Best of the Week
Most Popular
1. US Housing Market Real Estate Crash The Next Shoe To Drop – Part II - Chris_Vermeulen
2.The Coronavirus Greatest Economic Depression in History? - Nadeem_Walayat
3.US Real Estate Housing Market Crash Is The Next Shoe To Drop - Chris_Vermeulen
4.Coronavirus Stock Market Trend Implications and AI Mega-trend Stocks Buying Levels - Nadeem_Walayat
5. Are Coronavirus Death Statistics Exaggerated? Worse than Seasonal Flu or Not?- Nadeem_Walayat
6.Coronavirus Stock Market Trend Implications, Global Recession and AI Stocks Buying Levels - Nadeem_Walayat
7.US Fourth Turning Accelerating Towards Debt Climax - James_Quinn
8.Dow Stock Market Trend Analysis and Forecast - Nadeem_Walayat
9.Britain's FAKE Coronavirus Death Statistics Exposed - Nadeem_Walayat
10.Commodity Markets Crash Catastrophe Charts - Rambus_Chartology
Last 7 days
Stock Investors What to do if Trump Bans TikTok - 5th Aug 20
Gold Trifecta of Key Signals for Gold Mining Stocks - 5th Aug 20
Stock Market Uptrend Continues? - 4th Aug 20
The Dimensions of Covid-19: The Hong Kong Flu Redux - 4th Aug 20
High Yield Junk Bonds Are Hot Again -- Despite Warning Signs - 4th Aug 20
Gold Stocks Autumn Rally - 4th Aug 20
“Government Sachs” Is Worried About the Federal Reserve Note - 4th Aug 20
Gold Miners Still Pushing That Cart of Rocks Up Hill - 4th Aug 20
UK Government to Cancel Christmas - Crazy Covid Eid 2020! - 4th Aug 20
Covid-19 Exposes NHS Institutional Racism Against Black and Asian Staff and Patients - 4th Aug 20
How Sony Is Fueling the Computer Vision Boom - 3rd Aug 20
Computer Gaming System Rig Top Tips For 6 Years Future Proofing Build Spec - 3rd Aug 20
Cornwwall Bude Caravan Park Holidays 2020 - Look Inside Holiday Resort Caravan - 3rd Aug 20
UK Caravan Park Holidays 2020 Review - Hoseasons Cayton Bay North East England - 3rd Aug 20
Best Travel Bags for 2020 Summer Holidays , Back Sling packs, water proof, money belt and tactical - 3rd Aug 20
Precious Metals Warn Of Increased Volatility Ahead - 2nd Aug 20
The Key USDX Sign for Gold and Silver - 2nd Aug 20
Corona Crisis Will Have Lasting Impact on Gold Market - 2nd Aug 20
Gold & Silver: Two Pictures - 1st Aug 20
The Bullish Case for Stocks Isn't Over Yet - 1st Aug 20
Is Gold Price Action Warning Of Imminent Monetary Collapse - Part 2? - 1st Aug 20
Will America Accept the World's Worst Pandemic Response Government - 1st Aug 20
Stock Market Technical Patterns, Future Expectations and More – Part II - 1st Aug 20
Trump White House Accelerating Toward a US Dollar Crisis - 31st Jul 20
Why US Commercial Real Estate is Set to Get Slammed - 31st Jul 20
Gold Price Blows Through Upside Resistance - The Chase Is On - 31st Jul 20
Is Crude Oil Price Setting Up for a Waterfall Decline? - 31st Jul 20
Stock Market Technical Patterns, Future Expectations and More - 30th Jul 20
Why Big Money Is Already Pouring Into Edge Computing Tech Stocks - 30th Jul 20
Economic and Geopolitical Worries Fuel Gold’s Rally - 30th Jul 20
How to Finance an Investment Property - 30th Jul 20
I Hate Banks - Including Goldman Sachs - 29th Jul 20
NASDAQ Stock Market Double Top & Price Channels Suggest Pending Price Correction - 29th Jul 20
Silver Price Surge Leaves Naysayers in the Dust - 29th Jul 20
UK Supermarket Covid-19 Shop - Few Masks, Lack of Social Distancing (Tesco) - 29th Jul 20
Budgie Clipped Wings, How Long Before it Can Fly Again? - 29th Jul 20
How To Take Advantage Of Tesla's 400% Stock Surge - 29th Jul 20
Gold Makes Record High and Targets $6,000 in New Bull Cycle - 28th Jul 20
Gold Strong Signal For A Secular Bull Market - 28th Jul 20
Anatomy of a Gold and Silver Precious Metals Bull Market - 28th Jul 20
Shopify Is Seizing an $80 Billion Pot of Gold - 28th Jul 20
Stock Market Minor Correction Underway - 28th Jul 20
Why College Is Never Coming Back - 27th Jul 20
Stocks Disconnect from Economy, Gold Responds - 27th Jul 20
Silver Begins Big Upside Rally Attempt - 27th Jul 20
The Gold and Silver Markets Have Changed… What About You? - 27th Jul 20
Google, Apple And Amazon Are Leading A $30 Trillion Assault On Wall Street - 27th Jul 20
This Stock Market Indicator Reaches "Lowest Level in Nearly 20 Years" - 26th Jul 20
New Wave of Economic Stimulus Lifts Gold Price - 26th Jul 20
Stock Market Slow Grind Higher Above the Early June Stock Highs - 26th Jul 20
How High Will Silver Go? - 25th Jul 20
If You Own Gold, Look Out Below - 25th Jul 20
Crude Oil and Energy Sets Up Near Major Resistance – Breakdown Pending - 25th Jul 20
FREE Access to Premium Market Forecasts by Elliott Wave International - 25th Jul 20
The Promise of Silver as August Approaches: Accumulation and Conversation - 25th Jul 20
The Silver Bull Gateway is at Hand - 24th Jul 20
The Prospects of S&P 500 Above the Early June Highs - 24th Jul 20
How Silver Could Surpass Its All-Time High - 24th Jul 20

