Preserving Your Precious Capital




A Hair-Trigger Alert for Bullion-Watchers

Alasdair Macleod: The noose tightens for gold bears

 

Is HR3808 The Equivalent Of TARP 2 And Obama's "Get Out Of Jail" Gift Card For The High Frequency Signing Scandal?

 

A Q&A Roadmap To European Austerity

 

One Fed To Monetize Them All

 

Guest Post: No Way Out

Jim’s Mailbox

Posted: Oct 06 2010     By: Jim Sinclair      Post Edited: October 6, 2010 at 8:54 pm
Filed under: Jim's Mailbox
Dear Jim,
Meredith Whitney lit up the muni market last week when she wrote an apocalyptic 600 page report on the vulnerability of this market. Following that John Hallacy wrote a retort in his report – I attached it below. There also happens to be a muni bond buyer’s conference here in San Francisco today and tomorrow that Hallacy is attending so hopefully he will follow up with his notes when he gets back to NYC. There are 1000 attendees so I would assume financial conditions and new disclosure rules are being discussed.
Clearly you can make a case that this time is like nothing we have ever seen before but Hallacy’s brief report gives some context to other dire economic eras.
CIGA John

Click here to view Fortune magazine article on Meredith Whitney’s note…

 
John Hallacy’s comments:
Apocalypse Muni?
We believe municipals have developed a much wider audience than ever before. The more accounts and analysts that are poring over the details about municipals, we believe will contribute to a more active market with a higher level of trading. Perhaps, municipals will become even more of a two sided opinionated market than it already has been. We have focused extensively in this publication about the challenges that states and localities are currently encountering. We fully acknowledge that these challenges are mainly financial and economic in nature and believe that more time and creativity is required to solve some of the vexing issues and concerns given the slow pace of the economic recovery.
We know that collectively we are moving away from reliance on ratings. But we remind all that ratings from Fitch and Moody’s were recalibrated earlier this year due to an acknowledgement after a great deal of study and contemplation on their part that the incidences of municipal defaults and bankruptcy filings have been very modest when compared with other markets. For the first three quarters of this year, municipal defaults have aggregated $2.74bn or less than 1% of issuance over the same period. This modest level of defaults is recognized after two of the most stressed years from an economic standpoint since the end of WW II. Development transactions, housing, student housing, and specialized healthcare dominate the list. Mainstream credits do not really appear on the list with any real frequency. We have talked extensively about Harrisburg. We point to Vallejo as an example that municipal bankruptcy is not a panacea. In a bankruptcy case, there needs to be consensus as to a plan that has as its goal emerging from bankruptcy. Generally speaking, most municipalities do not cease to exist. Decertifying a city or county is also a difficult process that is not often resorted to in practice; although, this process was done for a county some years ago in Massachusetts.
The next comment is that citing defaults or the fact that there have only been 616 municipal bankruptcy filings since 1937 provides less comfort for the future. Just to be on record for one more time, states cannot file for bankruptcy. We would like to provide some commentary with a forward-looking focus that is always subject to change. Here are a few themes.
"The federal government will need to bail out the states." We have maintained for some time now that the federal government has already "bailed out" or better said has assisted the states. The ARRA or stimulus provided several different levels of assistance including extending Unemployment Insurance benefits. Additional legislation in the amount of $26bn was approved to provide extension of a higher level of Medicaid reimbursements for two quarters in the amount of $16bn, and for additional education assistance with the remaining $10bn. The real question is will Congress be willing to assist further if such assistance is deemed necessary? This administration has been quite receptive to the needs of the states.
Click here to view the full report…



The Incredible Two-Day Jump in US Treasure Debt