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Gundlach Sees Munis Dropping Another 15-20%, "By The Time All Muni Shoes Drop It Will Look Like Imelda Marcos' Closet"
DoubleLine's Jeff Gundlach appeared on CNBC earlier, and among other things, the muni market was discussed. It appears that the fund manager whom many consider to be roughly in the same ballpark as Howard Marks when it comes to fixed income investing is very much in Meredith Whitney's camp when it comes to his outlook on muni market prospects. Asked by Faber if he believes that munis are ultimately going the way subprime securities did, Gundlach responds "If by that you mean lower, the answer is yes. If you mean crashing, I am agnostic on that." And for all those who love taking out their actuarial tables and their historical default data to refute what is simply common sense, Gundlach has a few words as well: "I don't think you need to know what the default rates are going to be, or need to know how low low is, munis are going to go down. There are going to be other shoes to drop. There might be so many it looks like Imelda Marcos' closet when all the shoes drop because all the states have to deal with this stuff.... Between here and the endgame lies the valley and the valley is full of fear. And I think the muni market is going to go down by at least 15 to 20%. At least." As for Kaminsky relentless advocacy of munis, this time coming out with the always disingenuous "hold to maturity" defense, Gundlach simply made a mockery of that whole spiel: "You know what the definition of an investor? It is a trader who is underwater. People say they hold to maturity until they get scared and sell. It gets scary when the prices start to drop. The fear factor here is going to be palpable." This is probably the single smartest statement ever made on CNBC, where for once a guest actually replied with what is elsewhere known as common sense, instead of ivory tower economic theories that work everywhere but in the market (yes, stocks just like housing can only go up, until they can't). Aside from that cue the congressional subpoena.
And while Gundlach is bearish on munis and pretty much everything else, with an S&P 500 target of 500 "if deflation wins", the ironic thing is that the one asset class he likes, noted in reference to the disclosure on Zero Hedge that PIMCO has sold everything, "now we know who's gonna buy them when the Treasury stops. PIMCO." Perhaps. But that will occur at least 100 basis point wide of here. Otherwise Gross would obviously not be selling into the recent drop.
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Drag him before Congress and mind wash him...immediately!
Additionally, where is the commentary from the Ministry of Truth [CNBC] about how money is rushing into T bills, and therefore is moving out of equities?
How does the layman play this and short the Muni's?
Is there an ETF?
I don't think there is a short muni ETF. If you want to short muni's just short one of the CEF's with a lot of leverage in it. The closed end funds will trade way below NAV if people start panic selling.
dont play this game at all. they change the rules whenever it suits the big guys.
If we abolish the Federal Reserve Corporation, The federal government can borrow money from itself at 0% interest and pay no fees to Wall Street. Real Winning!
Form now on if everyone on ZH refers to the Fed as the "Federal Reserve Corporation", we will raise public awareness with these simple words and the public will learn to hate them more.
If, if, if, if, if.
I'm so tired of seeing "if", "should", "could", "would" on ZH, a site about financial reality, not fantasy.
dont play this game at all. they change the rules whenever it suits the big guys.
MUB u can short dat
The layman plays this by buying Silver; fear and bad news are great drivers for the metals. Silver returns more buying power for you than Gold. "Some" leverage is built in, as well. The metals markets will "over-react" to actual news of a series of defaults and haircuts.
MUB, CMF, MLN, TFI.
10% drop seems more reasonable to me, it's already been kinda "crashy" since October.
And now "we Know" where QE3 will go, eh?!
QE3 = BABs2
Yes. Two great articles I read recently stated 1) the Fed WILL go ahead with QE3 as the other option if they don't is deflation which they won't have and 2) Greece is 5 minutes away from bankruptcy. I feel bad if your name is Leo Kakalakas or you're Greek living in Greece. When Greece falls, they'll be forced out of the EU and that will send the whole country into chaos IMO. GET YOUR GREEK OLIVE OIL NOW!
LONG OLIVE OIL and FETA!
http://fiatsfire.blogspot.com/2011/03/greece-cant-seem-to-catch-break-on...
This guy told the truth, their are so many hidden problems in the states that even the Federal govt. doesn't want to bail them out.