Market Oracle FREE Newsletter

How to Get Rich Investing in Stocks by Riding the Electron Wave

Meredith Whitney on Muni Bonds and Red State-Blue State Migration

Interest-Rates / US Bonds Jul 09, 2013 - 02:27 PM GMT

By: Money_Morning


Frank Marchant writes: In 2010 Meredith Whitney made an earth shattering statement during a CBS's "60 Minutes" interview that rocked the municipal bond investment world.

"There is not a doubt in my mind that you will see a spate of municipal-bond defaults,"said Meredith Whitney on Dec 19. She continued, "You could see 50 sizable defaults, and 50 to 100 sizeable defaults, more. This will amount to hundreds of billions of dollars' worth of defaults."

The muni bond market fell far short of Whitney's prediction. But many today feel she was merely ahead of her time.

Recently Detroit has defaulted on its muni bonds leaving investors hoping to get 10% return on their original investment, but there are no guarantees.

As Detroit moves closer to bankruptcy California has 10 cities facing the same fate. The cities of Atwater, Azusa, Compton, Fresno, Hercules, Mammoth Lakes, Monrovia, Oakland, San Jose and Vernon are ready to file for bankruptcy following the now bankrupt Stockton's lead.

Money Morning's Shah Gilani recently talked to Whitney in an exclusive interview about her new book, The Fate Of The States:
The new Geography of American Prosperity

She believes that wealth and opportunity are moving away from the coasts and toward the central corridor. The states of California, Florida and Nevada benefited from the housing boom. However instead of budgeting wisely, local governments spent their windfall profits as fast as they came in on pay increases for public employees, pension increases and pay hikes.

When the housing boom ended, the money stream became just a trickle of new capital. The states were left with pensions they couldn't pay and employees they couldn't afford. They were forced to raise taxes for schools and essential public services.

In contrast a much different scenario was developing in the interior states: N. Dakota, Texas, Indiana. These states avoided the housing crisis. Because foreclosure was not a serious problem they found themselves rich in capital with money to offer tax incentives to companies to relocate and retrain new employees.

These central states are also positioned to reap the massive benefits of from the oil and natural gas boom.

Whether or not this trend is irreversible is anybody's guess but Whitney's track record at predicting trends is pretty impressive. This is why Money Morning wanted to get her opinion:

On the much talked about the Red state-Blue state migration Whitney has definite ideas on the, "How's and Whys'" of the migration.

The Red State-Blue State Migration

Shah Gilani: As far as the book goes, in terms of what you're projecting, are there any bets that should be made, any states to be avoided, any states to be bet on in terms of their potential growth and would you advise staying away from certain municipalities, moving toward others in terms of investors?

Meredith Whitney: Well, I have never been a municipal bond analyst, but what I did see and have seen and continue to see clearly is there's just economic opportunity in certain states that is accelerating and stagnation in other states that continue to struggle.

And I think that those strong states are going to get stronger and the weak will get weaker. That's just -- you know, the more rich - spoil of the riches in terms of the areas that are attracting businesses and jobs-the more they're spending, reinvesting into communities, and that's clearly through the central corridor, as I described in the book. And the areas that don't have job creation, that are losing businesses are continuing to have to cut to the bone in social services, and those are the areas that are struggling most.

Shah Gilani: Is there anything to do in terms of this movement, this shifting having to do with Red States and Blue States, Meredith?

Meredith Whitney: It just so happens that the states that are outgrowing other states happen to be the Red States and the Red States tend to be more commodity agrarian by history, and so, they've had much more fiscal constraints and because they didn't have the big housing boom, and so, they have a lot more
dry powder, they've had smaller governments.

Blue states, if they want to, if they want to turn themselves around, you've had Blue States that really have -- that have really turned themselves around. I mean, I think Florida is doing a great job.

