Muni Meltdown Economic Impact?

[william the wie]

I agree we've drifted a little from the Muni Meltdown Economy of Detroit, New York, Boston, and Chicago. I also believe debtors' prisons could be seen as a viable corporate solution to an impending tide of relatively penniless retirees.

Given that IL is on the express lane to default and post-2017 at least state exchange states under ACA will be the recipients of poorer, older and sicker medicare/medicaid patients that could push them over the edge into default, I think a separate thread dealing with state defaults might be called for.

I agree.
The "impending tide" I referred to is more like a tsunami of rapidly aging baby boomers whose numbers could well swamp medicare and medicaid.
Why did you pick 2017?
I know I'm drifting from your OP at this very moment. but Thom Hartman has recently suggested 2016 as a likely possibility for the next major economic upheaval:

"Could the United States face another economic collapse? Writer and broadcaster Thom Hartmann looks back at past financial crises and comes to a startling conclusion. 'As long as you don’t look too closely at our nation, things seem under control — the United States looks whole … but when you go around to the "dark back side" of the nation, you see the shocking truth. There you see a nation whose core fundamentals have been hollowed out,' writes Hartmann in his new book, 'The Crash of 2016: The Plot to Destroy America — And What We Can Do to Stop It'"

2017 is more of a drop dead date than a prediction.

 

[georgephillip]

Given that IL is on the express lane to default and post-2017 at least state exchange states under ACA will be the recipients of poorer, older and sicker medicare/medicaid patients that could push them over the edge into default, I think a separate thread dealing with state defaults might be called for.

I agree.
The "impending tide" I referred to is more like a tsunami of rapidly aging baby boomers whose numbers could well swamp medicare and medicaid.
Why did you pick 2017?
I know I'm drifting from your OP at this very moment. but Thom Hartman has recently suggested 2016 as a likely possibility for the next major economic upheaval:

"Could the United States face another economic collapse? Writer and broadcaster Thom Hartmann looks back at past financial crises and comes to a startling conclusion. 'As long as you don’t look too closely at our nation, things seem under control — the United States looks whole … but when you go around to the "dark back side" of the nation, you see the shocking truth. There you see a nation whose core fundamentals have been hollowed out,' writes Hartmann in his new book, 'The Crash of 2016: The Plot to Destroy America — And What We Can Do to Stop It'"

2017 is more of a drop dead date than a prediction.

"The public pension problem is by now well known. Detroit’s emergency manager estimates its unfunded liabilities at $3.5 billion, about a fifth of the city’s debt. As of last year, Chicago had funded just 36 percent of its pension obligations, while, as of 2011, Philadelphia had put aside just 50 percent of its promised benefits."

Is there any way of accurately estimating what percentage of those shortfalls was due to Wall Street fraud during the housing/credit bubbles

Public Pension Shortfalls Are Everyone?s Problem - Bloomberg

 

[william the wie]

With Chicago, Boston and NYC headed for bankruptcy probably after the election but likely before the 2016 presidential race what is the likely result in terms of economic impact?

As Detroit and many smaller cities have demonstrated public service union pensions are a big target of bankruptcy courts but so are the taxes imposed on industries in the affected area. I'm trying to get data and info on likely outcomes such as NYC bankruptcy would see increased movement of operations to Salt Lake City by bankers and brokers but not necessarily a shift of exchanges. Any other obvious outcomes?

Odd that one cannot find ANY comments about the upcoming bankruptsy of the above noted cites EXCEPT here at USMB.

I did find THIS though...

20 Cities That May Face Bankruptcy After Detroit

PM me, the chart I consulted was copied, pasted and posted to another board before the link expired but the rules say that such information cannot be openly posted here nor can you post it if I give you the location. Unless you want to be banned of course. And such a secondary link may be subject to copyright infringement laws as well as use of proprietary information without subscription payment. The poster was a subscriber to the source and therefore cannot be prosecuted, you or I can be.

With that boilerplate out of the way, the list you are using are the 20 most likely bankruptcies for the coming year. The list I am referring to are the finances of the 20 largest cities in the US other than Detroit. The 5 of the top 20 with the worst and most rapidly deteriorating finances according to the measures used were Boston, Chicago and a three way tie between NYC, Baltimore and Houston. And better yet other muni-analysts use other metrics as in Chicago or more rarely LA is listed before Boston by other weightings of, what is presumably, the same data.

 

[Zander]

I've owned California tax free municipal bonds (through mutual funds) for the past 20 years - every year I've been told the "state is going broke"- your bonds will default!! Yet every month I collect the dividends like clockwork. I have no fear of a Muni bond collapse- I am buying more now that the rates have climbed.

That being said, I would stay away from individual muni bonds and buy the ETF's or Funds.

 

[william the wie]

I've owned California tax free municipal bonds (through mutual funds) for the past 20 years - every year I've been told the "state is going broke"- your bonds will default!! Yet every month I collect the dividends like clockwork. I have no fear of a Muni bond collapse- I am buying more now that the rates have climbed.

That being said, I would stay away from individual muni bonds and buy the ETF's or Funds.

Smart move but stick with optionable ETFs to write covered options. NYC hit the wall twice in the last century but got bailed the first timie by JP Morgan and the second time by President Ford. The votes are unlikely to be there a third time. CA already has some junk zero coupon bonds in its educational system but as you noted trying to time something like this is a fool's game.

By writing calls you can get out with a profit in the calm before the storm and if you are fond of bottom fishing writing deep in the money puts with that profit might be even more profitable. With projected oil and gas revenues from the central valley $0.20/$ should give an adequate margin of safety. Not my cup of tea but more power to you.