When the negative headlines start gaining steam in a particular financial arena, it’s usual an area to watch for opportunities. When the Eurozone was getting crushed with negative press back in May and June, it provided a nice opportunity to play the bounce. Now we are seeing similar reports come out about the municipal market in the United States and it will be interesting to see just how far it goes.
The problem with Nassim Taleb, Nouriel Roubini, and possibly Meredith Whitney is that when you become well known for a rather prescient forecast, it almost becomes an expectation that you will predict the next unraveling. If you do not remember Meredith Whitney, she was an analyst who turned on the siren about Citigroup back on October 31, 2007 – back when the stock was trading 10 times its current level. It turns out that on 60 Minutes, Meredith has turned her gun sights on the Muni market:
“Next to housing this is the single most important issue in the US and certainly the biggest threat to the US economy. There’s not a doubt on my mind that you will see a spate of municipal bond defaults. You can see fifty to a hundred sizable defaults – more. This will amount to hundreds of billions of dollars’ worth of defaults.”
So she it basically suggesting that many large municipalities in multiple states will default, something that is a bit hard to imagine. Do not get me wrong, there will be defaults and it will get ugly in some states and specific municipalities, but doomsday just might be averted. Just remember that when you want to sell your advisory services or your new book, it is best to get in the media spotlight by being an alarmist.