Hey Jeff, there's some Jr. Congressman looking to make a name for himself on line 1. He asked if you're available in a couple weeks.
50-state BKs mean a lot of Wisconsins
Bullshit.
QEIII announced and Munis rally 65% as Ben buys all issuance over par and with reckless abandon.
Nothing goes down ever again....nothing.
pimco might have a different view?
The US Dollar?
Or will Ben attempt to buy Dollars in the open market using... freshly printed Dollars (!), in an attempt to prop up DXY?
That's such a mad plan... it might just work in today's environment.
Shoes to drop? Does this include the Bernank's pumps?
Make sure none of those stiletos pop the stock bubble.
Nice quip using Mrs. Marcos like that Gundlach - way to go!
Nice Imelda Marcos SCUD.
State of California = too big to fail, FAIL
City of Detroit = too crappy to save
Bus Drivers, Teachers, Firefighters, Police, Animal Shelters/City pounds, all will get decimated. But you can guarantee the tax assessors office will be adding headcount.
my muni bond portfolio was up this past month, anyone know how many defaults we've had this year?? anyone?? a decent muni is yielding a whopping 2.4%. this guy is clueless on the muni market
Assuming an inflation rate of 2% that gives a real interest rate of 0.4%. I personally believe that inflation is higher than 2% so the real interest rate may really be negative. And you have default risk and the risk that interest rates may rise if QE ends. They don't seem like a screaming bargain to me. Just saying...
And Brent Crude is up 2.x% today? Silver/gold up... So, how are your muni's holding their purchasing power? Perhaps against the fraudulent CPI...
And just you wait. Just like the Auction Rate Securities, when the rush to the exits comes the TBTF banks will pull their bids and the market will freeze up.
You can actually get more than 2.4%. I'm seeing 2.8% to 3.2% from some very high-quality issuers.
Congratulat ions; you're only losing 3.5% of your capital to inflation; but this year will be worse, of course.
We're not stopping you.
Investing in muni bonds? I might be drunk, but not stupid.
.....patience .........
Either you are waiting until term.. or crying the whole way until then about income loss.. in most cases.
Does laughing at the Imelda Marcos reference date me?
Who?
To move it up a decade or two...he could have used Rue Pauls closet....the transvestite
Additional problem in muni's is secondary market liquidity if you're looking for a bid. About 1K names trade reasonably, and 14K can take a lot of time and no tight spreads.
Word to the wise, watch out for the VRDO resets when their letters of credit don't find renewal at current rates and fees. http://bit.ly/fbuJo3
My mother owns a ton of munis and she is getting worried. She complains that they don't pay very much interest (all the high-interest ones have been called) and the risk of default looks to be increasing. And interest rates may soon go up if no QE3 is announced. I think she is very close to pulling the trigger and selling a bunch of them.
I honestly don't get what the downside is to selling here. I did the same with all of my parents munis in June of last year. Maybe the yield goes even lower, but on a risk vs. return basis, why take the chance?
Deflationists will argue that in terms of capital preservation, earning 2-3% tax free for the next few years will be a huge win. But as we all know, how the hell will most of these municipalities be able to service their debt in a deflationary environment?
I'm sure many distressed debt hedge funds will make a killing trading munis in the near future...just not a grandma with a 5-10 year time horizon.
"Purging is at last at hand. Day of Doom is here. All that is evil, all their allies; your bankers, your leaders, those who would call themselves your judges; those who have lied and corrupted the Earth, they shall all be cleansed." -- Thulsa Doom
I have been reading much as it relates to this, not religious texts, and I look forward to that being the case. At times, I feel so defeated and spent in the fight, but then I get a fresh breath every now and again.
@Gosplan
AMEN
This will be a spiritual reckoning for the decadent, genocidal scum who rule the world and their lemmings (read: redneck "drug warriors" + assorted buffoons).
Strike them down mighty Thor, make them eat shit for decades with the mark of the bankster on their foreheads: 666
"Between here and the endgame lies the valley and the valley is full of fear."
Half a league, half a league,
Half a league onward,
All in the valley of Death
Rode the six hundred.
