Gundlach Sees Munis Dropping Another 15-20%, "By The Time All Muni Shoes Drop It Will Look Like Imelda Marcos' Closet"

Tyler Durden's picture

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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Cdad's picture

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?

Pladizow's picture

How does the layman play this and short the Muni's?

Is there an ETF?

Concentrated power has always been the enemy of liberty.'s picture

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.

The Count's picture

dont play this game at all. they change the rules whenever it suits the big guys. 

Michael's picture

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.

cranky-old-geezer's picture

If, if, if, if, if. 

I'm so tired of seeing "if", "should", "could", "would" on ZH, a site about financial reality, not fantasy.

The Count's picture

dont play this game at all. they change the rules whenever it suits the big guys. 

IQ 145's picture

 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.

Panafrican Funktron Robot's picture


10% drop seems more reasonable to me, it's already been kinda "crashy" since October.

TradingJoe's picture

And now "we Know" where QE3 will go, eh?!

jus_lite_reading's picture

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!


Buck Johnson's picture

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.

DonnieD's picture

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.

trav7777's picture

50-state BKs mean a lot of Wisconsins

bob_dabolina's picture


QEIII announced and Munis rally 65% as Ben buys all issuance over par and with reckless abandon.

Nothing goes down ever again....nothing.

InconvenientCounterParty's picture

pimco might have a different view?

EscapeKey's picture

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.

LostWages's picture

Shoes to drop?  Does this include the Bernank's pumps?

Make sure none of those stiletos pop the stock bubble.


bugs_'s picture

Nice quip using Mrs. Marcos like that Gundlach - way to go!

string's picture

Nice Imelda Marcos SCUD.

Josh Randall's picture

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.

I am a Man I am Forty's picture

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

Rob Jones's picture

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...

traderjoe's picture

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. 

Johnny Lawrence's picture

You can actually get more than 2.4%.  I'm seeing 2.8% to 3.2% from some very high-quality issuers.

IQ 145's picture

 Congratulat ions; you're only losing 3.5% of your capital to inflation; but this year will be worse, of course.

EscapeKey's picture

We're not stopping you.

Investing in muni bonds? I might be drunk, but not stupid.

JW n FL's picture

Either you are waiting until term.. or crying the whole way until then about income loss.. in most cases.

Mr. Poon's picture

Does laughing at the Imelda Marcos reference date me?

youngman's picture

To move it up a decade or two...he could have used Rue Pauls closet....the transvestite

Cleanclog's picture

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.

Rob Jones's picture

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.

43 Steelie's picture

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.

GOSPLAN HERO's picture

"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

Dr. Richard Head's picture

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.

zaknick's picture



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

Misean's picture

"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.

bigking12345's picture

wait until $50 billion in fake state backed tobacco bonds go bust.

Johnny Lawrence's picture

Man, between ZeroHedge and all the big brokerage firms, are there any reports that are actually bullish on bonds?

Robot Traders Mom's picture

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.

AntiMort's picture

'There's a report out that PIMCO sold all their treasury's.'

This was an exclusive here.  See, they read ZH over there.

Sudden Debt's picture

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!


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.


simon says's picture

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.

43 Steelie's picture

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.