Tuesday, February 8, 2011

Two More Hit Pieces by Charlie Gasaprino on Meredith Whitney

Just in case you missed Charlie Gasparino's first half dozen, or so, hit pieces on Meredith Whitney, he has two more out today. One at HuffPo and one at NyPo.

I have never, ever, seen such a sustained attack on an analyst. Suffice to say, if Charlie was in charge of the war in Afghanistan, the U.S. Army would be in Belize by now.

The case Gasparino, the author of, Bought and Paid For, makes against Whitney seems to be this: Whitney doesn't know what she is talking about, but the muni bond market might be in as bad a shape as she says.

In NyPo, Gasparino writes:

Meredith Whitney's doomsday prediction that hundreds of billions of dollars in municipal bonds will evaporate in default over the next year has been condemned as improbable to irresponsible by just about anyone who knows anything about municipal finance.
In HuffPo, Gasparino writes that there is no:
...reason to ignore the severe shortfalls in revenues flowing into municipal budgets that are used to pay debt service on municipal bonds. Also, many tax exempt bonds aren't even issued by states or cities, but are issued by companies for public projects that qualify for the same tax-exempt status as municipal bonds, so they are even more risky.

But a little perspective is in order, particularly if your a muni investor and you want to know whether you should have joined the stampede for the exits. Municipals have historically been among the safest investments (very low default rates) because cities and states have some leverage when revenues decline: they can increase taxes or cut the size of their budgets.

Times are of course changing for the worse. Large states and cities can't simply impose massive tax rates on companies and wealthy individuals any longer to pay for the welfare state of entitlements offered in places like New York and New Jersey: rich people and businesses will simply move to lower-taxed states like Texas as they have been doing.
It also difficult just to cut expenses by slashing public-workers from state and city payrolls, or their guaranteed benefits and pensions because the voting base in many fiscally challenged cities and states particularly in the northeast is comprised of substantial numbers of municipal workers.
Got that? This is pretty much Whitney's argument. Her mistake was giving the muni bond crowd rope to hang her with when she stated that 50 to 100 muni defaults will occur this year. As I have stated before, she's probably a little early on her forecast about muni's, but as Gasparino fully admits there is a lot of risk.

The only difference that I can see between Whitney's position and that of Gasparino's is that Whitney is saying bail now and Gasparino is saying, well it might all work out, no need to rush to the fire exits, the fire isn't on our floor yet.

On a scale of 1 to 10 of outrageous statements, Whitney's ranks as about a 2. As I have said many times, I rarely watch CNBC, or any of the others, because of the nonsense that is spewed, mostly by guest analysts. I shudder to think of the bogus information given out by guests that have moved markets, and individual stocks. That the focus on Whitney's comment has now reached the Columbia Journalism Review is astounding. The lesson here is clear: Never cross the muni bond community.

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