Remember when I told you back a couple of weeks ago about a former vice chairman of the Chase bank who proclaimed back in 1982 that the only problem with Mexico was, "A peceived inability to service debt?" For some reason I got up early enough today to catch a fellow named Bob Kurtter, a great high pooh-bah for municipal credit risk at Moody's on CNBC. Sez Bob:
"The problem with municipalities is not debt. The problem is a lack of revenue and too much spending."
I immediately thought to myself, "This guy is going right to the top; vice chairmanship at least if he plays his cards right. It's the best line since '82."
Memo to Bob: If you don't have the revenue and you spend too much and if you have debt that needs to be serviced and refinanced in order to pay the principal back to the creditors, you have a debt problem my friend.
On the other side of the pond, all was stated to be serene as Portugal and Spain, one right after the other laid off a bunch of bonds seemingly at ease. "We had broad foreign purchases," proclaimed Spanish authorities, and Portugal announced that they would not need a bail-out ala Greece and Ireland. Yeah, right.
Honest to goodness, I feel like I'm in a time warp. This all happened before; even the language is the same, only the names have been changed to protect the guilty. If you weren't around in 1982 just think back to 2008 because the stars are all lining up to have a redo of that little clam bank.
Once again, the lovely Ms. Whitney was jabbering earlier this week about major defaults in the muni market. M. Trichet was sounding concerned about the overall state of sovereign risk with the new overlay that the inflation front wasn't looking so hot and he might have to do something with rates. The stock market seems to be stuck in a "buy" mode and the Fed, through the new genius in Boston is still on a buy everything is sight mind set, seeming to ignore the fact that energy prices are moving steadily upward undoubtably because that don't count no how no way in their inflation calculation...just like food by the way...and how's that working out for ya? So here I sit out in the fly-over zone asking myself isn't there anyone out there compairing what's going on today with what happened before or did someone just proclaim that history is no longer a guide to anything and I just missed it?
Look, I don't care if Illinois, California or New Jersey are triple-A rated states or simply junk. I don't care whether Spain has a 2x cover for its bond issue. What I care about is what the MARKET (whatever the hell that constitutes) is doing and saying and what message I can take away from all the actions and commentary.
Spain and Portugal were successes because there is a HUGE bid in the market in the form of the ECB and everybody knows they can get out LIKERIGHTNOW so why not buy in for the fee, hold the stuff for a while and then unload. The states and munis will muddle along for a bit but so far there is no eveidence in a place like Illinois that the real problems have been addressed or for that matter even fully identified; for example the shortfall in municipal pension plans are dramatically understated as a result of overestimations of present and future returns. And so our friend Bob Kurtter can happily point out that Illinois is moving to solve the revenue problem by raising taxes but if Ms. Whitney is anywhere near right and when--not if--the Germans get tired of guaranteeing all of the EU, the markets here and there go all to offered just like before, and the refinancings so essential to the continuance of the process disappear...just like before. The muni market is now north of 5% in yield, and that's just for top RATED issuers. There are thousands of issuers that are not rated at all and yet their well-being, taken together, is just as important as that of the City of New York. The market understands that and is waiting. Let's be REAL careful out there.
See you next week
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