- Meredith Whitney was right from Fortune (3/12/2012)
- State, Muni Crunch Hits Home Values: Meredith Whitney from CNBC (11/9/2011)
- Whitney Wasn't All Wrong: Muni Bonds Still Face Dangers from CNBC (10/27/2011)
- Muni Bonds Too Risky to Invest? from CNBC (10/12/2011)
- Muni Bonds Have New Risk - Stocks from Allan Roth at Marketwatch (8/25/2011)
- Top-Rated States’ Yields Steady as Potential Downgrades Loom: Muni Credit from Bloomberg (8/18/2011)
- Downgrades Felt at Local Level from WSJ (8/18/2011)
- Expected rout in muni market a no-show from InvestmentNews (8/14/2011)
- The US Downgrade and the Muni Bond Market from John Mousseau at Cumberland Advisors (8/10/2011)
- Moody's warns state and local governments could see credit downgrades from Politico (8/10/2011)
- Whitney: Right on Goldman, Right on Munis, Too? from CNBC (8/4/2011)
- Municipal Bond Investing: Have The Headlines Painted An Accurate Picture? from Ridgeworth (July 2011)
- The State of Muni Investments from Etrade (July 2011)
- Muni offerings hit the skids from InvestmentNews (7/22/2011)
- Breaking Up With Bonds from SmartMoney (7/20/2011)
- Meredith Whitney Loses Credibility from Bloomberg (7/15/2011)
- S&P Downgrades Meredith Whitney from BusinessInsider (7/8/2011)
- Municipal Bond Investing: Have The Headlines Painted An Accurate Picture? from Ridgeworth (July 2011)
- 5 ETFs to Watch if Meredith Whitney Is Right About Munis from SA (6/29/2011)
- Bond investing in challenging times: What you should know about municipal bonds from Vanguard (6/29/2011)
- New Jersey Borrowing a Sign of Coming Muni Crisis: Whitney at CNBC (6/28/2011)
- Muniland Update & Whitney on Squawk Box via Ritholz (6/11/2011)
- Muni Managers Say Widespread Default Fears Overblown: Morningstar Confab from AdvisorOne (6/10/2011)
- Muni bond funds end outflow streak from Financial Times (6/10/2011)
- Meredith Whitney: 'More Validation' Everyday Of Impending Muni Debt Crisis from HuffingtonPost (6/8/2011)
- Meredith Whitney Doubles Down on Wrong from HuffingtonPost (6/8/2011)
- Meredith Whitney Still Warning on Munis, Muni Market Still Not Listening from WSJ (6/6/2011)
- Meredith Whitney Adds 10 New States To Her Sh*t List from DealBreaker (6/6/2011)
- Meredith Whitney: State finances are worse than estimated from Fortune (6/6/2011)
- Munis Down By Half from Financial Planning (6/1/2011)
- Focus on Revenues for Muni Bonds from Schwab (5/27/2011)
- Municipals Shine, Tax Exemption at Risk from ETrade (5/27/2011)
- Warren Buffett letter backs Meredith Whitney's argument from InvestmentNews (5/26/2011)
- Meredith Whitney's muni denial doesn't jibe with what ran on 60 Minutes: Mysak from InvestmentNews (5/24/2011)
- Meredith Whitney Trips Over Her Muni Default Tale: Joe Mysak from Bloomberg (5/19/2011)
- 'Waterfall' of muni downgrades will trigger rapid sell-off from InvestmentNews (5/18/2011)
- The Hidden State Financial Crisis in the WSJ (5/18/2011)
- Meredith Whitney Feeling Better About Her Muni Call at CNBC (5/18/2011)
- Muni Bonds Staging a Comeback in the WSJ (5/17/2011)
- Investors return to US municipal bonds in the Financial Times (5/16/2011)
- 'Dumb money' getting creamed exiting muni mutual funds from InvestmentNews (5/8/2011)
- Picking Munis in a Roiled Market in Barrons (5/7/2011)
- Municipal Bonds: Why We Likely Won’t See Armageddon by Larry Swedroe (5/12/2011)
- Whitney Defends Her Prediction of ‘Hundreds of Billions’ in Muni Defaults from Bloomberg (5/4/2011)
- Municipals: Are Yields Set to Spike? from ETrade (4/21/2011)
- Muni Salesmen Fight Gloom in the WSJ (4/8/2011)
- Is the Municipal Bond Crisis Over? at CNBC (4/7/2011)
- Munis: The Stench of Risk or of Opportunity? at CNBC(4/4/2011)
- Muni Bonds Unlikely To Be Next Leg of Crisis at CNBC (4/1/2011)
- Buy Munis, But Carefully from Kiplingers(April 2011)
- Tax Revenue Snaps Back in the WSJ (3/30/2011)
- The Muni Bond Crisis That Isn't from SeekingAlpha (3/30/2011)
- Muni Defaults: Whitney and Roubini from Cumberland Advisors (3/26/2011)
- The Whitney Clock at CNBC(3/25/2011)
- Meredith Whitney an Optimist? There Has to Be a Catch at CNBC (3/21/2011)
