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Meredith Whitney's Muni Market Call May Have Just Been 6 Years Too Early

Meredith Whitney's Muni Market Call May Have Just Been 6 Years Too Early

Six years after Meredith Whitney told "60 Minutes" that municipal bonds were the “largest threat to the U.S. economy,” Whitney may finally be starting to feel some vindication. For years, Whitney was chastised by the Wall Street Journal and others for being totally wrong on her call for 50 to 100 “sizable” defaults in the municipal bonds market, but it turns out Whitney may have been early instead of wrong.

Some Serious Insight

“Major municipalities across the United States and other parts of the developed world still remain in financial dire straits despite the post-2009 global market rebound,” Strategic Preservation Partners’ Kirk Bostrom explained.

“For example, large states such as Michigan, Illinois, New Jersey, Connecticut, Nevada even California have significant outstanding debt and unfunded pension liability problems.”

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Puerto Rican municipal bonds accounted for more than $5 billion of the record $5.65 billion in municipal bond defaults through the first four months of 2016.

The Situation At Hand

Things have gotten so bad in Illinois that BlackRock, Inc. (NYSE: BLK) recently urged bond investors to give the state the cold shoulder until it cleans up its act, according to a Bloomberg report.

Connecticut was also recently forced to pay a higher premium on its latest round of municipal bond sales after the state’s debt was downgraded to AA- by both Fitch and S&P, CNBC stated.

Yet, despite the increasing uneasiness in the municipal bond market, the New York Times reported that investors continue to pour money into municipal bonds. In fact, U.S. Bank’s Dan Heckman told the Times back in April that there had been 27 consecutive weeks of inflows into municipal bond funds since late 2015.

For the good of all Americans, we should hope that Meredith Whitney’s prediction of a catastrophic collapse in the municipal bond market is not imminent. However, so far in 2016, her call is looking more and more like it may have been early rather than wrong.

So far this year the iShares S&P Natnl AMT – Free Munpl Bd Fd (NYSE: MUB) is up 1.7 percent.

Disclosure: The author holds no position in the stocks mentioned.


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