Meredith Whitney Doubles Down On Her Call For An Epic Muni Catastrophe (More confident than ever)

Business Insider ^ | 05/04/2011 | Joe Weisenthal

[SeekAndFind]

We're already in May, and so suddenly people are wondering: Where are all the muni market disasters we're supposed to be getting this year? Why has it been so quiet. Why haven't munis fallen, like Meredith Whitney said they would?

Fear not: she hasn't given up.

Speaking today at the Milken Conference in LA, she doubled down on her call for hundreds of billions of dollars worth of defaults saying, according to Bloomberg:

"This municipal issue, you can criticize me for anything you want, I’m numb to it, because I have more conviction on this than I’ve had on any single thing in my career.”

We say hats off to Meredith Whitney for being numb to criticism, and having the courage of her convictions. There are all kinds of reasons one might change their mind, but people telling you "your stupid" or "you don't get this industry" is not one of them.

[SeekAndFind]

Meredith Whitney is a banking analyst who runs her own firm, Meredith Whitney Advisory Group LLC. She appears frequently on news shows on CNBC, Fox Business and Bloomberg News.

Before starting her own business in 2009, she was a Managing Director and Senior Financial Institutions Analyst for Oppenheimer & Co. Inc. She also was a financial analyst for Wachovia Securities and CIBC World markets.

She graduated with honors from Brown University with a Bachelor's degree.

Rise to fame

Whitney wrote a particularly pessimistic, but accurate, report on Citigroup, on Oct. 31, 2007, which got her attention from many Wall Street analysts and the news media. She has since followed this report with similar reports and predictions, which have tended to leave the companies involved with lower stock prices as the market has taken her opinion seriously. One of her claims is that goodwill is built into a lot of companies' share prices, and that as the market moves into dark times, this goodwill will dissipate.

[Oldeconomybuyer]

Bookmark.

[musicman]

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[kittymyrib]

“your stupid”

“You’re stupid.”

Writers should know grammar.

[KoRn]

Municipalities are in the same type of trouble that the Federal government is, only they CAN’T print money. They can only tax. If taxes go to high to cover all of that debt, people begin avoiding them, even if it means relocating, and that means LESS taxes collected in the end.

They’re screwed.....

[dynachrome]

“Writers should know grammar”

They rely on spel-chek and there are no proof readers anymore, I guess.

[Larry Lucido]

Who??

[Larry Lucido]

Psst. It’s the “business” insider blog. Writing ability isn’t a prerequisite.

[Revolting cat!]

Hey, leave Muni alone!

[ChildOfThe60s]

I read all of the reasons her critics say she is wrong. I mean the reasoned arguments, not the petty name calling.

And I frankly believe that most of those reasons are full of holes and wishful thinking.

IMO, though, the Feds are going to print trillions more to bail out the munis. So, technically, they may not “fail”. But it will be an economic disaster to “save” them in that fashion. Even worse than allowing failure. Just as all previous bailouts have made it worse.

[Mr. Peabody]

If you look at the nation at a whole munis are probably fine. Once you focus in on a few states the problem becomes obvious.

[LRoggy]

As a money manager who buys a lot of muni bonds for seniors I can say I’ve changed the focus on what I am buying. I certainly won’t touch California or Illinois GO paper. As a Florida based manager I can utilize a lot of states because of the lack of a state income tax.

One area I am focusing on strongly is bonds issued by local authorities as fronts for colleges and universities. Most have much larger endowments then debt loads, giving me a pretty good comfort level.

Some of the schools whose paper I’ve bought recently are Cornell, U or Rochester, NYU, Hofstra, etc. in NY. U. Mass. Mount Union in Ohio, etc. I always call the CFO of the school and ask for Endowment size, Debt Level and Revenue. If the endowment is more than twice the debt level I feel pretty good.

Most of the bonds were used for dormitories and other school buildings. I’ve also focused on Water and Sewer, and some NYC paper like the Museum of Modern Art and even Yankee Stadium. I’d rather be in these types of paper.

[wideawake]

Whitney caused a stir by saying there would be "50 to 100 sizable defaults" by municipalities in 2011.

And her implication is that this number of defaults would be unprecedented and that it would have disastrous implications for the economy.

The most defaults ever seen in any year were the 207 in 2009, which involved 7.3 billion of muni bonds. There were 162 defaults in 2008 that involved 8.5 billion of debt. In 2010 it was 72 defaults on 2.7 billion in debt.

In the first 2 months of 2011 there were 8 defaults on 222 million of debt. So we're on a pace for less than 50 defaults involving less than 1.5 billion in debt.

There have been no sizable defaults yet, the average is less than 30 million per default, while in 2008 the average was over 50 million.

The fact is that her prediction suggests that she was unaware of recent muni history and unaware of the scope of muni debt - it's not surprising that she's been criticized.

[IDontLikeToPayTaxes]

“your stupid”

“You’re stupid.”

Writers should know grammar.

The word "you're" is slowly disappearing from the English language, thanks to our own laziness and, quite frankly, illiteracy.

The same thing is happening to the word "mother", which is being slowly replaced with the childish word "mom."

[DCBryan1]

Keep it up Merideth! Keep it up! I am not 40 yet, and because of the "panic", half my portfolio is made up of secure GO munis that give me a TEY of 12%+!!!! We haven't seen this type of value in munis since the early 80s before the TRA.

There are 43,000 issuers, and 2,000,000 issues....sure some will go bad....100, 500, 1,000? Who cares! There is still value out there if you know what you are doing!

My last purchase was 10m Cal Luthran School Bonds in Ventura county, 2038 maturity, bought at 60cents/dollar, YTM=11%, YTC=38%, TEY= 12.7%.