Tuesday , 5 March 2024

Campbell's Critique of Meredith Whitney's Municipal Default Claims

Meredith Whitney has resurfaced on the subject of U.S. Municipal defaults stating that a “tidal wave” of defaults in the municipal bond market is still building and will eventually hit the United States [although her views are at odds with those of] Moody’s Investors Service [who only see] a small but growing number of defaults. [Here is a critique of her latest views.] Words: 385

So says Ian R. Campbell of www.StockResearchPortal.com in his latest Economic & Resource Stocks Commentary which Lorimer Wilson, editor of www.munKNEE.com (Your Key to Making Money!), has edited below for length and clarity – see Editor’s Note at the bottom of the page. This paragraph must be included in any article re-posting to avoid copyright infringement.

Campbell goes on to say:

Remember Meredith Whitney, the New York analyst who about 18 months ago predicted in a CBS’s 60 Minutes interview that waves of U.S. Municipalities would default on their debts in 2011. Now, according to a March 15 article Moody’s Investors Service has reported U.S. Municipal defaults averaged 5.5% in the two years ended 2011, [up from 2.7% in the previous 39 years] and Moody’s expects… “a small but growing number of general government issuers to default on their bonded debts”.

The article reports that in 2011 the municipal bond market…yielded 11.2%. There has to be a market perceived risk/reward relationship that drives such a high (in 2011 U.S. financial market terms) yield. Moody’s and Ms. Whitney seem clearly at odds as to how U.S. economic issues are, and will, play out in the context of U.S. Municipal defaults.

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I do not claim to have an informed opinion on which of Moody’s or Ms. Whitney’s views will prove to be correct. That said, intuitively, I do not discount Ms. Whitney’s current views… [The fact] that Ms. Whitney forecast has proved to be wrong to date…does not mean that whatever analysis she has done to derive her views necessarily will be proven wrong in the longer term.

U.S. Municipal debt and related potential defaults is something to keep central on your economic radar screen…[and] I will report further…[as things develop in this regard].

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Editor’s Note: The above article has been has edited ([ ]), abridged (…), and reformatted (including the title, some sub-titles and bold/italics emphases) for the sake of clarity and brevity to ensure a fast and easy read. The article’s views and conclusions are unaltered and no personal comments have been included to maintain the integrity of the original article.