"Forward, the Light Brigade!
"Charge for the guns!" he said:
Into the valley of Death
Rode the six hundred.
wait until $50 billion in fake state backed tobacco bonds go bust.
Man, between ZeroHedge and all the big brokerage firms, are there any reports that are actually bullish on bonds?
You're still the ace degenerate!
Nice.
On a serious note, David Rosenberg is overall bullish on bonds. David Kotok is overall bullish. There are also many others...Look how many people went after Meredith Whitney! My thought, trading bonds, is that there are very few that are actually bearish. Too many kool-aid drinkers that think bonds, especially munis are the buys of a lifetime right now.
'There's a report out that PIMCO sold all their treasury's.'
This was an exclusive here. See, they read ZH over there.
And here in Europe all the countries are looking into moving federal budgets into regional once just like the US states models...
If you see something is doomed from the begining, COPY IT OVER AND OVER AGAIN!
Jeezz...
But it does protect the union against defaults just like the US. A state can go bust an get a reset while the rest can carry on.
Sorry TD, I don't buy it. Letting quasi-sovereigns like Munis fail will undo the support that Treasuries and MBSs have received from the Fed. The Fed/Treasury will support AAA Munis (and maybe lower) for sure - they will just take their time to blink - so maybe we will see rising yields, but no failure. Will wreak havoc on inflation of course, but that's what real money is for.
Dennis Lockhart (Atlanta Fed President) told me directly in a room full of people that they would not be buying Munis...
So in other words, I'm sure you will be right and they will start buying in the near future.
The logistics of it become much more complicated than by buying agency and Federal debt though since each municipality is a completely different profile. I'm guessing it would take another TARP style program.
Yes they'd have to pick and choose and that would be extremely difficult I can just imagine the municipalities lining up to plead their case of worthiness: "Please Mr. Central Bankster let us live!"
according to financial reporter Ellen Brown, all that has to happen is refinance with 6month or less maturity, and use tax's as collateral, and the Fed already has the mandate to buy local and state muni's, just not the political will.
At first thought I assumed the Fed would jump in this muni market no problem. However, after further thought I realized that letting the munis blowup would be used as justification to expand the federal government(or at least state) and this is something that is a 100% lock goal at all times for TPTB. So ya, I believe Lockhart...they won't be saving the munis.
Supporting the municipalities is a different equation than supporting their creditors.
Under neither TARP nor GM were the creditors seemingly the primary concern of either administration (with the exception of the GS-AIG relationship of course). That may be the best lesson of the previous exercise not to mention a new found public disgust at such conduct.
You are NOT a straight up troll. You just hassle bugs.
Hi.
Mr. G knowz his market.
Great stuff ZH.
Considering munis have had a nice rebound....15-20% isn't news.
new rule...you don't do jail time if you have over $500,000,000
Glad to hear there are at least a couple sane people left on this planet.
Really? Just about everyone and their mother are bearish on bonds.
Market is green, you cannot make this up.
CNBC said it is the greatest bull market run in the last 50 years!
So much for "Double-Dip" talk.
Do you remember what Ben said in 2009?
http://www.huffingtonpost.com/2009/02/24/bernanke-recession-should_n_169...
How about that Hindenburg?
http://www.marketwatch.com/story/feds-bernanke-doesnt-see-double-dip-rec...
Who the fuck am I supposed to believe? I am not a multi-millionarie like the rest of you.
I bought Gold and Silver thinking the dollar was going to collapse!
What is coming!?!?!
time to go on record, folks!
b_B, first you have plenty of company (non-millionaires); secondly, timing is everything.... I'll give you benefit of my hard-earned (costly) experience: if things aren't "working out" [yet] for you, then extend your time-frame. Still gotta stay alert, because the "it" events occur suddenly - such as latest run-up in silver
BB, I dont know about you, but I bought the bulk of my silver at $17. I would venture that I am keeping my purchasing power quite well, thank you. As for the rest of my preps, I would rather have them and not need them than need them and not have them. Hell, I have moved into a new phase of prepping with purchasing large 1000 Ltr water tanks and Im working on a greenhouse setup. Worst case scenario, I'll save a bundle on fresh food and water for my regular garden / fish pond (I am going to be collecting rain water off my gutters in the tanks). So, Im pretty happy with my returns so far and expect the savings to continue into the future.
