Randall Forsyth Demolishes Meredith Whitney
- Joshua M Brown
- December 26th, 2011
"Any sentient person could read through such gibberish."
You probably know this feeling - when you actually have an expertise about a certain topic and then you see an interloper pop in and spew nonsense in order to get attention. It can rankle you, especially if you're not able to respond in the fashion you'd like.
This is precisely what must have gone on with Barron's columnist Randall Forsyth upon watching "rock star" analyst Meredith Whitney crowdsurf across a sea of media enablers last winter with her Municipal Bond Armageddon call.
Meredith had a brand new "advisory" shop to promote and the press was happy to help her so long as they were given fresh Black Swan-esque content with which to scare up new page views. And freaked-out investors, already anxiously anticipating the next giant shoe to drop down and crush their retirement dreams, were more than happy to click on said content, it confirming their worst fears in such a convenient little package and all.
But some veteran bond market watchers shook their heads at the spectacle of it all. Forsyth was among these skeptics and this weekend he took his victory lap...
Call 2011 the year of getting it wrong. Rarely have so many prognostications of the future, and even assessments of the present gone, so awry. The most basic tenet of logic is a false premise will inevitably yield a false conclusion. That lesson was proved with depressing repetition in 2011.
The best example of this is Meredith Whitney, the bank analyst who famously asserted on 60 Minutes just over a year ago that municipal-bond defaults would total in the hundreds of billions in 2011, a prediction that sparked a panic among holders of muni bonds. Redemptions by investors in tax-exempt mutual funds forced selling into a market that in the best of times lacks the liquidity and institutional backing of other sectors.
Just how the cataclysm would produce hundreds of billions of defaults in muni bonds got scant explanation. "A lot of this is, you know it, but can you prove it," Whitney said in an interview with Bloomberg News. And in what qualifies as the quote of the year, she concluded, "There are fifth-derivative dimensions that I don't think I need to spell out to my clients."
Any sentient person could read through such gibberish. And having covered the muni market since before the New York City crisis of the 1970s, I wrote her assertions were off-base, and also put those words into practice. As a result, my church has a 21.5% total return from a closed-end fund that invests in taxable municipals bought at the height of the hysteria. So, it might be said that in her own way, Meredith Whitney was doing God's work. It remains up to us to separate the wheat from the chaff, however.
Rock on, Randall. Anyone else want some?
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The Reformed Broker is a blog about financial markets and the economy. Joshua Brown is a New York City-based investment advisor for high net worth individuals, charitable foundations, retirement plans and corporations... More.