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Muni Market Prepares For "Hundreds And Hundreds" Of Downgrades Tomorrow

Tyler Durden's picture


While the impact on Treasurys as a result of the downgrade may be limited (after all the other side of the Atlantic is about as ugly as the US, so where could $8 trillion in marketable USTs practically go... at least for now), the same may not be said about the far smaller, $2.9 trillion municipal market, which is about to see a blanket downgrade tomorrow as S&P warned on Friday night, and of which Matt Fabian of Municipal Market Advisors earlier said that "There will be hundreds and hundreds of municipal downgrades, which will not do well to bolster investor confidence." The scary bit: "Treasuries may be able to shake off a real impact from the downgrade. Munis I’m less sure about." Indeed, with futures already trading, and most risk assets experiencing a brief knee jerk reaction on a global coordinated PPT response by the G-7, there is still little clear understanding of what will really happen to not only the traditional system but to shadow liabilities such as repos and money markets. And munis are just one part of all of this. So what will happen if tomorrow the muni market starts unravellling, as Whitney, among so many others, has predicted? For that we turn to JP Morgan's Peter DeGroot for some quick observations.

From JP Morgan on munis:

  • Market volatility should continue next week with S&P’s US downgrade following this week’s manic capital market performance
  • Tax-exempt yield movements will likely remain unstable, as dictated by benchmark Treasury yields, despite low long-term new issue volume next week
  • Instability in the US credit may further net outflows in the municipal space. Net issuance, however, remains supportive of liquidity
  • After S&P’s announcement of the US downgrade, expect follow-through on municipals directly supported by the US credit, as well as those highly reliant on the federal government
  • The Central Falls bankruptcy case will be important to follow because of its potential broad implications for local government credit
  • While we have been warning for some time of the elevated strain on local government fiscal positions, Central Falls could potentially have ramifications that could support local credit quality by (i) bringing clarity to the priority of the GO credit, (ii) providing a model for state activism, and (iii) adding steam to the  momentum of some small cities using Chapter 9 to reduce fixed labor costs

What follows for munis as a result of the US rating action:

We anticipate some period of volatile/higher Treasury yields over the short horizon. We do not expect materially higher US borrowing costs as a result of the downgrade given that we do not expect sizable forced selling of Treasury bonds; rate movement of other sovereigns has been muted when faced with similar ratings actions; Treasuries quickly retraced their yield movements following the initial warning by the rating agencies; and the spot metrics for the US are arguably within the range for a AAA sovereign rating (see Treasuries).


We can expect S&P will downgrade all municipals backed by the US credit such as pre-refunded bonds and agency-backed municipal debt. Further, those credits with large fiscal transfer dependencies would also likely see in-kind downgrades. The rating implications are likely similar to those specified by Moody’s in their 7/13/2011 note.


Moody’s suggested moving approximately 7,000 muni bond ratings totaling $130bn, “directly linked” credits in lock-step with the US credit. Moody’s also reviewed “indirectly related” credits and placed five of the fifteen states they rate as Aaa on review for potential downgrade. These would also move in lock-step with the federal government rating.


Issuance limps along in August


The tax-exempt bond market will again take cues from the broader US fixed income markets, based on news of the US downgrade. Yield movements will likely remain unstable, despite low long-term new issue volume. Next week we expect supply of just $3bn based on late adds to the calendar.


Issuance in this range would be the lowest in four months (excluding the holidayshorted week of 7/5/11; Exhibit 3). This follows $4.9bn in primary market supply this week. The largest deal currently on next week’s docket is a $300mn Los Angeles Department of Water remarketing followed by $268mn Florida State Board of Education bonds. The expected light calendar should tick higher as refundings rush to take advantage of fight to quality yield levels if they hold after the S&P downgrade news.


The lack of a primary calendar and investor need for yield against the backdrop of low and dropping highgrade yields provide a fertile environment for  paring typically hard to trade structures and credits. Investors may be motivated to lock in gains on these names and structures while demand is robust to preserve total return performance in the event of an unexpected shift in liquidity between now and year-end.


Municipal fund net outflows resurge on global risk-off trade


Broader credit market uncertainty may prolong muni outflows in the near term.


For the period ending 8/3/2011, combined weekly and monthly municipal reporters registered the highest net outflows (-$232mn) since the first week of June. Highyield funds (-$117mn) and long-term funds (-$726mn) also experienced net outflows. Intermediate funds (+$314mn) enjoyed positive flows for the ninth consecutive week.


