Are Munis Next?

Warren Buffett is all warns of a "terrible problem" of municpal bond defaults as signaled by increasing credit default swap (CDS) spreads. With all due respect to Warren, his worries over the rising CDS spreads in California and Illinois bonds, however, are misplaced. Illinois is in deep trouble, but it is not the next Greece, nor is California about to join Club Med. The Big Picture does a nice treatment on why muni's are not in as much risk as sovereign debt despite scary charts like this one: 

 

Simply put, a State cannot go bankrupt. They can run out of money, as California is wont to do every year, but then they scale back their commitments: first education (50% of budget), then interest on muni's (7%), using California numbers. The shortfall has to be 43% before California muni's get at risk of default. Also, they simply cannot let their State debt go down. Individual cities or districts can, but the State cannot survive without debt. It needs the debt to bridge across sporadic tax collections. I discuss this at length in my longer post, Investing in Munis.

The muni rating agency Fitch recently re-calibrated their ratings, increasing them. As the WSJ reports, Fitch took into consideration the fact that many municipalities are under intense stress, but “historically, the level of [muni] default was very minute as compared to other sectors.” Investors have basically shrugged off the risks, as yields have not moved much in the face of rising CDS spreads (see chart, courtesy WSJ).

To top it off, the Stimulus has provided a large bridge to the States: $135B of the $150B estimated State shortfall will be covered by Stimulus. A lot remains to be drawn down, particularly for education, giving the debt service segment even more leeway. See next chart. Instead of dragging down muni's, State problems will drag down the Federal taxpayer. 

It seems inevitable that Greece and other PIIGS in Poo will default. It turns out sovereign nations tend to default much more frequently than muni's. They have armies and can get away with it. Here is what I wrote as the Greek Tragedy began to erupt and gold began to be hoarded:

What happens when the debts of the issuer are vastly beyond their productive capacity? Well, the country defaults, and the fiat currency is forcibly exchanged for scratch. A 2008 paper by Harvard Professor Rogoff and Prof. Reinhart, both members of the NBER (which calls recessions and recoveries) entitled This Time Is Different demonstrates that instead of fiat regimes making good, they have defaulted over and over throughout eight centuries of financial crises:

We find that serial default [repeated sovereign default] is nearly a universal phenomenon as countries struggle to transform themselves from emerging markets to advanced economies. 

Before we take comfort in the US being already an advanced economy, the imperial power of its day has typically defaulted after over-extending. Rich European countries have defaulted, including Austria, France, Portugal Spain and Germany. The reunified German defaulted in 1873, bringing the whole world into a long depression, including the United States. In the last century, Germany defaulted twice: 1932 and 1939. Russia three times, beginning in 1918. England in effect defaulted in 1931. 

The interesting conclusion: Treasuries, gold and Muni's stack up as the safer places to be. Even corporate debt from quality issuers may prove safer than sovereign debt. 

Comments

[da bear]

anyone subscribe to the Short Term Update?

... I am not sure if this weakness in stocks today means that c of 2 is over, or if just iii of 2 is over.

waiting for this month's Theorist of course, hopefully it will clear things up. Or should I say, hopefully the alternate count clears things up. lol

An end to the stock rally would be a shame sense the rallies in gold, silver, and oil are looking nice with good profit potential.

da bear

[swing waves]

Weakness today is markets sensing the Hurst 5 week cycle low which is somewhere near.

[Trader 123]

Yet another SQUEEZE into the close of trading today with 30 minutes left in the trading session. Looks like the "Witch" might be tipping her hand.

:)

[Trader 123]

"waiting for this month's Theorist of course, hopefully it will clear things up." - da bear

LMAO!!!

[swing waves]

LOL

[da bear]

Trader 123,

What I meant to say was, I will be looking to see if the new Theorist conforms to my wave counts for stocks (basically the Big Tease with a rally into July, I think yelnick said something about it too) and gold (in a final wave 'v' of 5 of B off the Fall 2008 lows with a target around $1,300ish). Oh, and a bottom in 2012 with a target range of the week before the next Batman movie comes out in July 2012.

Finally, someone tell Prechter that the decline from 1930 to 1932 was a WAVE 3 of C decline. Wave 1 of C was the 1929 crash. The first Elliott count showing 1928 as the orthodox top was likely correct. Then that would make sense, and make our own bear market easier to interpret. The rally into 1937 was a Wave 4 (a fill the gap move) with the final wave 5 low in 1938. That is how Prechter gets a 1930-1932-style decline (which took two years) and ALSO a low in 2016 (closer to a 1938-type higher low).