- Municipals: Comeback or Dead Cat Bounce? (3/21/2011)
- A Deep Freeze Hits Muni-Bond Market in the WSJ (3/9/2011)
- A Few Rational Words on Munis from AdvisorOne (3/7/2011)
- Will California Fall Into 'The Black Hole'? at CNBC (3/7/2011)
- Fixing Pensions Requires Cutting Existing Benefits from BusinessInsider (3/7/2011)
- For Munis, Calm After Storm in the WSJ (3/3/2011) The Looming Muni-Bond Meltdown: Profit From the Collapse - And From the Rebound from Seeking Alpha (3/3/2011)
- States Fumble Revenue Forecasts in the WSJ (3/2/2011)
- Muni Default Estimate: $100 Billion in the WSJ (3/2/2011)
- Felix Salmon on Roubini's big muni report (3/2/2011)
- Buy Muni-Bonds at CNBC (3/2/2011)
- No Crisis in Muni Bonds from Charles Schwab (2/28/2011)
- BlackRock sees muni glass as half full and Sounding the alarm on muni funds with heavy non-rated-bond weightings from InvestmentNews (2/27/2011)
- The Muni Bond Market Signals Danger Ahead at CNBC (2/25/2010)
- AIG Says Risk Higher on $46.6 Billion Muni-Bond Portfolio from Bloomberg (2/25/2011) - "Investors pulled about $610 million from U.S. municipal- bond mutual funds this week, the 15th-straight period of outflows, according to Lipper U.S. Fund Flows. Withdrawals have totaled $26.4 billion since mid-November, as states and local governments grappled with budget deficits and rising pension costs."
- A Municipal Score Card by Frederick Sheehan (2/23/2011) (see also The Coming Collapse of the Municipal Bond Market (9/29/2009))
- Little Hoover Commission Report from The State of California (Feb 2011)
- Reported pricing probe latest ‘oh no' moment for muni bond biz from InvestmentNews (2/18/2011)
- Muni Meltdown and Municipal Bond Maze at CNBC (2/16/2011)
- The muni loan market emerges by Felix Salmon (2/16/2010)
- Pall over muni market slowly lifting from InvestmentNews (2/15/2011)
- PIMCO’s Narens on Municipal Bonds, Part I: Is It Time to Trade? (2/10/2011), The Municipal Bond Trade, Part II: Is Now the Right Time to Buy? (2/11/2011), The Interest Rate Question and Municipal Bonds, Part III: Is Now the Time to Buy? from AdvisorOne (2/14/2011)
- from AdvisorOne (2/14/2011)
- Hedge Funds Are Buying More Muni Bonds from CNBC (2/14/2011)
- Key to Muni Bonds: Ratings Not Headlines from CNBC (2/14/2011)
- Muni Call Right, in That Meredith Whitney Kind of Way from CNBC (2/11/2011)
- Webcast replay: Vanguard experts discuss the municipal bond market (2/10/2010)
- How to Profit From a Muni Bond Crisis Published from CNBC (2/10/2011)
- Whitney Muni Bond Forecast 'An Important Call': Chanos from CNBC (2/10/2011)
- Thornburg Manager Josh Gonze Doesn’t Buy the Muni Hype from AdvisorOne (2/10/2011)
- S&P: We Do Not Believe States Face a Muni Debt Crisis from CNBC (2/9/2011)
- Obama Plans to Rescue States With Debt Burdens in the NYTimes (2/8/2011)
- The great muni panic from Marketwatch (2/8/2011)
- Schroeder on Meredith Whitney's Muni-Bond Forecast from Bloomberg (2/8/2011)
- Muni Market Bargains? A Closer Look at Municipal Debt, Deficits and Pensions from PIMCO (Feb 2011)
- Answers to Questions About Recent Municipal Market Volatility from AmericanCentury (January 2011)
- Market Transparancy Report: Retail Trades of Municipal Bonds from BondDeskGroup (Jan 2011)
- Incite: Whitney riles up Wall Street as bear in heels from InvestmentNews (2/7/2011) - "Many of Whitney's critics have a vested interest in tearing her down. They include competing municipal bond analysts, fund managers who run muni portfolios, financial advisers who sell the tax-exempt securities, and above all, the borrowers who depend on munis to finance their whopping deficits. To all of them she is a big-mouthed, larger-than-life nightmare. It doesn't help that her big calls have been bearish, which automatically pits her against the established interests of Wall Street. Critics also question whether Whitney's a perma-bear who is paid to go to extremes -- in effect, the flipside of the rating companies that were perma-bulls on mortgage-backed securities before the financial crisis."
