Ace of Spades HQ

January 15, 2011

Uh-Oh: Municipal Bonds Market Crashing
— Ace

Three days of crashing, and this is the steepest drop of the three days.

Thanks to Monty.

Posted by: Ace at 07:33 AM | Comments (71)
Post contains 27 words, total size 1 kb.

1 Our country needs help! It's too bad we have to wait until 2012, because it might be too late by then for a turnaround. If it isn't too late, fortunately one or two people out there have proven their ability to turn dire situations around. We need to rally around this guy very quickly and unite against Obama. President Obama will not be easy to beat in 2012, but we can do it if we stand together!

Bring America Back in 2012!

Posted by: Dan at January 15, 2011 07:36 AM (9L1z6)

2 Let's see the powers-that-be try to hide this decline.

Posted by: Kratos (Ghost of Sparta) at January 15, 2011 07:36 AM (c0A3e)

3 All right, then, who needs a t-shirt?

Posted by: Barry Oblahblah at January 15, 2011 07:38 AM (FcR7P)

4 Gee, who'd a thunk it. We have been screaming this was coming for a long time.

Can you say gov bailout? We'll see if Repubs really have any stomach.

Posted by: Vic at January 15, 2011 07:40 AM (M9Ie6)

And earlier this week both Moody's and S&P within hours of each other stated the United States sovereign debt is out of control and if immediate corrective measures weren't taken, the U.S. risked a downgrade from its Triple-A rating with a further assignment of negative outlook status.

As to municipal bonds, even the bond insurers went BK due to their involvement in the derivatives market.

Yet, the liberal econ shills like Paul Krugman continue to support massive government spending while paiting conservatives as the problem.

Posted by: journolist at January 15, 2011 07:40 AM (LwLqV)

6 Federal bailouts will prevent shooting sprees by paranoid schizophrenics.

Posted by: eman at January 15, 2011 07:41 AM (0aJSF)

7
Pay pensions or pay bond holders?

Is that what this boils down to? Make it simple for us, someone.

Posted by: ye olde soothsayer at January 15, 2011 07:41 AM (uFokq)

8 Together We Dive: Our Ideas and Your Money

Posted by: t-bird at January 15, 2011 07:42 AM (FcR7P)

9
In other words, is the market crashing because they anticipate a default on account of the pension obligations?

Posted by: ye olde soothsayer at January 15, 2011 07:42 AM (uFokq)

10 damn, just missed it.

Posted by: t-bird at January 15, 2011 07:43 AM (FcR7P)

11 remember...muni's were the answer?!!!!

Posted by: phoenixgirl at January 15, 2011 07:43 AM (eOXTH)

12 I take this to mean that investors are thinking that Uncle Sugar isn't gonna be propping up State governments anymore and unless these cities/states get their financial house in order, they aren't buying.

Posted by: CDR M at January 15, 2011 11:41 AM (5I8G0)

It's more than that, they are selling big time. Bailing out before the bonds auger in.

Posted by: robtr at January 15, 2011 07:43 AM (hVDig)

13 Here's a quote from WSJ on this:

"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 Colombia and that strong yield pickups could be made by switching out of foreign dollar-denominated sovereigns to bonds of the Golden State."

So Mexico and Columbia are seen as less risky (for default) than The People's Republic of California...wow.

Posted by: BetaPhi at January 15, 2011 07:45 AM (DBr05)

14 When Mad Max times come do we all get motorcycles and muscle cars?

Posted by: eman at January 15, 2011 07:46 AM (0aJSF)

15 Sheriff Dupnik, how could this climate of bond-hate happen? Any ideas on the culprit?

Posted by: CNN Financial at January 15, 2011 07:46 AM (FcR7P)

16 That's so strange that investors have no faith in these big cities that pay every employee exorbitant salaries to do jack shit.

Posted by: Tattoo De Plane at January 15, 2011 07:47 AM (mHQ7T)

17 If I may borrow from zerohedge again, they had an appropriate comment yesterday.

The Fed chairman is 100% confident inflation can be contained. Rapidly spreading rioting (5 countries so far) would take the under on that.

Posted by: Methos at January 15, 2011 07:47 AM (Ew1k4)

Ye Olde Soothsayer - you hiteth naileth on headith.

The liberal machine is a bastardous one that will show no compunction in throwing even municipal bondholders under the bus if it will inure to strengthening the unions.

Posted by: journolist at January 15, 2011 07:48 AM (LwLqV)

19 If we let cities fail, who will drink beer instead of plowing snow? Who will destroy cars with a plow and a tow truck?