"don't know about me"?
I memorized my SS# the otherday (As a state government employee I am required to know it by heart).
Would you like me to provid that?
video hits a minute nineteen and then starts over at the commercial. Tried twice now...
Tyler, I sometimes wonder if this is what you want to happen. Maybe you think you are going to be some badass in the "Mad Max" world you seem to think is coming.
It is patently absurd to lump munis together as one asset class when proclaiming the whole lot is tainted. Investing in muni bond funds is perhaps a bad idea (imo) these days. That does not mean there are not munis that are well worth purchasing. General Obligation bonds issued by certain US states (for example) simply can not be compared to munis issued by Vallejo, California (for example) re. the degree of risk they present. Bonds issued by municipalities and states must be evaluated on their own merit. Yes, there really are some munis that deserve AAA ratings. It is incumbent upon the investor to do his/her own DD before purchasing any security.
SO Bernanke saved us from another Great Depression? his thesis was correct?
The worst is behind us?
If so, The laws of Marco Economics have been re-written. The Austrian school was wrong.
Obama will win a second term (easily). So much for his "radical" policies.
<<< SO Bernanke saved us from another Great Depression? his thesis was correct? >>>
I never said or implied any such thing. I have been outspoken against Bernanke's reckless agenda.
<<< The worst is behind us? >>>
I doubt it, but I hope it doesn't end with a rash of bondholders getting wiped out.
<<< Obama will win a second term (easily). So much for his "radical" policies. >>>
I have never declared myself Republican or Democrat. However, I did not vote for Obama, and I won't vote for him next time.
Dear John
Sorry.. you sound like an offended Muni Bond broker.
Experience demonstrates that a AAA bond may pay at the end (maturity) while a BB bond may not. But when the SHTF, all us old hands know that when the bids disappear for BB bonds, they also disappear for AAA bonds. It will be up to the guys holding cash who will begin to bid for the better quality bonds as they sort through the mess that will be the Muni bond market. It is true that those bids for the AAA bonds will be higher than the bids for the BB bonds, but even the seller of the AAA bonds will suffer substantial losses.
If your response is that the AAA bond hold may not have to sell, see the above comments re: Fear!
Bill
Dear Billy Bob,
<<< Sorry.. you sound like an offended Muni Bond broker. >>>
Sorry, but people who think that might try removing the proverbial wax out of their ears and the proverbial birdshit out of their eyes.
I am a retired engineer. I do not trade munis. I buy high quality munis and I hold them to maturity (or until they are called). I don't care if the market value fluctuates day to day. I only care that the municipalities that issued the bonds will make their regularly scheduled interest payments and then return my capital upon maturity (or when the bonds are called). I have owned munis since the 1980s. I have never lost $1 in principal on muni bonds from default, and I have never had any munis that didn't pay their regularly scheduled interest payments ... ever. I slept real well during the last several market crashes.
Obama is a Hero of Soviet Economic Central Planning!
SO Bernanke saved us from another Great Depression? his thesis was correct?
Nope, didn't save us from anything, just stretched it out. Less immediate pain, more long-term pain, doesn't sound like any improvement to me.
The worst is behind us?
Nope, just postponed ...and postponing it makes it worse when it does happen.
If so, The laws of Marco Economics have been re-written. The Austrian school was wrong.
Nope, 2 + 2 still = 4. Laws of macro economics are laws of mathematics, they don't change.
I doubt anyone wants to see what we've got in store, but personally, I am absolutely sick and tired of this continuous line of lies and deception so prevalent in the MSM. It doesn't take much more than 10 seconds to scratch the headline and find IT in reality is a sugercoated version of a much worse scenario than anyone cares to tell you.
We all know the current situation will end in deflation and/or severe inflation (at the very least). It would be nice if TPTB started treating us as adults and/or would stop thinking they can get away with their continuous lies, whilst constructing exit shoots for their connected friends to escape through, when the inevitable shit hits the fan.
