Muni Bond ETFs Rise as Meredith Whitney Sticks to Her Guns | ETF Trends

Exchange traded funds that invest in municipal bonds have regained their footing in 2011 after a nasty plunge late last year.

Noted analyst Meredith Whitney touched off a firestorm last year when she told “60 Minutes” that she foresaw hundreds of billions of dollars of defaults in the muni bond market.

She appeared on CNBC on Wednesday morning to defend that call.

“I know I’m right on this,” Whitney said in the extended television interview.

iShares S&P National AMT-Free Municipal Bond Fund (NYSEArca: MUB)


The stalwart analyst also offered her views on the housing market and the banking sector as she responded to her vocal critics on Wall Street. Other topics included:

  • When asked about the recent recovery in muni bonds, she attributed the rise to tightening supply and investors’ hunger for yield. Treasury bonds have also risen, pushing yields lower.
  • Whitney sticks by her call that there will be an “enlarged number” of defaults in the muni bond market.
  • She said over the past decade, states have been more profligate than consumers in their spending habits. More spending than tax receipts is “unsustainable.”
  • States are in a worse fiscal situation than they were six months ago.
  • Local politicians want to support their constituents rather than the bonds. Spending cuts pull down house values.
  • The difference between a bond restructuring and default often boils down to semantics.
  • June could be a danger zone for muni bonds because the stimulus runs out and most states submit budgets.
  • Risk is underappreciated at the state level, and governments are big employers.
  • It’s impossible to predict the month or quarter when the trouble could start, but there are consequences of “reckless spending,” Whitney said.
  • In response to the attacks against her in the wake of the “60 Minutes” interview, she said her view on a double-dip in housing was controversial at the time, but no longer.
  • “60 Minutes picks you,” she said. “You don’t pick 60 Minutes.”
  • She said she’s used to being attacked after she correctly warned investors about the risks in the banking sector before the credit crisis. However, she hopes her research will give governors the “political will to do the right thing.”
  • It’s difficult to get a mortgage, which is fueling a supply/demand imbalance in housing, Whitney said.
  • She expects a national double-digit drop in home prices from here.

The opinions and forecasts expressed herein are solely those of John Spence, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.