Posted by: eman at January 15, 2011 07:49 AM (0aJSF)

20 10 In the case of IL, they are trying to sell bonds to pay pensions.

Watch for Jugears to propose new BABs (Build America Bonds) next week. Alternate name -- state bailout bonds

Posted by: GnuBreed at January 15, 2011 07:49 AM (h0RtZ)

21 This looks like math, which as we all know is racist...

Posted by: CheeseRadish at January 15, 2011 07:50 AM (4ucxv)

22 The Fed chairman is 100% confident inflation can be contained. The Reichsmark is stable now, too.

Posted by: t-bird at January 15, 2011 07:50 AM (FcR7P)

23 So Mexico and Columbia are seen as less risky (for default) than The People's Republic of California...wow.

Posted by: BetaPhi at January 15, 2011 11:45 AM (DBr05)

Real banana republics grow bananas, and that's worth something!

Posted by: Tattoo De Plane at January 15, 2011 07:50 AM (mHQ7T)

24 3 Funny the MSM hasn't been reporting on this as closely as it should. Same with the gas prices and WHY they are rising.

The Brit press has been more faithful and honest in their reporting of our current and impending fiscal calamities than the American MFM.

Never thought I'd be reading The Daily Mail or Al-Guardian as much as I do these days, although Miss'80sbaby is to blame for that some as well.

Posted by: Kratos (Ghost of Sparta) at January 15, 2011 07:51 AM (c0A3e)

25 Is Detroit on ebay yet? Some junk shop dude in Hong Kong is drooling.

Posted by: eman at January 15, 2011 07:51 AM (0aJSF)

26 Let them burn.

Posted by: Barbarian at January 15, 2011 07:52 AM (EL+OC)

27 Alternate name -- state bailout bonds

Posted by: GnuBreed at January 15, 2011 11:49 AM (h0RtZ)

Yeah, good luck with that. The smug assholes who live in these cities will just complain that the rich, who should rightfully be paying everyone's taxes, aren't pulling their weight. Who would buy these bonds?

Posted by: Tattoo De Plane at January 15, 2011 07:52 AM (mHQ7T)

Paul Krugman doesn't know squat.

He is still living off of a reputation that he built 20 years ago with a few lucky guesses combined with assessments plagiarized from other people.

Unless he plagiarized it from someone else, he hasn't made a proper assessment since then, not even once in the past 19 years.

What have you done for us lately, Krugman? You blowhard and bullshit artist.

Posted by: Brian at January 15, 2011 07:54 AM (sYrWB)

29 Let me know when you observe a skinny , poverty-line person in the USSA. I won't hold my breath.

Posted by: baryon oscillations at January 15, 2011 07:54 AM (le5qc)

30 What have you done for us lately, Krugman? You blowhard and bullshit artist.

Don't forget "asshole"

Posted by: Pat Caddell at January 15, 2011 07:56 AM (Ew1k4)

31 Methos-- What's the 411 on Zerohedge? Which side of the hill do they generally farm? There's some scary shit over there on a daily basis. They remind me of Glenn Beck using longer words.

Posted by: baryon oscillations at January 15, 2011 07:57 AM (le5qc)

Does anyone know what the CDS spread is on California Sovereign debt default?

Greece's is 1,025 basis points. Meaning it will cost you 10.25% to insure against default. If you want to insure against 10Million in bonds it's gonna cost you over $1M per year on a minimum 5 year CDS contract. So for the contract term you gonna pay $5M to protect $10M.

That's nice eh?

Posted by: journolist at January 15, 2011 07:57 AM (LwLqV)

33 In the case of IL, they are trying to sell bonds to pay pensions.

So they go further into debt to get nothing in return because they're paying people who aren't working.

There's going to have to be some walking away from these lunatic promises that unscrupulous politicians handed out years ago to their favored classes.

If private bondholders can be told to get fucked, I see no reason why parasites still attached to the public teat should be any different.

Posted by: nickless at January 15, 2011 07:58 AM (MMC8r)

34 CDR M, I think that bill is still just under consideration, though they may want to consider faster.

Posted by: Methos at January 15, 2011 07:58 AM (Ew1k4)

35 Now is the time to come together! Nothing will show unity like a green energy package and mixing Congress together during the SOTU so applause lines don't look quite so partisan! Kumbaya.... two O/T: Is Ahmadinejad not the problem? made me think of vonnegut's mother night. http://www.theatlantic.com/international/ archive/2011/01/do-we-have- ahmadinejad-all-wrong/69434/ riots in tunisia are being dubbed the jasmine revolution. http://www.washingtonpost.com/ wp-dyn/content/article/2011/01/14/ AR2011011405084.html

Posted by: A.G. at January 15, 2011 08:00 AM (oAVyq)

36 The Reckoning approaches. It is going to be...smokey.

Posted by: SurferDoc at January 15, 2011 08:01 AM (o3bYL)

37 journolist: "Yet, the liberal econ shills like Paul Krugman..."