Municipal funds who report weekly were also negative (-$861mn) for the period ending 8/3/2011. High-yield funds (-$118mn), long-term funds  (-$732mn) and intermediate funds (-$55mn) all experienced net outflows (Exhibit 4).

And a quick primer on Chapter 9 bankruptcy protection from DeGroot as pertains to not only last week's Central Falls bankruptcy filing, but to what me be "hundreds and hundreds" just over the horizon.

And after all that, the conclusion is that there is no conlusion, and only time will tell what will ultimately happen. That said, anyone actually predicting that a historic US downgrade will have no impact, is an idiot.


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Sun, 08/07/2011 - 21:40 | 1534844 Long-John-Silver
Long-John-Silver's picture

And-it's gone!

Sun, 08/07/2011 - 21:47 | 1534879 trav7777
trav7777's picture

how is this shit relevant?  The states with bad credit are already known...SP follows the market again

Sun, 08/07/2011 - 21:55 | 1534927 wang (not verified)
wang's picture

you want relevant

this is relevant

a window into the MSM PR machine

Sun, 08/07/2011 - 22:25 | 1535033 windcatcher
windcatcher's picture

What you nickel squeezers fail to recognize is the philosophy behind this great debacle:  One must understand your enemy, fascism is their game and Adolf Hitler is there idol.


I collect quotes because quotes summarize a person’s existence on Earth in a few statements.


Here are a few quotes from the great fascist that I am sure you can relate to.


Humanitarianism is the expression of stupidity and cowardice.


Those who want to live, let them fight, and those who do not want to fight in this world of eternal struggle do not deserve to live.


"The receptivity of the masses is very limited, their intelligence is small, but their power of forgetting is enormous. In consequence of these facts, all effective propaganda must be limited to a very few points and must harp on these in slogans until the last member of the public understands what you want him to understand by your slogan."


What good fortune for governments that the people do not think."


Great liars are also great magicians.


Hate is more lasting than dislike.


All propaganda has to be popular and has to accommodate itself to the comprehension of the least intelligent of those whom it seeks to reach.


Demoralize the enemy from within by surprise, terror, sabotage, assassination. This is the war of the future.


Any alliance whose purpose is not the intention to wage war is senseless and useless.


All great movements are popular movements. They are the volcanic eruptions of human passions and emotions, stirred into activity by the ruthless Goddess of Distress or by the torch of the spoken word cast into the midst of the people.


Mankind has grown strong in eternal struggles and it will only perish through eternal peace.


Struggle is the father of all things. It is not by the principles of humanity that man lives or is able to preserve himself above the animal world, but solely by means of the most brutal struggle


Strength lies not in defense but in attack


Demoralize the enemy from within by surprise, terror, sabotage, assassination. This is the war of the future.





The great masses of the people will more easily fall victims to a big lie than to a small one.


The great strength of the totalitarian state is that it forces those who fear it to imitate it.


The victor will never be asked if he told the truth.


Through clever and constant application of propaganda, people can be made to see paradise as hell, and also the other way round, to consider the most wretched sort of life as paradise.


The broad masses of a population are more amenable to the appeal of rhetoric than to any other force. Strength lies not in defense but in attack Make the lie big, make it simple, keep saying it, and eventually they will believe it.


If you tell a big enough lie and tell it frequently enough, it will be believed


The art of leadership... consists in consolidating the attention of the people against a single adversary and taking care that nothing will split up that attention.


The victor will never be asked if he told the truth.


As soon as by one's own propaganda even a glimpse of right on the other side is admitted, the cause for doubting one's own right is laid


The day of individual happiness has passed


"The most foolish mistake we could possibly make would be to allow the subject races to possess arms. History shows that all conquerors who have allowed their subject races to carry arms have prepared their own downfall by so doing. Indeed, I would go so far as to say that the supply of arms to the underdogs is a sine qua non for the overthrow of any sovereignty. So let's not have any native militia or native police. German troops alone will bear the sole responsibility for the maintenance of law and order throughout the occupied Russian territories, and a system of military strong-points must be evolved to cover the entire occupied country." --Adolf Hitler, dinner talk on April 11, 1942, quoted in Hitler's Table Talk 1941-44: His Private Conversations, Second Edition (1973), Pg. 425-426.


The very first essential for success is a perpetually constant and regular employment of violence.


I use emotion for the many and reserve reason for the few.


Success is the sole earthly judge of right and wrong.


Sooner will a camel pass through a needle's eye than a great man be "discovered" by an election?


