Came into work this morning and was wondering why my company’s stock (big bank) was down. Look at the news and see the title “Wall Street’s Biggest Layoffs Yet to Come, Meredith Whitney Says.” She made one good call over 5 years ago and none since. Completely wrong about the muni market.
I don’t cover financials and I’m probably giving her too much credit but wish she would just go away.
.
Our firm was launching a CEF hy muni at the time of her declaration of defaults. Our PMs loved her for the discounting pricing.
she’s a prime example of milking something as much as possible.
Like Paulson, one trick ponies.
And Nouriel Roubini.
Thought this thread was about me but turns out it’s muni and not numi.
Apparently, her firm is not doing too well. Half of her original clients have left, and her staff is down to two people from five. I guess people just get tired of hearing the same thesis for 5 years.
Of course, she is probably already rolling in money…
I need to be a character in the next Michael Lewis book.
I’d still bang her
Yeah, I have noticed that she is way more attractive than she was 5 years ago. I guess leaving a wall street firm was good for her health, but not her career. It looks like she is spending more time in the gym and spa than in front of spread sheets.
Gross
My understanding is that her own research shop was run tyrannically. You can be a tyrannical boss, but if you don’t have credibility for being someone who’s right, it’ll be hard to keep your staff: “She’s horrible to work for, but at least she’s consistently wrong” just doesn’t keep them eager to clock in in the morning.
I have to admit that I am surprised that we didn’t have more muni blow-ups, though, given how cities were spending during the boom based on projections of ever-increasing property tax revenues and (in some cases) sales and income tax revenues. When those plunged during the recession, I was sure we’d see more troubles in muni-land. Not everyone, but enough to scare people and drive rates up. Whitney’s call on munis was wrong, but it was not an irrational call. What happened???
As far as I can tell, what happened to interrupt the story was:
Substantial support from federal and state governments in the forms of block grants and some loan guarantees.
Budget cutting through layoffs of public sector workers freed up cash to service existing debts
The assessed prices on homes for tax purposes tends to be far lower than the true market price. So in bad years it doesn’t go down as much as it goes up in good years, because it’s already artificially low. Thus the fall in home prices maybe wasn’t so disastrous for city revenues.
Fed policy and flights to safety pushing down the base interest rate off of which munis get a spread. So maybe the risk premium did rise, but treasury rates fell to compensate (I would have to see more data to be sure)
Perhaps the maturity of these bonds are long enough that principal repayments have not yet come due, or can be rolled over.
or possibly
Detroit does seem to have special problems, though, given the pension system, the enormous deindustrialization, and the attendant property collapse.
I believe in the long run she will be proven right. I think her call was too early and she made the mistake of putting a time frame. We have seen major muni defaults in past year and the biggest in our history it’s just a matter of time until FED cant control rates anymore.
^ someone’s been reading ZH too much. The fed can do anything forever
The state and municipal pension are far more underfunded than they report. While Corporate pension plans usually discount liabilities by a specified curve, like the Citi AA Corporate Curve, state and municipal pensions are allowed to discount their liabilities by the rate of return they expect to make on their assets. This causes two major flaws in their plan and funded status. 1.) Because they discount their liabilities by the expected rate of return on plan assets, they tend to have an overweight to risk assets in order to justify the higher discount rate, making the plan more risky. 2.) The funded status of state and municiaple pension plans are inflated due to discounting the liabilities at this higher rate. If a legitimate curve with much lower rates would be used to discount liabilities, the actual funded status would make most plans look impaired.
Yes, they can do anything forever but at what cost are they going to be doing that something forever.
^ For a very, very, very long time. We are living in a dead era where people are either underemployed or unemployed. There will be no inflation for longer than you think.
^ Municipalities will not be going bankrupt due to higher rates but rather due to higher pension costs. PSUs (Public service unions) and councilmen have a nice cozy relationship - there is no negotiation as such on employee benefits. Prime examples in California: City of Vernon. County of San Bernadino. City of San Diego. And this is just off the top of my head. San Diego is not bankrupt yet, the other two are. Oh and some small town up in Central California - Modesto, maybe?
What happens to the pensions in Detroit? Will the Federal government step in and honor the obligations?
Take politics out of your answer and I will agree with you. No pension fund manager can meet his/her target return with zirp in place. The unintendended consequence of Mr. Self Righteous thesis that the fed can do anything, forever.