Friday, May 06, 2011

Meredith Whitney Reiterated Muni Debt Default Warnings At The Milken Conference

Meredith Whitney made news this week at the Milken Conference in Los Angeles. Once again it was on the subject of municipal debt default. I've followed her remarks on this subject in prior posts here, here, here and here.

I saw a brief clip of her response to a challenge from a CNBC reporter, evidently on a discussion panel.

To her credit, Whitney retorted bluntly, stating that, with as much conviction as any position she has ever taken in her career, she believed that munis remain a default risk.

The program on which I saw this featured a pundit who immediately began blathering about how states are balancing budgets and cutting spending. But Whitney has never contended that state governments are the problem, per se.

In fact, in one of the prior linked posts, I noted that she agreed with Warren Buffett that there won't be any state bankruptcies.

No, Whitney has always focused on municipalities. Beginning with the Harrisburg waste facility bond default, she's contended that its many towns and sub-state-level bonds that will have difficulty continuing payments amidst rising pension liabilities and falling tax collections.

Despite the comments of other pundits that economic growth, though slowly, is resuming, and job growth is positive, neither of these are affecting the continuing overhang of unfunded municipal- and state- pension liabilities.

Whitney has always had her eye on the larger picture of overall municipal balance sheets and income statements. Now, with liabilities remaining problematic and gargantuan, while tax receipts continue to track sluggish economic activity, there would seem to be continuing weakness among municipalities. And, thus, continued risks for that sector's bonds.

Time will tell, but, as Gary Kaminsky said, there's no middle ground on Whitney's call. In a few months, a year, we'll know whether she was right, or wrong.

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