Is always more difficult to fight against faith than against knowledge


I do not see why man should not be just as cruel as nature. Today I stand here as a revolutionary, it is as a revolutionary against the Revolution.


I believe today that my conduct is in accordance with the will of the Almighty Creator.


Universal education is the most corroding and disintegrating poison that liberalism has ever invented for its own destruction.


He alone, who owns the youth, gains the future.


Do these murderous sociopathic statements sound familiar? They should, Hitler is Obama’s, Bush’s, Bankster’s and the new world order’s Idol and their motivation for the future. Sad but true. Now do you understand how anyone could be so mean!







Sun, 08/07/2011 - 22:44 | 1535095 silvertrain
silvertrain's picture

I got a one to follow those , "no one can take advantage of you without your permission"

Mon, 08/08/2011 - 05:53 | 1536211 goldfish1
goldfish1's picture

It was billed as a day of prayer and fasting to halt America's national decline, and about 30,000 answered the call, flooding into Houston's Reliant stadium for a seven-hour marathon which blended Christian revivalism with hard-headed electoral campaigning.

There was plenty of prayer: some of the faithful stood with arms held high in supplication, others danced trancelike in the aisles and still more lay spreadeagled on the floor.

The rally on Saturday marked another step towards the launch of Rick Perry's presidential campaign

Sun, 08/07/2011 - 23:06 | 1535172 CompassionateFascist
CompassionateFascist's picture

And Adolf's little-known Last Words: "I'll be back, and next more Mr. Nice."

Mon, 08/08/2011 - 00:09 | 1535431 windcatcher
windcatcher's picture

Don’t threaten me you piece of shit! I am lock and loaded and at least I will die honorably.


Sun, 08/07/2011 - 23:26 | 1535287 jplotinus
jplotinus's picture

It is a mistake to claim that "might makes right" to put it no more strongly than that.

Cooperation between and among nations and groups within nations is the right approach to thoughtful resolution of world problems.

Sun, 08/07/2011 - 21:52 | 1534902 Michael
Michael's picture

Total bond market collapse bitches.

Sun, 08/07/2011 - 22:05 | 1534954 indygo55
indygo55's picture

You are back. How are you?

Sun, 08/07/2011 - 23:43 | 1535373 rocker
rocker's picture

Merideth Witney finally gets redemption. 

It seems that the market only corrects after burning shorts instead of reality. No matter where.

Mon, 08/08/2011 - 00:27 | 1535647 SamuelMaverick
SamuelMaverick's picture


Sun, 08/07/2011 - 21:55 | 1534923 Mr Lennon Hendrix
Mr Lennon Hendrix's picture

It's called a changeover.  The movie goes on, and nobody in the audience has any idea.

Sun, 08/07/2011 - 22:23 | 1535025 snowball777
snowball777's picture
"No one really knows that they've seen it... but they did."
Sun, 08/07/2011 - 21:40 | 1534845 azengrcat
azengrcat's picture

Meredith is WINNING

Sun, 08/07/2011 - 22:04 | 1534952 disabledvet
disabledvet's picture

I hear she's just offered up her services to Playboy to celebrate. The spread is called "The Whitney Estate" and she's even agreed to pen a missive between "shots in the Rolls, shots with the stallion, and shots with a Browning shotgun while various clay pigeons fly about." Sounds exciting--i've ordered a year supply in celebration of the world actually ending.

Sun, 08/07/2011 - 22:58 | 1535144 caerus
caerus's picture


Sun, 08/07/2011 - 22:04 | 1534953 Quixotic_Not
Quixotic_Not's picture

LOL, that's exactly what I said yesterday:

Funny, I haven't heard anyone mention how the downgrade(s) of 'MeriKa's credit rating will effect Municipal borrowing/credit ratings!

I think that by 2011 Q4 Meredith Whitney shall be more than vindicated, and the eco-terrorists for hire, like Krudman and the Bernank et al., will be seen for the traitors they are...

Continuation of cake for the unwashed masses and trillions for the Ivy League tribe?

Sun, 08/07/2011 - 22:27 | 1535038 Id fight Gandhi
Id fight Gandhi's picture

Time for cnbs shit festival of meredith bashing. Who knows if she'll be spot on in her predictions but she takes much more shit for anything so you know it must hit a nerve

Sun, 08/07/2011 - 23:13 | 1535210 narnia
narnia's picture

Meredith wasn't bold enough.  This isn't just a muni problem, it's a state problem too.  

Sun, 08/07/2011 - 21:42 | 1534851 4realmoney
4realmoney's picture

We're going to need lots of Silver Eagle monster boxes to get through all of this.

