Thursday, December 9, 2010

Martin Weiss warns on Muni bond chaos

Here’s What to Expect Next …

First, municipal bond prices, which are already sinking rapidly, will suffer one of the greatest collapses of all time.

Second, the muni bond collapse will spread to other bond markets, which are already vulnerable for their own reasons — especially mortgage-backed bonds and long-term Treasury bonds.

Third, with sinking bond prices, interest rates will automatically rise — driving up the borrowing costs not only for cash-strapped local governments, but also for home buyers, corporations, and sovereign governments.

Fourth, with all other escape routes blocked, thousands of city and states governments will have no choice but to gut their budgets, declare bankruptcy, and in many cases, even shut down entirely.

My recommendation: Don’t wait for this crisis to escalate. Move swiftly now to greatly reduce your exposure to municipal bonds — especially long-term issues. Then, follow the alternative strategies that we recommend in Money and Markets.
Money and Markets

The Levine production chain between central and local government is breaking.

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