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I don't get it. Why do investors continue to listen to someone who is consistently wrong on muni market? Yet Ms. Whitney never apologizes for her mistakes.
Before anything else, not saying that what Whitney said came to pass (although I think fundamentals still aren't great), but I'm saying 1:) Why did this call create more upset than...just about any call I can remember in years and 2:) What can be learned about the reality of munis and what Whitney's call caused? (although, like just about everything else in this country, it's more likely Whitney gets the blame and no one learns anything from it.)
lol, analysts get things wrong all the time, although Whitney seems to be taken to task again and again and again for her negative discussion of the fundamentals of the muni market. Should all the analysts who have gotten things large and small ("Buy Groupon, it's going to be huge!") on CNBC apologize? Should CNBC apologize for hyping Facebook 24/7 and then acting like complete "We told you so" a-holes a week later? (Well...)
Hmmm..... what about munis in particular touched such a nerve with people? Congress can't agree on anything, but they summoned Whitney to tell her how dare she say bad things about munis. Don't agree with her don't listen, but I don't believe I've ever seen a call that has made so many people so unusually upset.
Jeff Gundlach had this to say on CNBC last year: "I don't think you need to know what the default rates are going to be, or need to know how low low is, munis are going to go down. There are going to be other shoes to drop. There might be so many it looks like Imelda Marcos' closet when all the shoes drop because all the states have to deal with this stuff.... Between here and the endgame lies the valley and the valley is full of fear. And I think the muni market is going to go down by at least 15 to 20%. At least."
And:
"As for Kaminsky relentless advocacy of munis, this time coming out with the always disingenuous "hold to maturity" defense, Gundlach simply made a mockery of that whole spiel: "You know what the definition of an investor? It is a trader who is underwater. People say they hold to maturity until they get scared and sell. It gets scary when the prices start to drop. The fear factor here is going to be palpable."
Yet, people aren't (and weren't) screaming at Gundlach, "HOW DARE HE HAVE NEGATIVE THINGS TO SAY ABOUT THE PRECIOUS, PRECIOUS MUNI MARKET!"
And from Michael Lewis, "California and Bust": (clips from a longer article, I didn't want to just paste the whole thing here - it's linked at the bottom of the page - highlighted/underlined part I highlighted/underlined) " Inside the financial world a new literature was born, devoted to persuading readers that Meredith Whitney didn’t know what she was talking about. She was vulnerable to the charge: up until the moment she appeared on 60 Minutes she had, so far as anyone knew, no experience at all of U.S. municipal finance. Many of the articles attacking her accused her of making a very specific forecast—as many as a hundred defaults within a year!—that failed to materialize. (Sample Bloomberg News headline: meredith whitney loses credibility as muni defaults fall 60%.) The whirlwind thrown up by the brief market panic sucked in everyone who was anywhere near municipal finance.
Whatever else she had done, Meredith Whitney had found the pressure point in American finance: the fear that American cities would not pay back the money they had borrowed. The market for municipal bonds, unlike the market for U.S. government bonds, spooked easily. American cities and states were susceptible to the same cycle of doom that had forced Greece to seek help from the International Monetary Fund. All it took to create doubt and raise borrowing costs for states and cities was for a woman with no standing in the municipal-bond market to utter a few sentences on television. That was the amazing thing: she had offered nothing to back up her statement. She’d written a massive, detailed report on state and local finances, but no one except a handful of her clients had any idea what was in it. “If I was a real nasty hedge-fund guy,” one hedge-fund manager put it to me, “I’d sit back and say, ‘This is a herd of cattle that can be stampeded.’
“I didn’t have a plan to do this,” she said. “Not one of my clients asked for it. I only looked at this because I needed to understand it myself. How it started was with a question: How can G.D.P. [gross domestic product] estimates be so high when the states that outperformed the U.S. economy during the boom were now underperforming the U.S. economy—and they were 22 percent of that economy?” It was a good question."
“The scary thing about state treasurers,” she said, “is that they don’t know the financial situation in their own municipalities.”
“How do you know that?”
“Because I asked them!”