Yes, they tell lies. The sad thing is so many Americans are indifferent (and many are uninformed), so the MSM and TBTB get away with it. Let's hope that trend doesn't continue.
I have told many people how much I admire this website. I have no idea what the viewership is on ZH, but I think the site is great.
I was sick and tired too, but you're idea of exit "shoots" cheered me up immediately!
That's exactly what they need :)
Heh, in reality it's me failing to spell "chute" correctly...
JLL asking for what will come is not the same as asking for the worst case scenario. Hoping for the best and preparing for the worst is rational and one can be optimistic that sanity will prevail and greed will lose out. Is asking for markets that aren't manipulated and for banksters and politicians that created and abetted a fraudlent system a Mad Max world?
The Great Depression wasn't Mad Max; bad things happen every day around the globe such is life.
<<< Is asking for markets that aren't manipulated and for banksters and politicians that created and abetted a fraudulent system a Mad Max world? >>>
Of course not. I want to see banksters and fraudsters and Chairsatans locked in a cage.
As an observer, it seems obvious to me that Tyler is heavily biased against muni bonds as an investment class. I think anyone would notice that if they are objective when reading the articles he publishes and his comments. How do you think municipalities will raise money for schools, water treatment plants, roads and bridges, and other public works projects if not through offerings of muni bonds? I would advise that any investor do their DD before buying any asset class, but not all municipalities are Vallejo, CA. If someone thinks this particular asset class is headed for annihilation, they must think Mad Max is on the near horizon.
I disagree it can just be like any asset class that goes out of favor. It will sink and rise again some day.
You believe that while some muni bonds are good investments and some are bad investments, the whole asset class is tainted? I don't.
It's about market perception it's not about what I think. People run when there is a scare it doesn't matter the reason or fundamentals. I don't expect rationality when munis start to get beaten down.
I want to see those guys not only locked in a cage, but in the worst shit hole Federal prisons. There they can drink coffee water out of a tin cup, butter their Wonder Bread with margarine or bacon grease, chew on canned over cooked vegetables and try chewing on the small bits of tough grizzled meat they'll be lucky to get if Bubba doesn't grab it off their plates. :) That would make me put on my happy face.
Some people believe that one arrest and conviction and sentencing of one high profile Wall Street executive would send shockwaves throughout the corrupt lot of them. I want to see somebody do hard time in prison for their crimes.
A perfectly valid reason for lumping all muni bonds together is the recent example of the housing collapse. When enough of a certain class of assets declines, the rest decline with it. Tipping point, critical mass, phase change, crack up, rupture, collapse; any of these new to you? Or the classic: when there is a police raid on a whorehouse, they arrest all the girls. The bears as just as indiscriminate as the police when they conduct a raid.
Assuming the market will discriminate and not mark down the "good" bonds is to deny the term "panic" or "crash". The actions are not "reasoned".
Now is the time to get widows and orphans out of munis, if not months ago. Better a year too soon than a day too late, if you are talking survival mode.
<<< A perfectly valid reason for lumping all muni bonds together is the recent example of the housing collapse. When enough of a certain class of assets declines, the rest decline with it. Tipping point, critical mass, phase change, crack up, rupture, collapse; any of these new to you? >>>
I purchase General Obligation (GO) bonds issued by the State of Texas (for example). How do you suppose those muni bonds which defaulted in Vallejo, California impact the value of GO bonds issue in Texas? I am all ears awaiting your explanation.
Bonds issued by different municipalities need to be evaluated on their own merit. I do not own bond funds. I only buy individual bonds from specific municipalities (or states). I do not buy munis issued by Vallejo, CA or Newark, NJ or any other such municipality that is obviously strapped and poorly managed.
Good luck.
If munis are about to be shellacked, then The Bernank is going to keep printing. Bill Gross's actions suggest there will be no QE3, so he obviously does not agree with Gundlach's analysis. One of these guys is going to be really wrong.
Maybe they are both right. But this time QE3 must come on the tail end of an " event " due to the building political heat. Be patient. It will come when Krugman & Co strike up the band to not let that "event" scuttle the " growing recovery ".