This is not a partisan issue. This is a reality issue in that everyone is going to have to make tough choices because their future hangs in the - you know, the safety of streets, the quality of education, the retirees' rights to pensions and, I think, so many of the social services that we rely on really hang in the balance here.

Shah Gilani: Terrific. Meredith, finally, as an analyst, you seem to take the big picture, snapshots of what's going on in the economy in terms of the country. Where do you see America going?

Meredith Whitney: Well, this is why I wrote this book. It really is a romantic story about where the U.S. economy is going, and I think it's going in a great direction.

So, you have, as I said, a tale of two economies, one very strong economy and one weak economy. And we're just shifting to one industry to another, and we've done that at least six times in the last 200 plus years. What was important to me was to outline how it's happening and how it affects everybody in this book.

Shah Gilani: As far as the muni market goes in general, it's come into question because of what's happened in Detroit that general obligation bonds may be considered unsecured. Is that how you see it? Do you think that's going to face a court test?

Meredith Whitney: Well, I think that -- I think we're in unchartered territory. I think tha the threat of bankruptcy is causing a lot of things that people wouldn't -- wouldn't imagine could happen and haven't happened since the Great Depression to be on the table. Again, we're in unchartered territory.

Shah Gilani: In your book, you're really looking out to the future and you're seeing the trends that are happening now and you think are going to progress. Could you elaborate a little bit on what exactly it is that you're seeing now and where do you think we're ultimately going to go in terms of this migration from one set of states to another set of

Meredith Whitney: Well, I can just tell you what businesses are already doing. And businesses are moving to states that have better tax policies, more pro-business environments, better infrastructure, more sustainable fiscal situations.

And many businesses are moving closer to cheap energy, cheap oil and gas. And that's not just U.S. businesses, it's businesses all around the world.


Shah Gilani: As far as the banks as an investment, the big banks in particular, are there any of those that you'd be a buyer of, is there an area you'd stay away from, and how do you feel about community and regional banks?

Meredith Whitney: Well, I think that the regional banks are going to be interesting, you know, later in the year, early next year. I think that the big banks are focused on -- you'll see this certainly in the next several weeks when they report -- are focused primarily on expense reduction because the revenue environment remains -- you know, remains weak.

But what's happening in the economy right now is - is a tale of really two American economies, one that's doing very well and one that's contracting. And that's what I focus on so much in this book, which is what led to economic strength in the past is really going to hamper economic strength on a go-forward basis. Certain parts of the market are scoring a lot faster than the others, and that's what I wanted most people to focus on.

Shah Gilani: Let's take a look at what you're talking about in the book and, specifically, about the muni markets. Prior to that, you made a great call --what I thought was a great call -- that the muni market has the potential for some huge defaults ahead of us. We
haven't seen quite the level of defaults that I think you had predicted, but I'm with you in that they're probably still out there somewhere.

How do you see your prediction of 2010, 2011, in terms of the marketplace now and are there still dust under the cupboard that's yet to be exposed?

Meredith Whitney: Well, what I did in 2010 and what I continue now is -- but particularly in 2010 - was worry about the fiscal health of the states and clearly I thought that was going to be a large drag to the overall employment picture and to the overall economy. And because there wasn't enough money to go around, clearly, that was going to affect taxpayers, it was going to affect pensioners and it was going to affect the bond market. And you've seen all three of those areas, you know, be affected.

You know, don't ask me to quantify the amount of pensions that would get renegotiated or the amount of tax dollars that would get raised or the question was, you know, would bonds be in default, and they are. So this is the state we're in andit continues.

So, it's happened, it's happening, and it's going to continue to happen. You know, the most high profile name right now is what is Detroit's going through and bond holders are getting pennies on the dollar, being offered pennies on the dollar. So there's no denying that this stuff is happening.

Read Shah Gilani's muni market meltdown prediction, back when Whitney made her's.

Source :

Money Morning/The Money Map Report

©2013 Monument Street Publishing. All Rights Reserved. Protected by copyright laws of the United States and international treaties. Any reproduction, copying, or redistribution (electronic or otherwise, including on the world wide web), of content from this website, in whole or in part, is strictly prohibited without the express written permission of Monument Street Publishing. 105 West Monument Street, Baltimore MD 21201, Email:

Disclaimer: Nothing published by Money Morning should be considered personalized investment advice. Although our employees may answer your general customer service questions, they are not licensed under securities laws to address your particular investment situation. No communication by our employees to you should be deemed as personalized investent advice. We expressly forbid our writers from having a financial interest in any security recommended to our readers. All of our employees and agents must wait 24 hours after on-line publication, or after the mailing of printed-only publication prior to following an initial recommendation. Any investments recommended by Money Morning should be made only after consulting with your investment advisor and only after reviewing the prospectus or financial statements of the company.

Money Morning Archive

© 2005-2019 - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.

Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules