($10 to 30 billion) that it will still affect all muni bond prices sending them down.
He is planning on scooping em up and also bond funds when they lose 50+%.
Sadly these 90 year old men know what they are talking about.
What is laughable is seeing people here on FR defending The Federal Reserve which is a private corporation owned by the banksters.
Overblown? Funny, isn’t that the same thing they said about predictions of default when the Subprime crisis was in its early stages?
It would be laughable if it were not criminal. They ALL KNOW with certainty that munis are headed for the ash heap of history.
You literally can fool them all the time.
You literally can fool them all the time.
A misprint, I presume.
This is one fact that seems to get lost in all the discussion of what Governor Walker is doing in WI. If muni bonds default, because the state essentially is bankrupt, do these cretins in the unions not know that their entire pension and retirement benefits are at risk?
Just like the UAW drove the auto industry into oblivion by its incredible and stupid greed, public sector unions are going to do the same thing to their employer (the state/taxpayer).
In a sense, ever default is a special situation that can be explained away. (Methinks Lucy will have a lot of "'splaining to do". The technical factor that was not mentioned is that projected local and state revenues will be insufficient to service much public debt.
I was thinking the other day about all those freepers who used to jump on “housing is going to blow” threads and mock the “gloom and doom” and tell all about how the house down the street from them just sold for x dollars.
I also just posted about them. Those were the days, on those housing threads. Whew.
The unionists don’t seem to get the connection between bankrupting their state and, um, losing ALL their pension and retirement benefits.
That doesn’t happen to public sector unions, right? Only to the UAW and its greedy demolition of the auto industry.
I wrote long posts, with pictures of empty McMansion neighborhoods and deserted stripmalls, talked about how big the surplus was in places like Tulsa and Tampa - and they couldn’t understand the implications of an oversupply reaching ten percent.
Bankers were the worst on those threads, which tells you a lot about how the country got in this situation.
If you haven’t already done it, read “The Big Short” by Michael Lewis. Excellent book on the banking follies of the last decade.
I always appreciate recommendations for further reading. So, thanks! I’ll look into it.
I remember. I often lent my voice to the “bubble is about to pop” side. I found it incredible how obstinate some were in the face of facts that could not be disputed. Yes, there were always questions about the specifics of “when” and “how deep,” but the fundamentals of the bubble were obvious.
It was both frustrating and sad.