I bet this is the next big thing to go down and will cause trouble in 2011
The Municipal Debt Bomb is Ticking: When Will It Explode?
Voices with worried tones have been on one end of the line recently, and municipal bond fund representatives have been on the other. It's just part of the fallout from the story about municipal debt that aired on CBS's 60 Minutes on December 19.
Financial analyst Meredith Whitney has municipal bond investors and financial professionals alike buzzing about what she said on the program.
Whitney compared the severity of the unfolding municipal debt crisis to the sub-prime mortgage crisis, and said that at least 50 to 100 municipal defaults are likely. She also said that the mounting municipal debt story has not received enough attention -- but expects it to become major news in the next 12 months.
Some call her an "alarmist," and claim that her forecasts of municipal defaults are just not going to happen. But no less than the governor of New Jersey says that "this time is different" and agrees that more bad news is ahead for state and local government debt. Illinois' state Comptroller acknowledged that the state is a "deadbeat" when it comes to paying its bills.
EWI's Robert Prechter was been way ahead of this crisis. Here's what he wrote in Conquer the Crash, 2nd edition, p. 255:
"Don’t rely on all governments to pay their debts. In the 1930s, Fulton County, Georgia, where I grew up, was formed from two bankrupt counties that defaulted on their bonds. By 1938, state and local municipalities had defaulted on approximately 30% of the total value of their outstanding debt....If the issuers of your tax-exempt bonds default, you will have the ultimate tax haven: being broke. Given the huge extent of today’s municipal indebtedness, such failures are inevitable."
Those words originally published in 2002, in the first edition of Conquer the Crash -- "way ahead of this developing crisis."
The July 2010 Elliott Wave Financial Forecast provided this analysis:
"California is 'mired in what may be its most dire fiscal crisis ever;' New York is attempting to avert a complete shutdown of state government by instituting a $1.60-a-pack tax increase on cigarettes (raising the cost to $11 per pack); Illinois is teetering on the brink of default; and 43 other states are 'Facing Greek-Style Deficits.' With all this going on, one might expect to see flagging interest in muni bonds. But municipal bond holdings appear more popular than ever. In fact, foreign investors increased their holdings of munis to $71.9 billion in the first quarter of 2010, a 79.9% increase from the first quarter of 2009.
"The total was 10 times the level of 2000. U.S. households also increased their muni holdings to more than $1 trillion for the first time...The interest of the public and foreigners, two classic late-comers to financial trends, indicates that the trap may snap shut at any moment.
"The snare first started to tighten on investors in 2008. The chart of U.S.-municipal-bond-to-U.S.-Treasury-bond swap spreads [see chart below] shows how fast premiums rose in the fourth quarter of 2008 for insuring muni bonds against default relative to the cost of insuring Treasury bonds of similar maturity."
The same issue of the Financial Forecast noted long-standing warnings about the muni market, yet "investors vaulted past the red flags in 2007-2008. What they ignore now is the train wreck itself...As the economy turns south again, state and local governments will contribute powerfully to the slide."
It's clear that you cannot count on the mainstream media to alert you to economic trends in time to protect yourself and your family. Their alerts come way too late.
The Municipal Debt Bomb is Ticking: When Will It Explode?
Voices with worried tones have been on one end of the line recently, and municipal bond fund representatives have been on the other. It's just part of the fallout from the story about municipal debt that aired on CBS's 60 Minutes on December 19.
Financial analyst Meredith Whitney has municipal bond investors and financial professionals alike buzzing about what she said on the program.
Whitney compared the severity of the unfolding municipal debt crisis to the sub-prime mortgage crisis, and said that at least 50 to 100 municipal defaults are likely. She also said that the mounting municipal debt story has not received enough attention -- but expects it to become major news in the next 12 months.
Some call her an "alarmist," and claim that her forecasts of municipal defaults are just not going to happen. But no less than the governor of New Jersey says that "this time is different" and agrees that more bad news is ahead for state and local government debt. Illinois' state Comptroller acknowledged that the state is a "deadbeat" when it comes to paying its bills.
EWI's Robert Prechter was been way ahead of this crisis. Here's what he wrote in Conquer the Crash, 2nd edition, p. 255:
"Don’t rely on all governments to pay their debts. In the 1930s, Fulton County, Georgia, where I grew up, was formed from two bankrupt counties that defaulted on their bonds. By 1938, state and local municipalities had defaulted on approximately 30% of the total value of their outstanding debt....If the issuers of your tax-exempt bonds default, you will have the ultimate tax haven: being broke. Given the huge extent of today’s municipal indebtedness, such failures are inevitable."
Those words originally published in 2002, in the first edition of Conquer the Crash -- "way ahead of this developing crisis."
The July 2010 Elliott Wave Financial Forecast provided this analysis:
"California is 'mired in what may be its most dire fiscal crisis ever;' New York is attempting to avert a complete shutdown of state government by instituting a $1.60-a-pack tax increase on cigarettes (raising the cost to $11 per pack); Illinois is teetering on the brink of default; and 43 other states are 'Facing Greek-Style Deficits.' With all this going on, one might expect to see flagging interest in muni bonds. But municipal bond holdings appear more popular than ever. In fact, foreign investors increased their holdings of munis to $71.9 billion in the first quarter of 2010, a 79.9% increase from the first quarter of 2009.
"The total was 10 times the level of 2000. U.S. households also increased their muni holdings to more than $1 trillion for the first time...The interest of the public and foreigners, two classic late-comers to financial trends, indicates that the trap may snap shut at any moment.
"The snare first started to tighten on investors in 2008. The chart of U.S.-municipal-bond-to-U.S.-Treasury-bond swap spreads [see chart below] shows how fast premiums rose in the fourth quarter of 2008 for insuring muni bonds against default relative to the cost of insuring Treasury bonds of similar maturity."
The same issue of the Financial Forecast noted long-standing warnings about the muni market, yet "investors vaulted past the red flags in 2007-2008. What they ignore now is the train wreck itself...As the economy turns south again, state and local governments will contribute powerfully to the slide."
It's clear that you cannot count on the mainstream media to alert you to economic trends in time to protect yourself and your family. Their alerts come way too late.