OK. It's time to treat that buffoon like Feb Drisch. He's to be excommunicated from rational society, his name blotted from vocabulary.

Posted by: AnonymousDrivel at January 15, 2011 08:06 AM (swuwV)

38 I'd prefer to lend my money to drug-addled crack whores. There's just as much chance they'll pay me back.

Posted by: nickless at January 15, 2011 08:07 AM (MMC8r)

39 What's the 411 on Zerohedge?

They're big on hoarding gold. Which also means they tend to be biased towards seeing inflation and assuming tomfoolery when gold (and silver) drop. Which isn't to say they're wrong, just where they're coming from. They generally think the market is complete bullshit due to the High Frequency Trading algos and Bernanke's printing press (and the observation that both good and bad news seems to make it go up). By and large they seem to know what they're talking about, though there is a touch of tongue in cheek in the tone of "DOOM!" that permeates their posts. In an argument, I'd generally listen more to market-ticker.org as Denninger seems to have his head wrapped around the mathematics of it all, but they're good for perspective.

The comments are all over the place. And more of a free fire zone than even Ace allows.

Posted by: Methos at January 15, 2011 08:07 AM (Ew1k4)

40 There's only so many leeches you can attach to a body before it dies.

Posted by: jwpaine at January 15, 2011 08:07 AM (FUozQ)

41 Investors have figured out that Uncle Sugar isn't going to be baling out any cities.

Posted by: navybrat at January 15, 2011 08:08 AM (UK5kO)

42 43 nickless,

They are just trying to kick the can down the road a bit further is all. Last year, they skipped making a $4 billion contribution to the pension plan. Now, they've pushed through huge tax increases. They now want to use this new projected tax income as collateral to borrow more funds to put into the pension plan. Lol.

Their entire pension reserves could be exhausted by as early as 2015. Run, don't walk, away from IL.

Posted by: GnuBreed at January 15, 2011 08:08 AM (h0RtZ)

43 >>10 In the case of IL, they are trying to sell bonds to pay pensions. The federal gov't has been doing this for years. Social Security amongst other things is being largely financed by bond sales. I mentioned this the other day but it bears repeating. Buried deeply in the Obama stimulus of '09 was a program called Build America Bonds. Basically, this program gave a substantial subsidy to the states and made state bonds more attractive. Not surprisingly, the biggest issuer of BAB bonds were the states most in trouble, CA, IL, etc.. Worse, attracting all this money into state level debt based on gimmicks and incentives has taken money off the table for private investment. The Republicans killed BAB in the tax compromise last month and they ended Dec. 31. This is helping drive up yield on munis and making them even less attractive. But the debt remains. State and federal gov'ts have been running a Ponzi scheme with debt to the point where a huge portion of new debt is paid to pay interest on past incurred debt. And investors are about to pull the plug. It's gonna get real ugly real soon.

Posted by: JackStraw at January 15, 2011 08:10 AM (TMB3S)

44 So Mexico and Columbia are seen as less risky (for default) than The People's Republic of California...wow. Posted by: BetaPhi at January 15, 2011 11:45 AM (DBr05) Fucking CUOMO is cutting pensions and taxes... while Governor Quinn and Governor Moonbeam2 go full reh-tard on taxes and ignoring the pensions. The one saving grace for the country is that, besides California and Illinois, the other big states have governors who seem serious about actually tackling the problem. But California has FAR TOO MUCH political clout because of "resident" counting in the census. We lost 1.5 million people and should have lost 2 electoral votes. Of course a loss in citizens never seems to count anymore.

Posted by: CAC at January 15, 2011 08:14 AM (Gr1V1)

45 Methos- thanks. They certainly release lots of inner chakra over there. But I'm not smelling any Nobel Peace Prize or Oscar for Tyler Durden. And what's the inside joke on that Tyler Durden thingy?

Posted by: baryon oscillations at January 15, 2011 08:15 AM (le5qc)

46 53 JackStraw,

Ypu. I mentioned early in this thread to watch for a new BAB program to be proposed. My guess is they start floating the idea within a week.