Sun, 08/07/2011 - 21:45 | 1534871 XenoFrog
XenoFrog's picture

I wish I could afford one.

Sun, 08/07/2011 - 21:59 | 1534944 Forgiven
Forgiven's picture

You can't afford not to get one.

Sun, 08/07/2011 - 23:12 | 1535201 CompassionateFascist
CompassionateFascist's picture

Buy into the dips, 10 SEs at a time; they add up fast. I love the sound of silver in the morning.

Sun, 08/07/2011 - 23:31 | 1535297 Manthong
Manthong's picture

Then buy an empty green box from a dealer (about eight bucks or so) and fill it up over time or make your own version of a green monster box..

you can easily fit 25 rolls of ASE's in a 50 cal. ammo can. 

Sun, 08/07/2011 - 21:42 | 1534855 km4
km4's picture

meredith whitney on muni crisis proved right

Sun, 08/07/2011 - 21:46 | 1534875 oogs66
oogs66's picture

lots of people called it better than her, but who is to complain so long as they go down!

Sun, 08/07/2011 - 21:47 | 1534882 wang (not verified)
wang's picture

such as?

Sun, 08/07/2011 - 22:07 | 1534962 Quixotic_Not
Quixotic_Not's picture


1000% for sure Bob Chapman did...

FWIW, I called all this shit 10+ years ago, but I don't have the time nor inclination to go looking and link it.

P.S.  Bought PMs 2001-2002, still haven't sold em' ;-)

Sun, 08/07/2011 - 23:43 | 1535399 nscholten
nscholten's picture

10 years is not a call. 

Sun, 08/07/2011 - 21:47 | 1534860 TruthInSunshine
TruthInSunshine's picture
Italy, Portugal, Spain, Ireland, Greece, the U.K., France...

....Montgomery County, Alabama, Jefferson County, Alabama, hundreds or thousands of other munis...

...Everyone's in debt up to their eyeballs.

What crisis will be next? Nothing like 1800 crises happening at once to get the QE3 pump primed.

*Don't Panic!*- Scene from Airplane‏ - YouTube
Sun, 08/07/2011 - 21:43 | 1534861 Re-Discovery
Re-Discovery's picture


I guess tonight proves you really can surf a tsunami . . . if your'e a PM investor.

Sun, 08/07/2011 - 21:45 | 1534868 caerus
caerus's picture

meredith whitney bitchez!!!

Sun, 08/07/2011 - 21:46 | 1534876 PaperBugsBurn
PaperBugsBurn's picture



Burn it all down!


Get the fascists!!  BEHEAD THEM!!!  LMFAO

Sun, 08/07/2011 - 22:56 | 1535139 Ima anal sphincter
Ima anal sphincter's picture

Don't laugh.....It's not a joke.

Sun, 08/07/2011 - 22:59 | 1535149 caerus
caerus's picture

is it cool if i laugh at your handle?

Sun, 08/07/2011 - 21:48 | 1534883 Dr Hackenbush
Dr Hackenbush's picture

the entrapenuer spirit in me keeps saying - "start your own rating agency."  

Sun, 08/07/2011 - 21:48 | 1534884 Lmo Mutton
Lmo Mutton's picture

Get that downgrade on like donkey kong.

Sun, 08/07/2011 - 21:49 | 1534885 Ident 7777 economy
Ident 7777 economy's picture



Heng Sen 40 down 2.76% ATTM ...



Sun, 08/07/2011 - 21:49 | 1534889 MAGICWIZARD

money flows to t's....

Sun, 08/07/2011 - 21:49 | 1534890 automato
automato's picture

This is a horrible movie! You know the line from the "American President" when Robin McCall: I think the important thing is not to make it look like we're panicking. 

President Andrew Shepherd: See, and I think the important thing is actually not to BE panicking. Well every time some government bozo or economics clown or wildman from omaha opens their stupid mouth they ALL look like they are panicking. I just wish they would all SHUT THE FUCK UP!

Sun, 08/07/2011 - 21:49 | 1534891 Yen Cross
Yen Cross's picture

  Is it just ME?  CABLE and E/U inverted H/S on  the H-4? Necklines and all>

Sun, 08/07/2011 - 21:51 | 1534896 Blagio
Blagio's picture

Meredith Whitney woke me out of bed to show me this article.