Bernank won't get out front on the next round....he will be forced "reluctantly" haha by the unexpected event. Eventually he has no choice but to start it up again for elections a mere 20 months away. Propaganda always runs into a stale date for the incumbent in an election year.
Tiny, friendly correction for this post: if you're going to use a quote in the headline and then boldface the quoted material in the body of the post, make sure the words match.
Erin would have kicked him off the show for "being rude"...
Erin is smart, but rather dull on the personality side.
Btw, is that how Bill Gross' voice got so high? kicked in the crotch?
Fat wallet pinching the wrong nerves.
why we so ununited,please,visit our page with poll to vote for abolishing or leaving the FED,we glad if you promote us to others,so,we can see what people like us for:
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When Meredith first pointed out the obvious, I mentioned the Tragedy of the COmmons game theory idea that the first state that defaults will get off with the least pain. People pointed out that the first state will be crucified to appease the market gods, and it's the second state that will get off scot free as the dam breaks just afterwards.
SO here is my new general outline of future events:
Meredith??? I love Meredith Whitney! She is pretty and incredably intelligent... Hard to believe she is old enough to be my mommy!
Check out the follow and read the first page of comments.... People are waking up! :)
http://www.youtube.com/watch?v=cZhAXpGOOks
It would be so cool if Fight Club were real and ZH were in it!
Soviet economic central planning is the way and the light, comrades.
Buy Wisconsin munis and Greek bonds!
One good thing is that they are not selling to many new ones....so now they can spend all their revenues on paying off the old ones...LOL..in my dreams
From what I'm seeing here, there, and maybe everywhere, it looks like the memo has gone out.
Poor Gundlach is another dead body among the bears littering Bernanke's Omaha Beach.
He's been screeching for months about this calamity and that, but so far, the top performing sectors off the March 2009 lows have been:
- Financials
- Consumer Discretionary
And despite:
- 12% U6 unemployment
- Millions on food stamps
- Millions of 99'rs
- Imploding housing prices
- $105 crude and skyrocketing food prices
- Various PIIGS countries on the brink of default
- Assorted geopolitical wildfires in the Middle East
- Record snowstorms, solar flares, and volcano eruptions
..............
The XRT is still pinned near 2-year highs!!
Just this year alone, SBUX, WFMI, LULU have completely pounded the perma-scroomer stocks like NEM, GOLD, AEM, KGC, TRE, GSS, etc.
LOL.....
So, no "double-dip" ?
Gundlach's a bond fund manager, dumb shit. He's not buying Starbucks or Newmont.
As a 4'9" guy Robot, do you wear flats all the time or do you have some pump heals as well in your shoe closet?
As they say: "Don't fight the Fed." Bernanke has been like Santa Claus. But it appears to me that if the Fed is really serious about fighting inflation, then QE must end. What happens when Santa shows up and demands his gifts back? He becomes the Grinch.
If QE ends, then interest rates may go up because the Fed will no longer be buying debt. And if QE continues, the resultant inflation will push up interest rates. Either way, I don't think I would want to be holding bonds.
RT's gotta point, but the good times have to end sometime. Maybe he's crawling over the dead bodies on Bernanke's beach before long.
Is it possible that PIMCO mapped out their plan on Feb 23 broadcast?
http://www.pimco.com/_layouts/PIMCOdotCOM/BroadcastModal.aspx?broadcastId=66
hopefully all those shoes are thrown at Bernankes face
Here is the after interview. Very telling.
http://www.cnbc.com/id/15840232?play=1&video=3000009595
More Double Line :
http://doubleline.com/archive/category/articles/
States have defaulted
Jeffrey Gundlach is most probably in the top echelon of credit investors.
According to a 2/21/2011 Barron's cover story he is working with Chicago based RiverNorth to prepare to scoop up closed end muni funds at huge discounts. I am planning to learn more about that and perhaps put some money to work there.
btw, DoubleLine is launching a new Multi-Asset Growth Fund.
Gross's move out of treasuries is something to be seriously pondered over. He sees rates going up. Economy cannot tolerate this, and alot of loans will go bellyup. Maybe the big boys have everyone where they want them, and it's time to execute The Big Short. This time, it's personal.