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The Reformed Broker

Stop crying wolf about municipal bonds: They're (mostly) fine

Rick Ashburn of Creekside Partners dispels some myths from Meredith Whitney's controversial 'muni meltdown!' call.

By Joshua M. BrownGuest blogger / January 7, 2011

A man waves red flags and cries wolf every day of the week when in reality there are only dogs, cats, bunnies, and sheep; a disbelieving man sits in the background saying 'Yeah, right.' Loud, scary pronouncements turn heads – and headlines – but the truth about municipal bonds is far from the panicked scenario recently presented.

Illustration / Kirk Lyttle / Saint Paul Pioneer Press / Newscom / File

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Big, loud, scary pronouncements are an editor's dream - they bring eyeballs and with them, advertising dollars. What they don't do most of the time is make people money. Someone recently wrote that Meredith Whitney is a "great analyst" because she makes big, bold calls that get people talking. I beg to differ; this is apt only when describing a great pundit, which is different than a great analyst.

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Great analysis comes from being right more than wrong, being lucid when communicating ideas and being considerate of the possibility for variant outcomes. It has nothing to do with bombast.

A good case in point would be the recent municipal bond scare. In a flash, the entire 2.8 trillion muni market was thrown into chaos when some hyperbolic statements were made by several analysts. In reality, the municipal bond category is made up of all different types of credits with different risks and structural characteristics.

So with that in mind, here is some insight into the controversial muni bond market from someone who speaks with the intention of illuminating rather than getting attention.

Rick Ashburn of Creekside Partners dispels some myths from Whitney's controversial muni meltdown call in a Reuters piece:

It was the best of times. It was the worst of times. If you’re a muni bond investor, you’re probably wondering what time it really is. If you listen to recent commentary by Meredith Whitney and Peter Schiff, it’s the worst of times and time to get out of town with your head still attached.

Without delving into the qualifications or experience of these two with regard to municipal credit (none), I instead offer some sensible analysis of the muni bond market. The muni bond market breaks down into two very distinct types of credits. Some bonds are at risk in tough times; others really are not. The categorical tarnishing of all muni credits, as on the recent 60 Minutes segment, is stunningly bad commentary.

Read the rest:

Muni Bonds: A Tale of Two Cities (Reuters)

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