It is a state bailout, partially paid for with federal tax dollars. Gee, I wonder what effect that might have on the deficit?

Posted by: GnuBreed at January 15, 2011 08:19 AM (h0RtZ)

47 And what's the inside joke on that Tyler Durden thingy?

I don't know if there's any more to it than the movie reference (specifically the way the movie ended). Some of the commenters suspect that there are several people who post under that name, though I haven't seen confirmation of that. Occasionally there's a post or comment by "Marla Singer," too.

Posted by: Methos at January 15, 2011 08:20 AM (Ew1k4)

48 >>Ypu. I mentioned early in this thread to watch for a new BAB program to be proposed. My guess is they start floating the idea within a week. I wouldn't count on it. Guys like Ryan who are now the big swinging dicks in the House are dead set against them. The current system is unsustainable, the only way out is to tear it down and start again. Issuing more debt is only going to delay the inevitable and make it more painful when it finally does come crashing down. I take Ryan at his word and I think he is going to force a day of reckoning. And I also predict 99% of the country is going to be shocked, SHOCKED, to find out how screwed we are.

Posted by: JackStraw at January 15, 2011 08:28 AM (TMB3S)

49 You know who this helps? Mitch Daniels.

But I don't expect the media to address this anyway. What does it mean? The implications have to be laid out to people who don't follow this stuff. There are three ways it gets out:
(1) Paul Krugman. He's at the NYT and he's the go-to guy on economics for the media. If he says something, they'll parrot it, trying to look smart.
(2) Former Fed chairmen. If Alan Greenspan starts sputtering about it, the media will take notice, but they won't bother to explain it to anybody.
(3) Somebody on the Right makes the whole thing nice and simple.

Otherwise, it'll just go into the mash that is known as "The Recession" and people will get a vague sense that IL and CA are worse for some reason.

I'm annoyed that we didn't take Boxer's seat, but it'll be good that the GOP isn't on the hook for either of those states or NY. Let 'em wallow in the Blue State Blues.

Posted by: AmishDude at January 15, 2011 08:29 AM (BvBKY)

This looks like math, which as we all know is racist...

Tone down the hate filled rhetoric there pal.

A better, more reasoned way to state this would be:

This looks like math, which as we all know is whitey's conspiracy to take money away from the far more deserving minorities.

Posted by: Marie at January 15, 2011 08:34 AM (GuTKr)

Did y'all read any of the comments on the article that Ace linked? The Bush tax cuts for the wealthy are to blame!!!1111!!! ZOMG, Obama is trying to reduce the deficit with tax increases and the Rethuglican obstructionists in Congress aren't letting him

Still not letting the facts get in the way of the narrative. The chicken still gets no rest.

Posted by: palmetto_mama at January 15, 2011 08:35 AM (OXBrh)

well chit, Here I have had a couple long conversations to one of my despondent new adult kids about striving , don't give up, and with hard work , ingenuity we will survive.

I feel as if I have lied.

grim.

Posted by: willow at January 15, 2011 08:45 AM (h+qn8)

53 Can Oakland CA actually sell bonds? Does anyone buy them?

Posted by: Tigtog at January 15, 2011 08:52 AM (fy8R6)

I feel as if I have lied.

grim.

Posted by: willow at January 15, 2011 12:45 PM

Go out and borrow big, willow! Issue bonds...you know you'll pay 'em off as soon as you win the lottery!

In fact, that's my recommendation for Congress: buy lotto tickets and hope for the best!

Posted by: MrScribbler© at January 15, 2011 09:02 AM (Ulu3i)

55 Buy lotto tickets with bonds! Brilliant!

Posted by: lottofever at January 15, 2011 09:07 AM (5lIsL)

56 A question for the more economically inclined morons:

The Treasury is monetizing our debt by printing money to buy T bills, correct?

So why can't they simply print more money and buy all the muni bonds? Wouldn't that just solve the problem?

And by solve the problem, I mean put a tiny, tiny band aid on a person bitten in half by a shark.

Posted by: shibumi at January 15, 2011 09:16 AM (OKZrE)

57 At this rate it won't be long before T-bills trade at parity with Confederate bonds.

Posted by: Jay Guevara at January 15, 2011 09:19 AM (Fj740)

58 I want states and cities to crash. Moral hazard needs to be the new black.

Unfortunately, I suspect the Fed or Treasury will step in.

Posted by: ParisParamus at January 15, 2011 09:33 AM (Q16sd)

59 You there! Quick, move these deck chairs to the other side of the ship!

Posted by: Teh Captain of teh Titanic at January 15, 2011 09:33 AM (4XUD3)

60 In any event, the way it would be done would be for the federal government to bail out states (as in the Porkulus) and then sell Treasuries to finance that to the Fed.