Actually a terrific - and quite lengthy - piece from famed author Michael Lewis that originally appeared in Vanity Fair. I think parts of it then wound up in Lewis' "Boomerang" book.
Comments
lol, analysts get things wrong all the time, although Whitney seems to be taken to task again and again and again for her negative discussion of the fundamentals of the muni market. Should all the analysts who have gotten things large and small ("Buy Groupon, it's going to be huge!") on CNBC apologize? Should CNBC apologize for hyping Facebook 24/7 and then acting like complete "We told you so" a-holes a week later? (Well...)
Hmmm..... what about munis in particular touched such a nerve with people? Congress can't agree on anything, but they summoned Whitney to tell her how dare she say bad things about munis. Don't agree with her don't listen, but I don't believe I've ever seen a call that has made so many people so unusually upset.
Jeff Gundlach had this to say on CNBC last year: "I don't think you need to know what the default rates are going to be, or need to know how low low is, munis are going to go down. There are going to be other shoes to drop. There might be so many it looks like Imelda Marcos' closet when all the shoes drop because all the states have to deal with this stuff.... Between here and the endgame lies the valley and the valley is full of fear. And I think the muni market is going to go down by at least 15 to 20%. At least."
And:
"As for Kaminsky relentless advocacy of munis, this time coming out with the always disingenuous "hold to maturity" defense, Gundlach simply made a mockery of that whole spiel: "You know what the definition of an investor? It is a trader who is underwater. People say they hold to maturity until they get scared and sell. It gets scary when the prices start to drop. The fear factor here is going to be palpable."
http://www.zerohedge.com/article/gundlach-sees-munis-dropping-15-20-time-all-shoes-drop-it-will-look-imelda-marcos-closet
Yet, people aren't (and weren't) screaming at Gundlach, "HOW DARE HE HAVE NEGATIVE THINGS TO SAY ABOUT THE PRECIOUS, PRECIOUS MUNI MARKET!"
And from Michael Lewis, "California and Bust": (clips from a longer article, I didn't want to just paste the whole thing here - it's linked at the bottom of the page - highlighted/underlined part I highlighted/underlined) " Inside the financial world a new literature was born, devoted to persuading readers that Meredith Whitney didn’t know what she was talking about. She was vulnerable to the charge: up until the moment she appeared on 60 Minutes she had, so far as anyone knew, no experience at all of U.S. municipal finance. Many of the articles attacking her accused her of making a very specific forecast—as many as a hundred defaults within a year!—that failed to materialize. (Sample Bloomberg News headline: meredith whitney loses credibility as muni defaults fall 60%.) The whirlwind thrown up by the brief market panic sucked in everyone who was anywhere near municipal finance.
Whatever else she had done, Meredith Whitney had found the pressure point in American finance: the fear that American cities would not pay back the money they had borrowed. The market for municipal bonds, unlike the market for U.S. government bonds, spooked easily. American cities and states were susceptible to the same cycle of doom that had forced Greece to seek help from the International Monetary Fund. All it took to create doubt and raise borrowing costs for states and cities was for a woman with no standing in the municipal-bond market to utter a few sentences on television. That was the amazing thing: she had offered nothing to back up her statement. She’d written a massive, detailed report on state and local finances, but no one except a handful of her clients had any idea what was in it. “If I was a real nasty hedge-fund guy,” one hedge-fund manager put it to me, “I’d sit back and say, ‘This is a herd of cattle that can be stampeded.’
“I didn’t have a plan to do this,” she said. “Not one of my clients asked for it. I only looked at this because I needed to understand it myself. How it started was with a question: How can G.D.P. [gross domestic product] estimates be so high when the states that outperformed the U.S. economy during the boom were now underperforming the U.S. economy—and they were 22 percent of that economy?” It was a good question."
“The scary thing about state treasurers,” she said, “is that they don’t know the financial situation in their own municipalities.”
“How do you know that?”
“Because I asked them!”
Actually a terrific - and quite lengthy - piece from famed author Michael Lewis that originally appeared in Vanity Fair. I think parts of it then wound up in Lewis' "Boomerang" book.
http://www.vanityfair.com/business/features/2011/11/michael-lewis-201111