- The Next Housing-Style Crisis Will Be The Municipal Debt Bubble via Businessinsider (2/7/2011)
- Jim Grant Sees Risk In Muni Bonds via Ritholz (2/7/2011)
- More Facts about Muniland from Ritholtz (2/3/2011)
- Man Bites Dog in the Muni Market from Barron's (2/1/2011)
- Whitney Municipal-Bond Apocalypse Short on Specifics from Bloomberg (2/1/2011)
- Financial Advisers on Munis: Don't Panic in the WSJ (2/1/2011)
- Bondholders Left in the Dark: Concern Grows Over Lack of Financial Disclosure by State, Local Governments in the WSJ (1/26/2011)
- California is not Greece from Vanguard (1/25/2011) - We believe the doomsday headlines overreach reality and that—although the fiscal challenges, including significant pension liabilities, facing municipalities are important and should not be ignored—the expectation of systemic defaults among state and local governments is hyperbole. This is because, in our view, issuers overall have the ability and willingness to make their debt payments.
- Muni crisis: How serious is it? from Fidelity (1/24/2011)
- S&P Debunks Whitney (1/24/2011)
- Path Is Sought for States to Escape Debt Burdens in the NYTimes (1/20/2011) - cites Give States a Way to Go Bankrupt: It’s the best option for avoiding a massive federal bailout in the WeeklyStandard (11/29/2010)
- Top muni bond manager: Whitney's call preposterous from InvestmentNews (1/19/2011) - “I am not saying there won't be defaults,” Fitterer, 43, said in a telephone interview. “But I have a hard time getting to $10 billion, let alone $50 or $100 billion.”
- Shank Doubts `Widespread' Defaults in Municipal Bonds from Bloomberg (1/18/2011)
- New Hit to Strapped States: Borrowing Costs Up as Bond Flops; Refinancing Crunch Nears in the WSJ (1/14/2011)
- War of Words On Muni Bonds: Meredith Whitney Helps To Turn the Bond Sector From Boring to BAM! in the WSJ (1/13/2011)
- Municipal Court: Investors Render a Verdict of Guilty (1/13/2011) from Institutional Investor
- Muni Market: Tale of 2 Cities from CNBC(1/12/2011).
- Bill Gross: Whitney's wrong about muni bond meltdown from InvestmentNews (1/12/2011)
- JPMorgan's Dimon Says He Expects More Municipal Bankruptcies from Bloomberg (1/11/2011) - "If you are an investor in municipals you should be very, very careful.” Warren Buffett, whose Berkshire Hathaway Inc. trimmed its investment in municipal debt, predicted last year a “terrible problem” for the bonds.
- Muni commentary from doubleline (1/11/2011)
- Overheard: Lone Wolf? in the WSJ (1/9/2011)
- Greenspan Warns of Risks From U.S. Debt in the WSJ (1/8/2011) - Former Fed Chairman Alan Greenspan said the U.S. could face a bond-market crisis if politicians don't act soon to start cutting the nation's debt.
- Why It’s Still Smart to Own Bond Mutual Funds By Jane Bryant Quinn (1/6/2011) - Quinn is credited by some for coining the phrase Investment Pornography.
- Muni bond meltdown? Why you don't have to believe the hype from InvestmentNews (1/6/2011)
- Setting the Record Straight on Municipal Bonds By Larry Swedroe (1/5/2011)
- Gonze: It's time to buy munis from InvestmentNews (1/2/2011) - “I think Meredith Whitney's claims are ludicrous.” He pointed out that historically, muni bond default rates are less than one-tenth of 1%. The default rate for corporate bonds is nearly 1%.
- Capitalizing on Muni-Bond Fears from CNBC (12/29/2010)
- Alan Schankel Interview on Muni Bonds from Bloomberg (12/29/2011)
- Muni meltdown is coming from InvestmentNews (12/28/2010) - Peter Schiff thinks Whitney is sugar coating it and the article also includes comments from Warren Buffett.