Yep. I agree.

Another round of bailouts are on the menu- although I'm guessing they'll call them something like "Regional Asset Relief Subsidies" or something like that.

Posted by: shibumi at January 15, 2011 09:34 AM (OKZrE)

61 did Sarah Palin put crosshairs on the bonds or something?

Posted by: 15 minutes of fame at January 15, 2011 09:45 AM (6SGWt)

62 Thanks to Monty.
So. Monty's behind it all, eh? Thanks, book boy.

Posted by: andycanuck at January 15, 2011 09:49 AM (2rOwc)

63 We are paying for the Sin of the Welfare State and the Moral Decline of the Republic.

Posted by: Holger at January 15, 2011 09:49 AM (YxGud)

64 At this rate it won't be long before T-bills trade at parity with Confederate bonds.

Posted by: Jay Guevara at January 15, 2011 01:19 PM (Fj740)

Wrong direction, currently Confederate money is trading for more than the dollar.

Posted by: Vic at January 15, 2011 09:56 AM (M9Ie6)

65 79Thanks to Monty.
So. Monty's behind it all, eh? Thanks, book boy.

Posted by: andycanuck at January 15, 2011 01:49 PM (2rOwc)

Somebody always beats me to it. I also read the post and my first reaction was, "Ace is blaming Monty for crashing the muni market?"

Loose lips sink ships, I guess.

Posted by: Merovign, Bond Villain at January 15, 2011 10:17 AM (bxiXv)

66 >>So why can't they simply print more money and buy all the muni bonds? Wouldn't that just solve the problem? In a word, no. In fact, it would make it far worse. Unbelievably enough, however, the Fed has been making noises about doing that very thing. This is pretty much the strategy the ECB used with Greece and the other PIIGS and it ain't working. You can't fix insane fiscal policy with even more insane monetary policy. Every time the Fed prints money the ripples spread throughout the world markets, it affects everything from interest rates to the worth of the dollar to the ability of the US to sell debt (which is getting increasingly difficult as it is). But the bigger issue is it allows the states to go even deeper in debt without addressing the underlying problems decades of fiscal mismanagement have caused and allows them to spiral even further out of control. My prediction is that the Republicans are going to force a crisis at the state level and make the states deal with the unfunded liability issues they have created. In early December, Representatives Nunes, Issa and Ryan introduced the Public Employee Pension Transparency Act which will force states to disclose the true liabilities based on the crazy public sector contracts they have signed over the last few decades using private sector reporting rules rather than the bizarre rules that government allows itself to operate under. If that gets passed, the jig is up and there will be much incivility in America. There is no way out of this without dealing with the underlying problems. It's not a matter of if, just when.

Posted by: JackStraw at January 15, 2011 11:12 AM (TMB3S)

67 Boned.

Posted by: that guy that always thinks we're boned at January 15, 2011 11:24 AM (S5YRY)

68 You're right.

Posted by: the other guy who always thinks we're boned at January 15, 2011 11:27 AM (Ew1k4)

Ok, so my investments are pretty much boned. Don't know if it was the best thing to do but, I halted all contributions to my 401k when bambi got elected and figure that money is just...gone. (Less than 50k anyway, last I dared to look.)

I am 'debt-free' except for the mortgage, and not underwater there (yet?).

What does a financial meltdown in the US mean to the average citizen, in terms of one's day-to-day existence, according to the knowledgeable morons here? Is a madmax scenario realistic?

Posted by: Stillwater at January 15, 2011 12:26 PM (0GpN4)

Posted by: iknowtheleft at January 15, 2011 04:45 PM (G/MYk)

Thanks.

Posted by: Stillwater at January 15, 2011 12:59 PM (0GpN4)

71 I have lurked at ZH for a year now. The commenters are all over the map, and generally only one out ten produces anything worth reading. There are some real nasty ones there too, including a) some Nazis (and by this, I mean real ones, the ones that deny the holocaust and think Hitler was misunderstood) b) some redneck haters c) and tons of Libs who think that taxes in the USA are way too low.

The commenters are from all over the world, and includes a few USA expats.

There is no moderation, and hence, there is no limit to the outrageous things that you will see posted there, including crackpot theories of every type.

The only thing in common is that they all want to make money, even though there are many who claim to detest money.

Posted by: navybrat at January 15, 2011 01:41 PM (UK5kO)

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