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Not much of a visionary

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* Banking analyst Meredith Whitney boldly predicted “50 to 100 sizable defaults” by states and municipalities amounting to “hundreds of billions of dollars” when she was on 60 Minutes in December. The prediction set off a firestorm, with billions withdrawn from muni funds since then. But as I told subscribers yesterday, Bloomberg News has completely undercut Whitney’s claims by using her own research.

The news service got ahold of a copy of Meredith’s publication (annual subscription rate: $100,000) upon which her claims to 60 Minutes were based…

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. […]

Her report, on page 2, says “debt service at the state level is not something we believe is at risk” [Emphasis added]

* 60 Minutes billed Whitney as a visionary, but her record is unimpressive…

Bloomberg News reported in October that about two-thirds of her stock picks since starting her company in 2009 had fared worse than market indexes. Visa Inc. fell 14 percent after she called it her “single best buy,” and Capital One Financial Corp. tripled after she urged clients to sell.

She was also far from the first bank analyst to predict doom for Citigroup, contrary to the 60 Minutes profile.

In other words, move along, nothing to see here.

posted by Rich Miller
Thursday, Feb 3, 11 @ 7:14 am

Comments

I predict that every single state will default on its bonds as of Jan. 1, 2013, based on my insightful analysis of the Mayan calendar. Can I be on 60 Minutes now?

Comment by soccermom Thursday, Feb 3, 11 @ 7:31 am
It sounds like something the SEC should investigate, as there actually could be more to the story. Remember all of the big investment banks that were touting mortgage bonds to their clients while betting against them with their money before the collapse?

I’m just saying.

Comment by Don't Worry, Be Happy Thursday, Feb 3, 11 @ 7:37 am
==“a restructuring certainly counts as a default”==
Is it me, or is the life cycle of revisionist history getting much shorter?

Comment by FKA Vote Quimby! Thursday, Feb 3, 11 @ 7:40 am
I thought it was interesting that she’s married to a WWE star. She’s basically using the professional wresting over-the-top smackdown marketing in the financial realm to position herself as the world champion.
Does it work? It got her on 60 Minutes.

Comment by Michelle Flaherty Thursday, Feb 3, 11 @ 7:43 am
$100,000 a year. Wow. Rich, you need to raise your rates.

Comment by cassandra Thursday, Feb 3, 11 @ 7:48 am
Every time something like this moves a market, there’s a winner for every loser. If you were short on munis, you probably did just fine, whether the information that prompted the move was credible or not.

Comment by wordslinger Thursday, Feb 3, 11 @ 8:14 am
Hey Word — saw that OP schools are closed again, thought of you. And smelled oranges…

Comment by soccermom Thursday, Feb 3, 11 @ 8:18 am
LOL, there’s a sack of oranges on the counter. You know what happens when oranges are in the scene. And, to borrow from a snowy movie, I noticed my ax hanging conspicuously large in the garage yesterday.

Have to bail today while they’re still sleeping. All work and no play makes Jack…..

Comment by wordslinger Thursday, Feb 3, 11 @ 8:24 am
$100,000 a year for a subscription to Whitney’s newsletter? Does she publish it on gold-leaf paper and print it in diamond dust or what? Makes National Journal (at more than $600 per year) look like the Thrift-T-Nickel or Penny Saver or whatever. And I guess they are probably about worth as much.

Comment by Secret Square Thursday, Feb 3, 11 @ 9:06 am
I saw a study where an experiment used chimpanzees to choose stocks/bonds. Chimps made pick by smashing bananas on sheets of paper. Their picks worked out much better than this fool.

When can someones’ reckless disregard for the truth on such a large scale (60 minutes? - Don’t they vet their guests before championing them?) be subject to investigation/sanctions, etc?

Comment by dupage dan Thursday, Feb 3, 11 @ 9:59 am
Just sorry to see 60 Minutes sink this low. Starting to feel like an old friend who became cynical a few years back: “Don’t believe anything I hear; and only half of what I see.”

Comment by wordonthestreet Thursday, Feb 3, 11 @ 10:03 am
Today’s WSJ reports AG in several states are now after some big banks for screwing pension funds on foreign currency transactions….it is about time someone hold these mopes feet to the fire.

Comment by CircularFiringSquad Thursday, Feb 3, 11 @ 10:26 am
Seriously, $100,000 for an annual subscription to the modern-day Nostradamus’s newsletter? That’s all I could think about reading this too.

Comment by Bring Back Boone's Thursday, Feb 3, 11 @ 10:44 am
Just remember Word: YOU are the caretaker. You’ve always been the caretaker.

Comment by Way Way Down Here Thursday, Feb 3, 11 @ 12:15 pm
Whitney can be acussed by the SEC as being the perpetrator of a “bear raid” which is illegal. Specifically a bear raid is the illegal practice of attempting to push the price of an investment lower by taking large short positions and spreading unfavorable rumors about the target firm I hope they (SEC)let her “twist slowly in the wind”.

Comment by Frank Thursday, Feb 3, 11 @ 12:39 pm
I used to have a very high opinion of 60 Minutes. Then, about 25 years ago, they did one of their stories on something I actually knew a fair amount about, and believe me, there story was a joke. I don’t pay any attention since then. This sounds like more of the same.

Comment by steve schnorf Thursday, Feb 3, 11 @ 1:52 pm
OK Schnorf, I can’t help myself. What could the focus of that 25-year-old 60-minutes piece have been?

A. Illinois lets temporary tax hike expire.
B. George Ryan ponders bid for Secretary of State
C. Beards make comeback in government financial fashion world.

Comment by Michelle Flaherty Thursday, Feb 3, 11 @ 2:07 pm
Sounds like she did pretty good for herself.