- Despite Default Risk, Select Muni Bonds Strong Buy: Gross from CNBC (12/28/2010)
- Panic in muni market signals a time to buy: Thornburg PM from InvestmentNews (12/27/2010)
- Meredith's mark on munis? Bondholders bailing at record rate from InvestmentNews (12/27/2010)
- Strapped Cities Hit Nonprofits With Fees in the WSJ (12/27/2010)
- Incite: Has Meredith Whitney lost the muni bond plot? from InvestmentNews (12/22/2010)
- Muni Bonds - Meltdown or Overblown? by Allan Roth (12/22/2010)
- 6 Safe Ways of Investing in Tax-Free Municipal Bonds by Jane Bryant Quinn (12/21/2010)
- Meredith Whitney Overreaches in Muni Default Call: Joe Mysak from Bloomberg (12/21/2010)
- Wave of Muni Defaults to Spur Layoffs, Social Unrest: Whitney (12/21/2010) and Muni Bond Crisis May Be Similar to Euro Zone: Strategist from CNBC (12/22/2010)
Gary Karz, CFA (email)
Host of InvestorHome
Founder, Proficient Investment Management, LLC
One of the reasons I like to collect bullish and bearish predictions is to be able to show people that there are almost always people on both sides of the fence. People with a glass is half empty perspective will almost always be able to find pessimistic gurus making predictions that support their bearishness. Likewise, people with a glass is half full perspective will almost always be able to find optimistic gurus making predictions that support their bullishness. While consensus opinions among investors, advisors, and/or newsletter writers can swing to extremes (which some would argue is a contrary indicator) it happens relatively infrequently.
If markets are "efficient" and the information and arguments used by both the pessimists and optimists is publicly available and widely known, current price levels fully reflect the balance between the bullish and bearish views. Market timing tends to be counterproductive because investments historically rise over time and attempts to avoid drops are just as likely to be unsuccessful as they are to be successful. Yet stress, or fear of losing money can be a logical reason to be in cash and avoid investments that fluctuate over time.
J.P. Morgan was quoted over 100 years ago for stating that "Any man who is a bear on the future of this country will go broke." Yet in the recent financial crisis a large number of investors not only didn't go broke, they made huge returns betting against the mortgage and stock markets (at least in the short-term). There are also plenty of people that have made a lot of money selling newsletters, books, etc., that make bearish forecasts (see also bull and bear predictions from the 90s).
In the aftermath of the global financial crisis, there seem to be a larger than usual number of doomsday predictions. So I decided to start collecting extremely pessimistic predictions and take a closer look. My intention in including this information is not to scare anyone or support these arguments. Rather it is to take an open minded look and determine if any of their arguments hold water and therefore are deserving of attention by investors as they allocate their assets.
One of the financial doomsday scenarios that has gotten the most attention was discussed in this 60 Minutes segment that aired on 12/19/2010. It included comments by Meredith Whitney and others discussing problems with state and municipal budgets. More recently on CNBC Whitney defended her muni call (1/12/2011) and "she took the forecast a step further and said when the defaults begin in earnest, it will mark an exodus from the muni bond market."
Whitney was thrust into the limelight after her 10/31/2007 downgrade of Citigroup and her analysis that Citi would cut their dividend. She plays a prominent role in Michael Lewis' bestseller The Big Short and this Bloomberg article by Lewis titled The Rise and Rise of Analyst Meredith Whitney (4/9/2008). But this WSJ article (4/9/2009) titled When Meredith Whitney Calls, Should You Listen? states that other analysts downgraded Citi ahead of Whitney's call and while she gets credit for the Citigroup call, she didn't predict many of the other major dominoes during the crisis. See also The Analyst Who Rocked Citi (11/26/2007) and State Budget Crises: Weighing on Muni Bonds and Possibly Stocks from Eric Tyson (1/3/2011) to see why Tyson is not impressed with some of Whitney's more recent predictions.
As interest rates have risen many bond categories lost value in the 4th quarter of 2010 and the predictions of problems at municipalities have come at a time when bond markets are already under pressure. We now know investors have been pulling money from municipal bond funds at a record pace withdrawing over $23 billion in the prior eight weeks, reversing the previous eight months of inflows (see Mutual Fund Cash Exodus Continues (1/10/2011) in BankInvestmentConsultant). Since the 60 minutes segment ran there has been a steady stream of discussions on both sides of the argument with many well known investment personalities joining the debate (links now at top of the page).