The gold count is very similar to the Seventies gold bull run as depicted in the ELLIOTT WAVE PRINCIPLE. A C wave decline into $600 to $850 in gold would then set-up a rally that could take gold up 7 or 8 times off the low (such as the rally into the Jan. 1980 high). That would be a GREAT Biggie Wave 5 top for gold, probably topping in 2016. The BIGGIE B WAVE TOP would then arrive at the next K-Cycle peak which would coincide with global hyperinflation, but that could come within 20-25 years.

da bear

[Account Deleted]

Dow jones end of day analysis
http://niftychartsandpatterns.blogspot.com/2010/06/dow-jones-analysis-after-closing-bell_18.html

[JT]

This may be the best Cramer monologue ever! lol

http://www.zerohedge.com/article/cramer-calls-market-stupid-rapacious-arbitrary-capricious-and-downright-ridiculous-tells-vie

[Bearoine Addict For A Day]

>>Here's my last chart. I think we have topped,
Roger D.

Posted by: Roger D. | Thursday, June 17, 2010 at 10:15 AM<<

If I were Hank Wernicki I would describe this condition as a child fractal of EWI's Hochberg (Hochberg=Prechter's daily time frame clone that's been known to get it wrong for weeks on end).

But I'm not Hank so I'll just plead with Roger that he not overdose on the bearoine!

Think of your kids and your friends on this site! Don't be a junkie old buddy!

Alright, alright, I confess I just opened a small bearish position (out only for a quick scalp.)

So now I'll just kick back and enjoy the bearoine with Roger till mid-day tomorrow —hopefully I won't take a bad trip.

[Bearoine Addict For A Day]

>>Finally, someone tell Prechter that the decline from 1930 to 1932 was a WAVE 3 of C decline. Wave 1 of C was the 1929 crash. The first Elliott count showing 1928 as the orthodox top was likely correct. Then that would make sense, and make our own bear market easier to interpret.

Posted by: da bear | Thursday, June 17, 2010 at 01:23 PM<<

I TRIED BEAR!

TROUBLE IS PRECHTER IS THE UBEREST-BEAROINE ADDICT OF ALL TIME!

He's not really into "his analysis making sense".

He's more into preaching the real-world have the common sense to conform to his analysis.

—or so he hopes and pontificates —23 years running...

...and the beat goes on ....and the beat goes on...

[Cramer Fan]

Yeah, Good ol' Cramer. One of the highest paid Financial Media Pimps today.

He's also a noteworthy Financial Media Whore, Jester, Stool Pidgeon, Weasel and Lube Dispenserer. I'm sure many would enjoy using that chrome dome of his as a practice soccer ball.

[Cramer Fan]

TROUBLE IS PRECHTER IS THE UBEREST-BEAROINE ADDICT OF ALL TIME!

He's not really into "his analysis making sense".

He's more into preaching the real-world have the common sense to conform to his analysis.

—or so he hopes and pontificates —23 years running...

...and the beat goes on ....and the beat goes on...

Posted by: Bearoine Addict For A Day | Thursday, June 17, 2010 at 01:53 PM

ROTFLMAO!!

But compared to Cramer, at least his allegiance is only too himself. At least you know what you're getting there.

[Chabazite]

I think in the eyes of the world, the jumped up Kangaroo court that has just finished hearing testimony from Hayward (BP) has done the United States an incredible mis-service. It tried to be judge, jury and public executioner all in one sitting. This is not the way of a civilised and rational society. Thankfully it very publicly failed.

[Mission Accomplished!]

Chabazite,

What FANTASY WORLD are you living in???
How is BP not already guilty at polluting the Gulf of Mexico and ruining it for DECADES to come?

BP CEO Tony Hayward was so "lawyered-up" that he had no knowledge of what had happened with the Deepwater Horizon rig. How convenient.

You can take Texas representative Joe Barton of Texas' "slush-fund" remark and shove it where the sun don't shine. He's the biggest recipient of oil and gas money in the House. Since 1989, he's received roughly $1.5 million in funds from the oil and gas industry.

According to your logic, I guess we should go through a big trial that last years before a judgement comes about... that way, all of the people in the Gulf who have had their livihoods ruined can declare Bankruptcy and never get compensated in a timely manner.

You are a moron, Chabazite.
Probably voted for Bush, not once, but twice too!

[GOM]

"I think in the eyes of the world, the jumped up Kangaroo court that has just finished hearing testimony from Hayward (BP) has done the United States an incredible mis-service."

