The Municipal Bond Bomb!

Posted: March 31, 2012 in Economics
Tags: , ,

I havent spoken of this alot but everyone looks at the U.S. Federal Debt and is worried, as they should be.  But i think the true tipping point for our economy and the first of the dominoes to fall will be the city, state and municipalities.  The total owed by states and municipalities is 2.8 trillion.  YES THAT IS 2.8 TRILLION DOLLARS FOLKS!  now this is a huge issue!

Harrisburg, PA has openly talked of Bankruptcy and recently Stockton, CA has been a breath away from the largest U.S. city in history to declare bankruptcy. Detroit, San Diego, NYC are all near this as well.

Recently cities have been playing the financial worlds version of gambling and taking large high interest loans that do not need voter approval to help plug shortfalls in their pension funds.


This will be catastrophic for millions of Americans, those who have their savings, and retirements caught up in city pension funds will lose all or most of their savings if these cities go down.  its sad to see, but its not the politcians who lose out.  Im not a particular fan of Unions as a organization, but these poor workers have their life savings in these programs and they were bet on and pilfered to fund billions of dollars in pet projects, social welfare and other programs in those states.

Government never spends within their means, they never save, and always find a use for money they have and worse…money they dont have.

I recommend that you look into getting into hard assets now, dont wait until its too late, put some (10+%) in gold and silver, food, hard assets like land that is cultivatable and yes…even cash (money is still worth something! and still pays bills).

muncipal bond debt time bombt


SAN DIEGO ( – If there’s one great thing you could say about low interest rates it’s that they’ve given a lot of over indebted states time to get their financial house in order. That’s the good news. The bad news that is states, even with the help of rock bottom borrowing rates, are still spiraling.Is the municipal bond market a ticking time bomb? Let’s analyze the situation.Wall Street’s Three MusketeersThe failings of today’s U.S. credit rating regime, a monopoly of three musketeers, are no secret. A lack of foresight by Fitch Ratings, Moody’s and Standard & Poor’s along with pressure from Wall Street’s aggressive underwriters to assign high ratings to unworthy debt led to billions of dollars in mis-rated mortgage bonds during the 2008-09 financial crisis.These massive conflicts of interest that contributed in part to the crisis continue to plague the entire bond market, including the way municipal bonds are rated.In April, California’s $68 billion of general obligation bonds were moved up from BBB to A-minus by Fitch Ratings despite the fact the state’s fiscal situation is worsening. Granted, A-minus is still the lowest credit rating among 50 states but does it really accurately reflect the danger of lending money to a fiscally challenged state like California?Fitch used the occasion to explain that California’s credit rating wasn’t really upgraded but rather a series of ‘adjustments to denote a comparable level of credit risk as ratings in other sectors.’Maybe it’s asking too much but any ‘adjustments’ or ‘improvements’ in the way credit ratings are assigned shouldn’t result in a favorable score for questionable borrowers. Simply put, credit ratings have followed the same general path as boat building: Amateurs built the Ark but experts built the Titanic.New Animal: The Tie-Dyed SwanNicholas Taleb, a hedge fund manager, popularized the Black Swan Theory in his attempt to explain the existence of unforeseen and unpredictable high impact events. However, classifying future municipal bond defaults as ‘Black Swans’ is probably a stretch. While such occurrences have been rare historically speaking, they aren’t entirely an unknown occurrence which would make them something else.As such, a new animal, the ‘Tie-Dyed Swan’ might be the best description of today’s munibond market.A person could safely argue the flat year-to-date returns for heavily indebted states like California (NYSEArca: CXANews) and New York (NYSEArca: INYNews) are hardly reflective of their underlying fiscal crisis. Complacent munibond investors this time around may be taken surprise by swans with changing colors. (Please don’t mistake these particular swans for the multi-colored peacock used by a certain financial network.) While the tax benefits of owning munibonds have been thoroughly extolled, their true credit risk hasn’t. ConclusionHow far will the crisis of overleveraged states go? And will it spill over into other credit markets? What kind of financial risk is mis-rated munibond debt causing? And will this turn out to be the federal government’s next bailout?In July when munibonds (NYSEArca: MUBNews) were still on a roll and most credit analysts believed the worst was over, ETFguide’s newsletter warned: ‘The state of California’s $20 billion budget shortfall sets the gold standard of what’s become fiscal perversion among state and local government everywhere. The only other place with more financial incompetence per square foot is Washington D.C. Tax revenues are drastically own, yet expenses keep rising at an astonishing pace.’ Beyond that, it covered profit opportunities and strategies for capital protection in the face of the coming hurricane. Are you ready?



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