Another perspective comes from Stocks for the Long Run author Jeremy Siegel, who discusses what he worries about in his February 2011 Kiplingers column, titled What Keeps Me Awake. Some excerpts include the following.
- Excessive state- and local-government debt is also a concern . . . But the Fed would likely offer guarantees to fund investors, and the federal government would likely rescue states in peril.
- I am no longer worried about a real estate-induced crisis.
- The European financial crisis is likely to cause some countries to default on their debt, and it could even cause a breakup of the euro currency area . . . Nevertheless, European stocks are selling at a price-earnings ratio that's 20% less than the P/E of comparable stocks in the U.S., so any market slide is apt to be short-lived.
- Siegel argues "our current federal deficit is due to the recession and will shrink significantly when the economy recovers. In the long run, Medicare is the huge budget buster."
- If there's one thing that keeps me up at night, it's the threat of a terrorist attack.
- Despite anger directed at the investment banks that sold subprime mortgage-backed securities, most Americans aren't blaming our free-enterprise system for our current woes. The U.S. has faced many crises that have disturbed the sleep of numerous investors. Yet we've always surmounted them and rewarded those who stuck with stocks. I see no reason the future should be any different.
Siegel's argument that the federal government would rescue the states is debatable, especially in light of recent comments by Fed Chief Ben Benanke. According to Bernanke Rejects Bailouts (1/8/2011) in the WSJ, state and local governments shouldn't expect federal loans and Mr. Bernanke noted that muni markets have been functioning normally, with healthy trading volumes and lots of issuance. But he said that if municipal defaults did become a problem, it would be in Congress's hands, not his.
Another doomsday scenario comes from Stansberry Associates, which has a long presentation (pitching their products). The presentation suggests the next crisis will include a collapse of the dollar and that Americans should plan accordingly (which of course includes getting their reports which will tell you what to do). Some background on Porter Stansberry I found with a quick search is included here, here, and here. Also note that according to this article in the WSJ, Developing Countries Keep Buying Dollars (12/31/2010) and according to this Bloomberg article Pimco Says U.S. Will Keep Reserve-Currency Status (12/29/2010) which argues that rising powers such as China are not yet ready to absorb the $9 trillion in reserve assets and Europe, amid all of its financial woes, isn’t even close to ready to take the mantle.
The following is a small collection of financial doomsday style links.
- FPA Capital’s Bob Rodriguez Says Economic Meltdown Looming in AdvisorOne (2/9/2011)
- Bernanke's Insanity Is Leading Us to Disaster by Graham Summers (2/2/2011)
- The Financial Crisis of 2015: An Avoidable History from OliverWyman
- Why the World Is Financially Doomed in Four Charts from Charles Hugh Smith (1/6/2011)
- Tax Cutters Set Up Tomorrow's Fiscal Crisis by Simon Johnson (12/22/2010)
- 60 minutes interview including Meredith Whitney Municipal problem warnings (12/19/2010)
- Jim Rogers: Lovely days are long behind us from InvestmentNews (12/12/2010)
- Long presentation and pitch from Stansberry Research
- The American Dream youtube video
- The Day After the Dollar Crashes: A Survival Guide for the Rise of the New World Order is a forthcoming book by Damon Vickers (1/25/2011).
Is the stock market over or undervalued? Are rising interest rates and the huge flows into bond funds in recent years leading us to a popping of a bond bubble? Is the dollar about to collapse or steadily lose value in coming years? Although markets aren't always completely efficient, I trust them to get it right most of the time and in the long run. No one wants to be in an asset class when part or all of the herd is rushing for the exit. But the herd (and individual investors) tends to have poor timing and crisis tends to create opportunities for investors. Investors that are uncomfortable with certain holdings may prefer to adjust their asset allocation to reach the sleeping point (rather than going all in or all out). Another alternative is to find a way to avoid coming in contact with financial predictions altogether.
We have two classes of forecasters: Those who don't know--and those who don't know they don't know.
John Kenneth Galbraith
As much as we’d like to believe otherwise, there’s only one person who can tell us where the economy and the market are going, and none of us gets to speak to him (or her), at least while we are alive.
Larry Swedroe in Lessons from 2010: Diversification Matters and Forecasters Don’t (1/11/2011)
Remember the First Law of Economics: For every economist, there is an equal and opposite economist--so for every bullish economist, there is a bearish one. The Second Law of Economics: They are both likely to be wrong.
William Sherden in The Fortune Sellers: The Big Business of Selling and Buying Predictions
Last update 11/28/2011.