Jan

16

From today's WSJ:

"One portfolio manager observed that California 6% bonds of November 2039 were quoted at levels cheaper than similar-maturity dollar-denominated debt of Mexico and Columbia."

Noting that these are Dollar-denominated bonds of Mexico and Columbia — I believe that anyone who has a historical perspective sees that Mr Market is in the process of creating an opportunity — which may become even more extreme as the market disciplines profligate muni issuers.

Lastly, and this IS a prediction, should California or any State actually default or restructure their debt, the US stock market and financial companies will not be happy. Furthermore, should a diversified portfolio of muni's yield more than a similar portfolio of corporate bonds, it will attract an entirely new class of investor. We are approaching that point, but are not quite there yet.

Gary Rogan writes:

Meanwhile while the SEC is probing muni prospectuses.

Bill Gross is already well positioned in munis.

This has now become an ugly bailout play where the most well-connected win.

George Zachar writes:

Buying long-dated munis is specifically outside the Fed's black letter authority, as Bernanke noted in his recent Hill appearance.

And with Red State Republicans ruling the roost in the House, any Fed move to bail-out Blue State profligates would be political suicide.

Bernanke has shown himself to be an excellent politician. It's very unlikely he'd make an unforced error of that kind. 


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  1. volatility bounded on January 16, 2011 10:48 am

    It’s possible the Republicans would go along with a bailout for profligate blue states. It is just a question what they would demand in return. For example, California backs the EPA’s regulation of carbon, increases in the ethanol blended into gasoline, etc, and a lot of Republicans hate these things, maybe a quid pro quo for a bailout of California by Congress would be for California to give that up, or other things up.

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