Sun, 08/07/2011 - 21:51 | 1534900 cpgone
cpgone's picture

Meredith Whitney ....WINNING

Sun, 08/07/2011 - 21:58 | 1534935 Yen Cross
Yen Cross's picture


Sun, 08/07/2011 - 21:53 | 1534909 wang (not verified)
wang's picture

Meredith on 60 minutes

actually she never said hundreds of billions within 12 months ie 2011

she said hundreds of billions

and in a different part of the interview said that people would start to worry within 12 months ie 2011

here's the interview from xmas 2010 she is on at the beginning and again starting at the 12:44 mark

Sun, 08/07/2011 - 22:27 | 1535034 Yen Cross
Yen Cross's picture

60 fallacies?  repeat that lost ( L )

Sun, 08/07/2011 - 21:54 | 1534915 vast-dom
vast-dom's picture

Repeat after me: TBT.



Sun, 08/07/2011 - 22:36 | 1535063 Yen Cross
Yen Cross's picture

You have balls!  Mightie small they are. Lets trade1?

Sun, 08/07/2011 - 23:47 | 1535410 rocker
rocker's picture

+TBF and PST.   Just make sure the markets is done going down first.

Sun, 08/07/2011 - 21:55 | 1534926 zorba THE GREEK
zorba THE GREEK's picture

Munis should have been downgraded long ago as most issuers are headed for if not already insolvent.

And unlike the U.S. gov. they can't print their debt away, although at some point I wouldn't be

surprised to see the Fed step in and buy municipal bonds. Why not, they have already purchased worthless

paper from all over the world.

Sun, 08/07/2011 - 22:37 | 1535070 Yen Cross
Yen Cross's picture

sO TRUE! And drill/ baby drill>

Sun, 08/07/2011 - 21:57 | 1534930 Ident 7777 economy
Ident 7777 economy's picture

Courtey of The ONION:



THE MONEY HOLE - allowing free-market choices in the personal choice for the 'money destruction method' of your choice!




Sun, 08/07/2011 - 21:57 | 1534931 Thomas Jefferson
Thomas Jefferson's picture

Does this mean my Newark, NJ bonds are going to collapse?  Should have invested in Baghdad.

Sun, 08/07/2011 - 22:01 | 1534945 Yen Cross
Yen Cross's picture

 WHO suspended BOND SALES?   Who has no credibility on CDS spreads?  It ain't the FED!   ECB and BIS come to mind!

Sun, 08/07/2011 - 22:01 | 1534946 Snidley Whipsnae
Snidley Whipsnae's picture

Meredith was right all along... and those azz hats on MSM that snickered at her during interviews can eat some crow.

Sun, 08/07/2011 - 22:03 | 1534950 Yen Cross
Yen Cross's picture

 I never thought Iwould agree with you!   Plus Infinity!   Nice post!

Sun, 08/07/2011 - 22:11 | 1534976 Quixotic_Not
Quixotic_Not's picture

Unfortunately the snickering asshats are mentally ill with narcissistic personality disorder, so I doubt they'll even recognize there 100% error.

They'll follow their demigods like B. Hussein Obummer, Timmay and Da Bernank all the way into economic armageddon and never realize they made a mistake...

Sun, 08/07/2011 - 22:30 | 1535049 Yen Cross
Yen Cross's picture

  KURT/ I'm the poster child for GOP!  Let's give credit where it's due! Thank you   YEN CROSS!

Mon, 08/08/2011 - 00:02 | 1535507 RockyRacoon
RockyRacoon's picture

Whitney was right without saying how munis would collapse.   I think had she been asked about the S&P move she would have been shocked.   Being right can come about because somebody else makes it right.

Sun, 08/07/2011 - 22:01 | 1534947 tbone654
tbone654's picture

It's not like this just suddenly went Pear shaped Friday...  If you haven't seen this train coming you've been in denial...  And even if you've been talking shit (buy! buy! buy!) because your a salesman, and that's what salesmen do...  You knew these days were near...

Sun, 08/07/2011 - 22:05 | 1534958 gwar5
gwar5's picture



Bad news: All of this is means more taxes to pay for shit they've all committed to. 

Good news: The police state just got a lot more expensive to maintain.


President Barrack Obama emergency announcment: good news and bad news folks --

Good news is we're all going to change our underwear for change you can believe in!

Bad news is Chicago is gonna change theirs with New York, Dallas is gonna change theirs with Miami, LA is gonna change theirs with Boston, .....

Sun, 08/07/2011 - 22:07 | 1534959 Chuck Walla
Chuck Walla's picture

Meredith Whitney is about to be vindicated - big time.

