State budgets next crisis?

[Zorrofan]

I haven't posted anything bearish in a while, so here is an interesting report from Meridith Whitney on the next potential crisis in the recovery....

 

http://finance.fortune.cnn.com/2010/09/28/meredith-whitneys-new-target-the-states/

 

cheers

Zorro

[Josh4580]

CURRENT YLD PREV YLD CHANGE 28% EQ YLD 1 WK YLD 1 MO YLD 6 MO YLD

2-Year 0.51% 0.49% 0.02% 0.71% 0.48% 0.32% 0.74%

5-Year 1.23% 1.21% 0.02% 1.71% 1.22% 1.06% 1.85%

7-Year 1.82% 1.80% 0.02% 2.53% 1.80% 1.59% 2.52%

10-Year 2.53% 2.51% 0.02% 3.51% 2.53% 2.31% 3.28%

15-Year 3.51% 3.50% 0.01% 4.88% 3.50% 3.42% 3.89%

20-Year 3.81% 3.81% 0.00% 5.29% 3.80% 3.83% 4.11%

30-Year 4.11% 4.11% 0.00% 5.71% 4.11% 4.08% 4.46%

 

So Equiv Muni Bond Yields range from .71% to 5.71%.  99% of people still consider these muni bonds risk free investments. 

[bargainman]

How does one make a bearish bet on munis?  Is it possible for a small investor to do so?

[SharperDingaan]

 

Keep your cash in T-Bills untill the muni offers a deal that you really cannot refuse.

 

Spain has 20% 'official' unemployment, all the major banks have been forcibly consolidated into just 1 bank, & the state has been forced to impose austerity measures. Not much different from California. The result has been rioting.  http://www.telegraph.co.uk/travel/destinations/europe/spain/8032647/General-strike-in-Spain-to-protest-against-austerity-measures.html

 

Rioting/social unrest is not confined to just Spain. http://www.telegraph.co.uk/finance/economics/8036438/Global-employment-crisis-will-stir-social-unrest-warns-UN-agency.html

 

And even the major countries have been forced to bow to IMF restrictions.  http://www.telegraph.co.uk/finance/economics/8028170/IMF-backs-austerity-plan-UK-on-the-mend.html

 

If you're a cash strapped Muni there are only 3 choices. 1) Buy enough blanket credit default insurance on your debt to cover your rollover exposure, 2) Pay cash interest only (guaranteed by the fed) but not principal, or 3) Default & replace with long-term zero coupon scrip (guaranteed by the fed).

 

If our muni does any one of these, they will have to offer you a lot more return.

All you have to do is wait for 2-3 significant muni’s in the entire US to start the trend, & the media will do the rest. The fed (guaranteed T-Bill) will even pay you to wait.

 

SD

 

 

 

[Josh4580]

Muni bond equiv yields have moved up recently.  2 year bonds currently yield 1% while 30 year bonds yield 6.81% (assumes 28% tax bracket)

 

CURRENT YLD PREV YLD CHANGE 28% EQ YLD 1 WK YLD 1 MO YLD 6 MO YLD

2-Year 0.72% 0.78% -0.06% 1.00% 0.77% 0.70% 0.55%

5-Year 1.75% 1.78% -0.03% 2.43% 1.74% 1.48% 1.63%

7-Year 2.40% 2.47% -0.07% 3.33% 2.43% 2.09% 2.27%

10-Year 3.40% 3.43% -0.03% 4.72% 3.44% 3.07% 3.03%

15-Year 4.15% 4.17% -0.02% 5.76% 4.17% 3.97% 3.84%

20-Year 4.57% 4.57% 0.00% 6.35% 4.57% 4.22% 4.13%

30-Year 4.90% 4.90% 0.00% 6.81% 4.90% 4.55% 4.40%

 

[valuecfa]

Bond Buyers eye Illinois:

 

http://online.wsj.com/article/SB10001424052748703730704576066300865833180.html

 

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http://finance.yahoo.com/news/House-Budget-Chief-Ryan-Says-bloomberg-1592501534.html?x=0&sec=topStories&pos=9&asset=&ccode=