You are a complete idiot.
Now go crawl back into the hole that you came out of.

[Chabazite]

Mission Accomplished - Very unlikely to have voted for Bush since I am not an American National (and if today's performance is anything to go by, then thank heavens I am not an American National). I am however a BP shareholder and have been taking a somewhat more objective view of proceedings over recent days. If you don't understand 'how is BP not already guilty at polluting the Gulf of Mexico and ruining it for DECADES to come' then clearly the state propaganda machine has worked miracles on you since you are blind to the facts. Good luck my friend. With your attitude you will need it.

[Chabazite]

GOM - 'You are a complete idiot. Now go crawl back into the hole that you came out of.' Takes us a long way forward doesn't it.

[Chaby gave me a Chubby]

Attitude!

Mission Accomplished doesn't need no stinkin' attitude!

He gets by on his cavalier shooting from the hip!

Chaby got you good MA/GOM! Even gave me a chubby in the process...

[DG]

Since 1989, he's received roughly $1.5 million in funds from the oil and gas industry.

Who gives a flying fuck? Everyone on Congress is beholden to some private sector industry or another, or, even worse, beholden to the public sector employees unions. Twas ever thus. How the fuck else are you going to run a political system? Unpaid volunteers?

Grow up. In the real world, taking money from an industry isn't ipso facto evidence that the guy is wrong. If it were, every Democrat who EVER spoke on issues relating to the legal industry and anything pertaining to the ABA would be wrong.

[Rally Time]

Get ready guys, market may be about to really punish the bears.

Fear The Monkey!

[Chaby gave me a Chubby]

"Fear The Monkey!

Posted by: Rally Time | Thursday, June 17, 2010 at 05:53 PM "

The only Monkey I fear is Mamma's

[Chabazite]

'Chaby gives me a Chubby' ... Well, I am pleased to know my writings are such a turn on. Never quite considered myself in the same league as D. H. Lawrence, but there again there is no accounting for taste. :)

[Roger D.]

ECRI comes out negative at 10:30est and the market tanks. Lots of selling.

RD

[Chaby gave me a Chubby]

Uhh! He just gave me another one!

[Rally Time]

Where is Mamma Boom?

She has great feel and touch for the market, I hope she sold her short scalps and is back to long.

[Rally Time]

Roger, sell those short positions and get back to long.

You are about to miss a special bull rally that happens once every maybe 10 years.

[Chaby gave me a Chubby]

Yeah, I like Mama'a feel and touch also

[Roger's Bearoine sidekick]

Roger and I are hanging out in the previous thread watching Lava lamps and experiencing the numbing effects of too much bearoine.

We'll just have to miss the special every 10 year rally this time.... ahhhhh!!!!

[Beroine]

"Roger, sell those short positions and get back to long."

Roger's never been long in his entire life.
He's like a broken-clock, just like Prechter and all of the other perma-bears.

[Viper]

Fear. Fear will make wave-watching worthless, and will drive gold to multiples so staggerliciously high that I won't even bother posting them here.

1980 was an appetizer. Dinner will soon be served. Got gold?

[Michael]

"I am however a BP shareholder and have been taking a somewhat more objective view of proceedings over recent days. If you don't understand 'how is BP not already guilty at polluting the Gulf of Mexico and ruining it for DECADES to come' then clearly the state propaganda machine has worked miracles on you since you are blind to the facts. Good luck my friend. With your attitude you will need it." - Chabazite

Interesting perspective.

So does this mean that you don't believe that 60,000 barrels per day of crude oil being dumped into the Gulf of Mexico will do any long-term harm to the environment, let alone the $3 billion dollar per year fishing industry?

And by the way, that 60,000 per barrel figure is one that BP's very own CEO has recently used as an estimate on how much oil can be captured by July. That figure isn't coming from any propoganda machine.

[Hockthefarm]

Chabazite:

I take a longer term view of BP. I think the question facing the American tax payer is whether or not they want a fucking arsehole doing potentially hazardous work any where near their borders:

Alaska: no corrosion monitoring or maintenance.
Refinery: inadequate procedures.
Deep Drilling: cut every corner to save a few MM$.

My view is that once this mess is mitigated as well as can be expected, bp will politely be told to fuck right off. Can you really blame the American people for that outcome. I don't think so.

Hock

[Roger D.]

I was long I think at the 574 low,lol.

Market rise today isn't being confirmed by the ticks. This rally is in it's 9th day and looking tired.

Roger D.

[Roger D.]

Btw if you didn't have a bear on a frozen schtick to kick around. The DAX looks toppy today.