One quick way to profit if you’re a high profile hedge fund manager:
1. When times are good, buy up huge positions in investments that the lemmings (by the way, we’re the lemmings) flock to when times are bad.
2. When times turn bad, sell your position in said investments at a huge gain.
3. Take up a huge short position in one of these investments that are now bubbling due to all the lemmings buying up said investments.
4. Go on tv and declare DOOOOOOOOOOOOOOOOOM for said investment.
5. Laugh all the way to the bank while the lemmings crash the value of the investment whilst panic selling.

IOW, she knew what she was doing when she forecasted doom and gloom for Muni’s. And the lemmings followed as the always do (whether individual investors, or the morons at the rating agencies (Moodys, etc) or the mutual fund managers who always seem to be behind the times (mostly because they’re helping the Whitney’s, the Paulson’s, and the Magnetar’s of the world make their megagazillions).

Whenever someone predicts doom and gloom for some investment, I hold. Whenever someone screams buy now, I sell or stay the heck away. So far, I’ve been pretty much ahead of the trends.

Comment by jerry 101 Thursday, Feb 3, 11 @ 3:01 pm
Discount her opinion if you wish, but if you want to know how much clout she has, look at the drop in muni’s since her call.

Comment by Doug Thursday, Feb 3, 11 @ 3:37 pm
===but if you want to know how much clout she has, look at the drop in muni’s since her call. ===

Yeah. Chicken Little had clout too. So did that boy who cried “Wolf!”

Comment by Rich Miller Thursday, Feb 3, 11 @ 3:43 pm
–Discount her opinion if you wish, but if you want to know how much clout she has, look at the drop in muni’s since her call.–

Yeah, going on 60 Minutes will do that. But for every loser, there was a winner. Kind of like Morgan Stanley flogging mortgages to their customers, but going short with their institutional money.

Winner (Morgan Stanley, even after all the fines), loser (their customers who trusted them).

Comment by wordslinger Thursday, Feb 3, 11 @ 3:50 pm
Good job pointing out what Meridith Whitney really is….I hope this article gets wider distribution, somehow. Makes me sick how much favorable attention she gets from CNBC.

Comment by JoeVerdeal Thursday, Feb 3, 11 @ 4:00 pm
She is getting called to testify in DC to explain her call.

—Meredith Whitney has been called to appear as a witness at an upcoming hearing by the U.S. House TARP oversight subcommittee, Fox Business Network’s Charles Gasparino reported Thursday.

Gasparino cited sources as saying the financial analyst, whose prediction of potential defaults totaling “hundreds of billions of dollars” is widely blamed for the recent selloff in municipal bonds, has declined the offer to appear at the Feb. 9 hearing.

The Financial Services and Bailouts of Public and Private Programs subcommittee, chaired by Rep. Patrick McHenry, might subpoena Whitney and the report in which she apparently made the prediction, Gasparino said.

Attendees at the hearing will include “experts who disagree with” Whitney’s call, according to Gasparino.

—–

So, since she is a bear on Muni’s, she getting treated to a forced trip to DC.

The overlords don’t want anyone to be bearish….

Comment by Doug Thursday, Feb 3, 11 @ 4:01 pm
===treated to a forced trip to DC.===

She declined, so she’s not being forced to do anything. Try not to be so overly dramatic. Also, try to look at what she wrote vs. what she said.

Comment by Rich Miller Thursday, Feb 3, 11 @ 4:05 pm
–The overlords don’t want anyone to be bearish….–

Yeah, those North Carolina GOP Congressmen are regular Bolsheviks.

After our shared life experience since September 2008, wouldn’t a wee bit of questioning and oversight — any questioning and oversight — of the financial Masters of the Universe be in order?

Comment by wordslinger Thursday, Feb 3, 11 @ 4:10 pm
MF, it was regarding deinstitutionalization of persons with developmental disabilities, and it may have been closer to 30 years ago.

Comment by steve schnorf Thursday, Feb 3, 11 @ 4:53 pm
D’oh, that was going to be D.

Comment by Michelle Flaherty Thursday, Feb 3, 11 @ 4:58 pm
I don’t know how she tried to quantitate the 50-100, but she is essentially correct.

With the exception of Japan, most governments collapse, a al Greece, when debt exceeds GDP. The US is around 96%. Illinois and California are disasters and are going to be pounded by the capital markets in the next few years.

Defaults will occur, but they will be called something else. The Federal Government may continue their backdoor bailout with the “Build America” bonds.

Personally, I don’t think the risk of munis is work the risk. I would stick with investment grade bonds.

The can being kicked down the road is heading to a cliff.

Comment by Barton Miller Thursday, Feb 3, 11 @ 11:53 pm
–Personally, I don’t think the risk of munis is work the risk. I would stick with investment grade bonds.–

Contradictory statement. The vast majority of U.S. munis are investment grade. All state GO munis are investment grade.

The lunacy continues. Historically, Moody’s has the default rate on investment grade muni debt at 0.07% (bonds, muni bonds), S&P at 0.20.%. Non-investment grade muni default rates are 4.29% and 7.37%, respectively.

Defaults on comparatively rated corporate bonds are exponentially higher in both cases.

But if you stampede the herd, you can create opportunities. Take the money you made shorting and buy.

Comment by wordslinger Friday, Feb 4, 11 @ 6:46 am
BM, do you know much about “investment grade bonds”? Doesn’t appear you do and are simply repeating weird talking points.

Comment by Rich Miller Friday, Feb 4, 11 @ 7:00 am
Oh, wait. I get it now. You’re from New Jersey.

Doing a bit of advance work for the guv?

Comment by Rich Miller Friday, Feb 4, 11 @ 7:02 am