The Next Big Shock: a Heads-up

Fair warning for private investors and habitual municipal big spenders alike

We were delighted to receive an interesting email-attached item over the weekend from one of our alert readers, a subscriber to Dr. Martin D. Weiss's most excellent Money and Markets investment newsletter. Weiss is advising his subscribers to be wary of state and locally-issued (muni) bonds:

We took a look at the attached newsletter. Among other things, Weiss predicts classic supply-demand disequilibrium in the muni bond market:

a whopping $100 billion in new municipal deficits on top of the $350 billion in deficits at the state level," [ for a grand total] of "$450 billion in red ink flowing from state and local governments … in addition to the $2 trillion deficit at the federal level … compounding the latest woes of the nation’s megabanks … and all in the midst of a collapsing economy.

It will be a mass oversupply of government debt instruments, Weiss appropriately reiterates, in the face of severely contracting demand, i.e., a market wherein most heavyweight muni bond buyers are ditching muni bonds. Weiss further predicts "major municipal bond defaults on the near horizon." The risky muni bond market is a place Weiss definitely doesn't want his subscriber/investors to be.

And yeah, there will still be investor money available for imprudent big spending state and local government authorities alright, even in this bad economy. The problem is that it most certainly ain't gonna come cheap. The relatively small remaining pool of investors who sufficiently risk-averse to be interested in new state and local bond issues will definitely exact its pound of flesh.

You can read Dr. Weiss's 1/18/09 investor advisory here:

• The NEXT Big Shock

A savvy heads-up for private investors, we believe.

Must reading too, for our borrow and spend, economic one-trick-pony city administration... and food for thought for the taxpayers who would be held to account for its actions, we think.

Something for everyone to think about, on an otherwise slow Emerald City news day, as a matter of fact.

Comments, anyone?