Sun, 08/07/2011 - 22:11 | 1534970 wang (not verified)
wang's picture

Sun, 08/07/2011 - 22:07 | 1534963 wang (not verified)
wang's picture

Rogers on Bloomberg just now

This is not news

when is capitualtion?

who knows

if it does climax I will cover my shorts

six months to a year ahead there is big trouble

if you're a German tax payer

why should you get a bill to pay for some Italians drinking wine on the beach

but I actually own the Euro and the USD

along with gold and silver if things go really wrong

Americans headed for three lost decades

gold and silver too far to fast

hopefully a correction so I can by more

and now Mark Mobius

he agrees with everything Rogers just said  (LOL)

good news for EM is lots of reserves bla bla bla

Sun, 08/07/2011 - 22:22 | 1535024 Muddy1
Muddy1's picture


Are you bragging  "if it does climax I'll cover my shorts?"  Is that appropriate talk for this site?, as in wing wang?

Sun, 08/07/2011 - 22:28 | 1535044 snowball777
snowball777's picture

Premature capitulation.

Sun, 08/07/2011 - 22:46 | 1535104 caerus
caerus's picture


Mon, 08/08/2011 - 00:04 | 1535520 RockyRacoon
RockyRacoon's picture

Electile disfuntion.

Sun, 08/07/2011 - 22:10 | 1534973 Fix It Again Timmy
Fix It Again Timmy's picture

A blitzkrieg of cascading unintended consequences - there's an app for that...

Sun, 08/07/2011 - 22:44 | 1535098 Yen Cross
Yen Cross's picture

 I ;likespinning hard drives! And clouds "GORE"me!

Sun, 08/07/2011 - 22:12 | 1534977 Threeggg
Threeggg's picture

Let's see what Charlie Gasparino say's on Faux Business News about Ms. Whitney tomorrow.

That guy is such a douche !

MSM is going to be on full CYA duty tomorrow for telling everyone to buy the market "DIP" (last week). They will blame it "all" on S&P for the downgrade and the part-time Mathmaticians will be guests all day tomorrow.

LOL what a bunch of shills. !


Garsh, I love to see people eat Crow. !

Sun, 08/07/2011 - 22:46 | 1535107 johngaltfla
johngaltfla's picture

Amen to that. I'd love to see Mr. Whitney jack Gasbag up.

Sun, 08/07/2011 - 22:21 | 1535015 Yen Cross
Yen Cross's picture


Sun, 08/07/2011 - 22:24 | 1535029 Josh Randall
Josh Randall's picture

Bridge Loans will be the order of the day - will this be the way the TBTF's stay around and justify getting bailed out again ? Loan Sharking to States, Locals and muni's ?

Sun, 08/07/2011 - 22:30 | 1535054 snowball777
snowball777's picture

If you're gonna underwrite every shitty mortgage in a state why not the whole damn thing?

Sun, 08/07/2011 - 22:24 | 1535030 Golden1182
Golden1182's picture

meredith whitney will be doing a victory dance next week.

Sun, 08/07/2011 - 22:42 | 1535088 zorba THE GREEK
zorba THE GREEK's picture

I liked her song "Town without pity"

Sun, 08/07/2011 - 22:48 | 1535114 caerus
caerus's picture


Sun, 08/07/2011 - 22:32 | 1535056 Bear
Bear's picture

The downgrade certainly doesn't seem to have impacted bonds much

Sun, 08/07/2011 - 22:41 | 1535083 Yen Cross
Yen Cross's picture

  Good point BEAR!

Sun, 08/07/2011 - 22:48 | 1535115 Tyler Durden
Tyler Durden's picture


Sun, 08/07/2011 - 23:39 | 1535354 jdh2358
jdh2358's picture

30bps.  yawn.

Mon, 08/08/2011 - 00:28 | 1535656 jdh2358
jdh2358's picture

Now 0bps. Flight to quality.

Mon, 08/08/2011 - 00:28 | 1535659 jdh2358
jdh2358's picture

Now 0bps. Flight to quality.

Sun, 08/07/2011 - 22:40 | 1535080 Shocker
Shocker's picture

So are they saying Whitney was right after all this? Sure Sounds that way

Sun, 08/07/2011 - 22:42 | 1535091 Yen Cross
Yen Cross's picture

 Meridith is MUNI!  Let's move on!

Sun, 08/07/2011 - 22:45 | 1535100 johngaltfla
johngaltfla's picture


Bitchez!!!! More validation....

Sun, 08/07/2011 - 22:48 | 1535109 MarkS
MarkS's picture

Why?  Pre-re's are bonds that have a relatively equal number of UST bought to finance their liquidation at maturity. 

