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State Budgets

It seems that state governments will provide the next wave of crises to rival that of the Eurozone.  Unfortunately for states, they cannot inflate their way out of debt without help from big brother Federal Government.   It is no wonder that investment banks have tried to get me long the Muni/Libor basis because of the attractive “relative value”.  I have a feeling that they are merely trying to facilitate a way for smart investors to short the municipal/state bond markets.

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Posted in Markets, Politics.


4 Responses

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  1. Randy Woods says

    Ironically, there is an ad in bold letters that promotes the purchase of muni bonds online immediately below your visual aid. Are you “trying to facilitate a way for smart investors to short the muni bond market” by allowing google to promote the purchase of muni bonds to your readers? Buyer beware. Some people are looking out for you (ST); others are out looking for you (Google).

  2. Travis Robinson says

    I’ve heard there are significant limitations on how the federal government can come to the aid of California (just a hypothetical example). Would you happen to be privy to what they can and cannot do when it comes to bailing out a state government? I would imagine a full bailout would wreck any incentive whatsoever for a state to act fiscally responsible.

  3. SurlyTrader says

    I think it will be very difficult for the Federal Government to turn a blind eye to states and municipalities after bailing out banks, general motors, AIG etc. That seems a bit perverse. From an indirect standpoint, they need to spark inflation to make past debts smaller and they need to spark employment so that tax revenues increase. Cross your fingers.

  4. SurlyTrader says

    Google is probably shorting the Muni market. I heard they started up a hedge fund… http://dealbook.blogs.nytimes.com/2010/03/22/google-is-now-searching-for-bond-traders/



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