RD

[Rally Time]

This rally is.....looking tired.

There is an old old market saying, it goes like something this.....'you should never short the dull market'.

[usdollar]

Long term we're F. Dow 2000 before Dec. March 2012 Global EMP from sun, no electricity. Dec 21 2012 Polar and crust shift. I belive it is looking pretty bullish out there.

[Michael]

Oxygen levels in the Gulf are being depleted to levels that correspond with "Dead Zones". It's not just oil that is coming out of that well, but huge amounts of methane gas - - - 40% of the oil erupting from the floor of the ocean is emitting deadly methane gas; eight times what is found in typical oil deposits and at a rate of 30 million cubic feet per day.

[da bear]

Viper,

My count has gold in a 'v' of 5 of B off the Fall 2008 lows. So this is a preview of BIGGIE 5 which will start after the next sell-off (possibly into the fall).

It SOUNDS like the B wave rally that Prechter and Frost talked about in ELLIOTT WAVE PRINCIPLE. the one that took gold to new nominal highs, then led to a C wave decline from which the famous rally to $850 was launched.

GDX is having a nice day today. I am also looking at it as trying to put in a 5 of 5 of B off the Fall 2008 lows.

I also think that silver is about to make new nominal all-time highs.

But I still think that the dollar has one last rally left. A rally in the dollar along with a fall in gold and silver will signal that the greatest phase of the deflationary depression is ahead. Then gold will hold up (along with stocks) as everything else falls.

da bear

[Mamma Boom Boom]

>Where is Mamma Boom?

She has great feel and touch for the market, I hope she sold her short scalps and is back to long.

Posted by: Rally Time | Friday, June 18, 2010 at 07:09 AM<

I had a tight stop, so that wonderful idea left me Wed. Never intended to get rid of long positions, just keep adding more. Rally should last for months. Might try another short scalp, late today, if I can get it to look right.

Been real busy with other things, too.

[Trader 123]

Anyone long RIG the last two days?
Up another $4.00 today.

[Roger D.]

This is not good. Can you say Kaboooom. Florida is flat as a pancake too.

It is an overlooked danger in the oil spill crisis: The crude gushing from the well contains vast amounts of natural gas that could pose a serious threat to the Gulf of Mexico's fragile ecosystem.

The oil emanating from the seafloor contains about 40 percent methane, compared with about 5 percent found in typical oil deposits, said John Kessler, a Texas A&M University oceanographer who is studying the impact of methane from the spill.

That means huge quantities of methane have entered the Gulf, scientists say, potentially suffocating marine life and creating "dead zones" where oxygen is so depleted that nothing lives.

"This is the most vigorous methane eruption in modern human history," Kessler said.

http://news.ino.com/headlines/?newsid=689716879283790

[Rally Time]

Latest video from BP...

http://www.youtube.com/watch?v=6IKnpl3eXVA

[Michael]

Yes, Roger.
That is what I posted above.
Thank you for the accompanying web-link.
:)

By the way, for those of you that don't remember the Exxon-Valdez spill very well it took about 16 years for claimants to get paid for their damages (in 2006), and one-third of those claimants had already died by the time payments were made via 1990 "dollars".

I wonder what happens to the tourism industry in Florida once all that oil starts hitting those white sandy beaches with full force.

All because BP wanted to save $7-$10 million dollars.

[Roger D.]

Hi Michael,

I missed your post,sorry. I'm no geologist but that seems to be a very dangerous development. A possible undersea explosion? Tidal wave?

I hope not.

RD.

[Neo]

What about all the methane that comes from Gainesville, GA?

[Ned]

This could be why gold is rising and why we should all make sure we have extra canned goods and fresh water stored:

http://www.godlikeproductions.com/forum1/message1104630/pg1

[Roger D.]

Interesting.

A distribution day?

[Ned]

No, a "run to gold" day. F'ing moron.

[da bear]

It is a "move into metals and keep an eye on oil" day.
The risky stuff is getting a bid.
Usually the "old fogey" stocks turn down before the sexy ones do. So, yeah, that is usually called distribution. However, we have not gotten to "churning" where stocks bounce around back and forth on increased volume without making any headway; that is when stocks move from the strong hands to the weak hands.

Gold is the thing to own for the deflation and the rally after deflation. When the reflation turns to hyperinflation then you wanna be in food and water.

da bear

[RT]

Interesting.

A distribution day?

Doesnt look like it. Distribution days tend to be wild and volatile.

This market is too quiet and dull, looks like sideways correction accumulation pattern.