Fact is few people actually understand the muni market. Municipalities have the ability to tax therefore they have the ability to raise revenue as needed to fund obligations.  PRe-re's or Pre-Refunded bonds actually have hard assets behind them - 1) UST Tresuries and 2) whatever the original bond indenture had as collateral - G.O. Revenue., etc.

Munis have been some of the safest bond holdings by asset class.  For the 55,000 issues and 1.7T cusips there are only a handful of defaults in the owrst of times historically.

I hope they back up Muni and UST yields - it would be a fantastic buying opportunity.

Sun, 08/07/2011 - 22:59 | 1535146 johngaltfla
johngaltfla's picture

Yes, but is your community, like mine, keeping asset valuations unchanged from 2007 levels for homes that are being liquidated at 60-70% off 2007 appraised prices? We've already been downgraded to BBB and 1/2 the idiots down here think it won't impact their tax bills.

Sun, 08/07/2011 - 23:00 | 1535153 Bastiat
Bastiat's picture

Mark, you are exactly right.  I've been itching to explain defeasance and advance refunding but haven't had the time tonight.  Most bond indentures provide that the UPON DEPOSIT  of the UST paper into the escrow to pay off the old bonds, there is legal defeasance--they are off the books, the old bond indenture is discharged. There is NO ongoing obligation for the municipality to the those bond holders and therefore no impact on the municipality's general credit.  It is a non-event for the issuer.  It's the particular bond issue back by the escrowed UST paper.  Typicall the investor got a windfall when the refunding defeasance got done because the rating on the bond went from whatever-- A, AA or whatever to AAA immediately.  

And you are right: ignorance breeds buying opportunities!

Sun, 08/07/2011 - 23:02 | 1535158 John Law Lives
John Law Lives's picture


Amen!  I am glad someone on this forum understands munis in a broad sense.  Good thing ZH took away the junk button or you (and I) would get junked to death for defending munis.  The anarchists on this site hate munis...

Texas GOs = safer than US Treasuries (imho)


Sun, 08/07/2011 - 23:27 | 1535224 Quixotic_Not
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There was a time in this country post WWII where munies were the safest investment available.

Of course that was before tax receipts fell, perhaps not to return to bubble levels in a generation...

If you feel secure in the full faith and credit of a municipality that has a negative growth tax base, more power to you!

There are of course areas that are exceptions, but is the return on risk really even on those worth it?

After watching the shenanigans in Manhattan federal court since the mid 90s, I have about as much faith in a .GOV issued legal contract as I would in some other Ponzi instrument currently offered financial "professionals".

Honestly, I think most people have no idea how BAD things are out there in stripmall from sea-to-shining-sea LaLa land!

P.S.  I heard you can get some real cheap paper in Greece with double-digit interest rates...better hurry up before they're all gone!!!  LOL

Mon, 08/08/2011 - 00:43 | 1535735 John Law Lives
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Snake Plissken (a.k.a. Quixotix_Not),

<<<   If you feel secure in the full faith and credit of a municipality that has a negative growth tax base, more power to you!  >>>

Texas GOs are probably the most secure munis available.  Do some DD, my friend.  As an FYI, I don't TRADE munis.  I hold to maturity.  Unless the issuer defaults AND the munis I hold are not insured, I don't care if the market value dips tomorrow (or the next day).  I have never lost $1 of principal on munis since I started accumulating them in the 1980s.  Meredith Whitney can kiss my A.R.S.E.

 <<<  P.S. I heard you can get some real cheap paper in Greece with double-digit interest rates...better hurry up before they're all gone!!! LOL  >>>

Feel free to use that paper to wrap your souvlaki.  LOL!

Sun, 08/07/2011 - 23:07 | 1535140 franzpick
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"So what will happen if tomorrow the muni market starts unravelling..."

The authoritative talking heads and their media shills have generally had the power to prevent any sudden public perception of the ultimate worthlessness of federal and state bonds that can never be paid back in an economy facing long-term, 'architectual' austerity changes, where the ongoing decline in personal and corporate income, hence federal and state revenues, will prevent any repayment of exponential bond issue totals incurred during a 60 year fed-sponsored credit-binge.

In November 2010 munis unravelled 10% in 2 weeks, then widespread happy talk prevented further declines over 7 months. Munis now look ready to repeat that performance dropping perhaps another 10% before holders have time to see what has hit them. Rinse and repeat.  Seven or more months of munis then down 20% from Nov. 2010, and muni holders will posthumously earn the 'boiling frog' award for being talked into staying in the financial pot that will ultimately kill them.

