Huge congrats to Max Abelson and Michael McDonald of Bloomberg, who as far as we know are the first reporters to have gotten a good look at Meredith Whitney’s big municipal default disaster report that has been making the rounds.Remember, Whitney has been going on CNBC, 60 Minutes, and other media talking about hundreds of billions in municipal defaults this year, and she’s been blamed for record outflows from muni funds.
But apparently her actual report that she sent to clients isn’t nearly so dramatic.
A copy of the 43-page report obtained since then doesn’t mention sizable defaults amounting to hundreds of billions of dollars. A person who has seen a long addendum that profiles the 15 top states said that the longer portion doesn’t, either.
“We are not calling for any specific defaults within the scope of this report,” the document says on page 42. An opening summary says there will “invariably” be local defaults, without elaborating.
“A lot of this is, You know it, but can you prove it?” Whitney said Jan. 30 over a breakfast of scrambled egg whites with a chicken-apple sausage, a side of salsa and peppermint tea at the Four Seasons Hotel in Midtown Manhattan. “There are fifth-derivative dimensions that I don’t think I need to spell out to my clients,” she said.
To be honest, we don’t know what “fifth-derivative dimensions” that don’t need to be spelled out to clients actually are, but it does seem weird to say something different on TV than in the actual report.
So we’re left in the same boat we were in before. We’re getting shockingly few detailed arguments from the muni-bond crisis team, and very good arguments from the side that says, yes, there will be problems but it won’t be a huge crisis.
In the meantime, the average investor dumps their munis, while the smart money is seeing fat yields.