Here is a good segment on CNBC that takes another look at the muni issue which Chris Christie and Meredith Whitney raised on 60 Minutes on Sunday. Benjamin Thompson of Samson Capital says he can’t get the numbers Meredith Whitney used on 60 minutes – 50 to 100 issuer defaults on hundreds of billions of dollars in principal – to work unless we see defaults in several major municipalities.
I haven’t read Whitney’s 600 page muni report but my understanding is that Whitney’s muni research has been more geared to states and that this might be the reason for the large numbers she cites. Also, I have yet to see Whitney say that she expects these defaults to all happen in 2011. Every clip I have seen gives an indeterminate period over which this fallout is expected to occur.
My takeaway from the state and local government financial situation is that there will be defaults. The question is when and in what measure. If we see recovery through to the end 2011 and beyond, there isn’t likely to be a crisis in municipal bonds. And that means long/short relative value plays will open up for dedicated muni investors. But, for the retail investor, the complicated issues in municipal finance represent the potential for serious losses when a spate of defaults does begin in the next downturn.
Below is Meredith Whitney’s riposte to Benjamin Thompson in an interview with Maria Bartiromo, where she defends her muni crisis prediction.