My worst fear is that the financial officials have known all along that their best approach to a currency, trade, commerce and consumer collapse resulting from a multi-decade credit collapse, is to prevent public and corporate perception of the ultimate worthlessness of assets, and prevent any unauthorized jumping out of the boiling financial pot to the safety of cash, PMs or other hard assets by the citizen and corporate frogs.

If the governmental and private financial kleptocrats think they have secured their doomsteads on remote islands, I hope they soon wake up from the nightmare of the ultimate arrival of flotillas of heavily armed Somali pirates dropping by for an unannounced visit.  

Futures back to -284, AU heading to 1700; corrupt authorities may soon have to close the equity and muni markets allowing them to freeze 'asset' values, but let's see them close the world gold market.



Sun, 08/07/2011 - 22:59 | 1535148 mayhem_korner
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Stacks of gold coins somehow look "bigger" this evening.

Sun, 08/07/2011 - 22:59 | 1535150 silvertrain
silvertrain's picture

More Tea Party downgrades comming I see..

Sun, 08/07/2011 - 23:20 | 1535251 CompassionateFascist
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Actually, 54 of the 80 or so TP members in the House ended up voting FOR the debt ceiling raise. They're as hopeless as the Demicans and Republicrats

Sun, 08/07/2011 - 23:27 | 1535289 silvertrain
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That maybe so but then why didnt we get a much larger increase in the ceiling? Im not a member but they held the show up..The debt ceiling has been rasied 70 or so times without a peep until the tp shows up?

Sun, 08/07/2011 - 23:20 | 1535249 simple_and_sheered
simple_and_sheered's picture

<p>Germany kicks the stool out from under the Eurozone. Screw you lot of wankers in Brussels, we're not bailing out any more PIIGS. Ve are not your PIIGSY bitchestchweinen!</p><p>Ro Ro, my bond holdings in the Euro are going poof! And what about the Chinese who want to trade oil in Euros? Ro Ro. Better have another global currency, not a USD, not a EUR...</p><p>Now where oh where to stash my stash so it doesn't blow hither thither and yon under the blade wash of The Bernanke's helicopter? Silver, gold? LEAD? Brasil? Whatever, I'm heading for the exits before the door gets jammed full of people trying to flee like they're in a burning Rhode Island nightclub.</p><p>I do believe this is it. The feces are impacting Ben's rotors. The BS is no longer viable... not the MSM spin, the hallunication-induced US employment figures, none of the hacks in DC...</p><p>Stock market is a marionette show, who cares if it goes up or down - it's now basically a source of liquidity for calls on margin for those that had the cohones to leverage PIIGS bonds. Oh this is quite a show, quite a show.</p><p>All the banks of the world, standing knee deep in gasoline, playing with matches in a game of "I'll believe your balance sheet if you'll believe mine, so let's do be jolly old chaps and settle these LOC's shall we now, wut".</p><p>Poof.</p>

Mon, 08/08/2011 - 00:22 | 1535623 Buck Johnson
Buck Johnson's picture

Meredith Whitney sure did call this, and they tried to shut her up by trying to get her at a congressional hearing to essentially berrate her. 

Mon, 08/08/2011 - 00:32 | 1535679 bk1037
bk1037's picture

I agree with Trav, this is not news for anyone who has been paying attention. I am starting to suspect someone is masterminding this whole fucking deal once more, and it is likely someone or a group in the Rothschild clan. None of these spook factors are new issues, PIIGS has been on the radar since the Great Recession began, and Meredith Whitney went on record on this long ago. So WTF is all this analysis concluding that things are falling apart just now, when this shit is hardly new. The fucking market really pisses me off sometimes, I suspect many times it is a manipulative tool by TPTB to extract more from retail investors and other suckers. If you have a stratgey stay with it, if all of this BS spook causes you to lose sleep, get out. It is no worse than 2008, I'm surprised people forget about that this quickly. I suspect many have ADD any more, and no long term perspective. I'm glad Trav called out the relevance question.

Mon, 08/08/2011 - 01:45 | 1535983 boiltherich
boiltherich's picture

Ah, I love the smell of a burning investor class in the morning!

Mon, 08/08/2011 - 02:58 | 1536093 fiftybagger
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Sh*t meet fan

Mon, 08/08/2011 - 06:46 | 1536253 FiatFrivolity
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DAX down almost 3 percent, I'm stocking up on vintage Dan Dare comics, ranch beans and buying silver in anticipation of an imminent market collapse.

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