Meredith Whitney ? State-issued GO Muni Bonds are Safe
May 7, 2013
by Ben Huebscher
Meredith Whitney has softened her tone regarding muni bonds. The analyst who famously predicted disaster for the entire market on national TV now she says that new governors have been elected and states have begun reforming. There will be problems in four key states, but she is not predicting a disaster. In fact, she said investors will be safe in general obligation (GO) bonds.
Last week, the Investment Management Consultants Association (IMCA) held its annual conference in Seattle – which it claims is the largest gathering of investment advisors and private wealth managers in the United States. The association’s membership grew 5% last year, pushing the total past 9,000. The conference’s lineup was expanded this year and included industry leaders, economic strategists, and decorated academics.
Whitney, the conference's first speaker, is currently chief executive of Meredith Whitney Advisory Group LLC, which she founded in 2009 after resigning as managing director and senior financial institutions analyst at Oppenheimer & Co. Inc.
She burst on to the scene in 2007 when she uncovered Citigroup’s poor financial prospects in a research report, foreseeing the oncoming economic crises.
Despite her unwanted reputation as a “doom and gloom gal,” Whitney offered an optimistic outlook. She affirmed her comment from a March 18th CNBC Interview that she is more bullish on equities at this point than she has ever been. She presented a look into the next 25 years, predicting the U.S. economy will recover from the depth of the housing- and leverage-backed lending failures, just like it recovered from the outsourcing of the manufacturing industry in the 1970’s.
While things don’t look good for the “Sand States” – California, Nevada, Arizona, and Florida – where high unemployment rates and saturated lending markets make starting new businesses extremely hard, she sees opportunities elsewhere where the 36 newly elected governors from the last election are “able to take great political risks in terms of cutting budgets.”
Rise to fame
Reflecting on the early part of her career, Whitney explained that a red flag was raised when Gary Crittenden was appointed CFO of Citi and invited her to a meet-and-greet cocktail party. Identifying the cocktail event as “kind of a contradiction in terms” of Gary’s Mormon beliefs, Whitney’s intrigue led to her attendance. There she overheard another analyst complain that modeling Citi’s finances was too difficult and was inspired to look into the company herself. By simplifying the model and looking at the bigger picture, she revealed a $30 billion shortfall.