Bankruptcy "Only Way Out" for Struggling State and Local Govts, Bond Fund Manager Says
Economic conditions may force the federal government to bailout several U.S. states, banking analyst Meredith Whitney told Bloomberg earlier this week.
John Lekas, Leader Capital’s senior portfolio manager, agrees states and municipalities are in deep fiscal trouble. However, he thinks bailouts are a thing of the past.
“I don’t think politically they can,” go ahead with another round of bailouts, he tells Aaron and Henry in the accompanying clip. Nor should they. “The truth of the matter is, there’s a point at which you can’t just keep handing people money. You’re going to destroy the currency; you’re going to get hyper-inflation.”
In his latest letter to clients, Lekas quotes this dreary forecast about the financial prospects for states, from the Center on Budget and Policy Priorities:
“If states get no further federal assistance, the steps they will have to take to eliminate deficits will likely take a full percentage point of GDP. That in turn, cold cost the economy, 900,000 jobs next year.”
Not a pretty picture.
Without a bailout, Lekas predicts we’ll see a wave of municipal bankruptcies, as Harrisburg, Pa. is currently contemplating. “I think that is the only way out for them.”
In addition to more job losses, the bankruptcies will cause tremendous disruptions in the muni-bond market and the stock market. (Click here to see just how low he thinks stocks will go next year).
As a result, investors will flock to quality - short-term Treasuries are a likely winner. (A convenient call for the senior portfolio manager of the Leader Short-Term Bond Fund.)
It’s not all gloom and doom.
Bankruptcies will surely impact social services around the country. The silver lining: it will force local governments to get their fiscal houses in order.
“The good news on that is they can jettison their pension obligations, jettison their union contracts, which is the most expensive part for municipalities and begin to make real progress,” he says. |
发表于 2010-10-2 11:16
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