Wednesday, November 11, 2009

Chanos says dump munis as distress mounts and ratings attacked (ABK; AGO; ALL; BRK.A; MBI)

We saw a couple mentions* of these problems last week, this one makes it a meme.
If you know any of the Enron story you know that Chanos is sharp. Disregard at your own risk.

Later on I'll post some of Warren Buffet's thinking on muni's, this is going to be a big story.
Another thing, the former monoline (one business, insuring principle and interest of muni's) insurers Ambac and MBIA look like they will fail and Buffett's Berkshire Hathaway Assurance Co. has stopped writing the business, leaving Wilbur Ross' Assured Guaranty pretty much alone. Unfortunately for Mr. Ross, yesterday's Reuters headline for AGO was "Assured Guaranty sees Q3 loss, shares fall"
That's a longer than usual intro, here's the story from Credit Writedowns:

I have really started to dislike municipal bonds as an asset class. They have seen a huge rally along with almost every other financial asset but the underlying fundamentals are weak because of financial distress at states and municipalities.

Last week, I wrote a first piece on this topic, based on some work by Philip Greenspun and Fred Sheehan. I also just wrote a piece about Ambac Financial’s likely bankruptcy, which will impact this market because of Ambac’s municipal bond guarantees. But, a Barron’s piece about Jim Chanos of Kynikos called “Short Seller: Dump Munis” piqued my interest and precipitated this particular article.

Chanos is bearish

The Barron’s piece by Tom Sullivan said:

James Chanos, the famed short seller who was among the first to foresee the collapse of Enron, recently sounded the alarm on the municipal-bond market — in the hallowed halls of the New York Historical Society, no less.

The "cracking of state and local municipalities is coming," he predicted at a recent meeting attended by Barron’s staffer Susan Witty, adding that he wouldn’t touch munis.

In a subsequent telephone interview with this columnist, Chanos said, "State and local municipal finance are a mess and going to get worse."

*"The Approaching Muni Bond Implosion" and "Allstate Sells Municipals as Governments Run Deficits "