CNBC’s oversimplified muniland coverage

April 12, 2012

CNBC recently featured a segment on the municipal bond market with Alexandra Lebenthal, the little-known queen of muniland who represents the third generation of the municipal bond house Lebenthal & Company. Although raised in a household dominated by the king of retail municipal bonds, Jim Lebenthal, Ms. Lebenthal seems to devote most of her time to her interests in society and fashion, if her Twitter feed is any guide. It would be hard to find someone who is a bigger contrast to the brawling Meredith Whitney, that other queen of muniland who seems more comfortable at a banking conference than a society soiree.

Their market outlooks are also antagonistic: Whitney thinks muniland will soon collapse from defaults, and Lebenthal thinks everything is rosy and that municipal bonds pose few problems. I don’t think either of them is that deeply immersed in the municipal bond market. They may be good for an explosive soundbite, but their views aren’t all that accurate.

Unfortunately, CNBC has fallen into a rut of only having these two women on air. They are both telegenic and snappy with one-liners, but they really don’t shed light on the vast geography of muniland. Lost in their opposing views of the muni market are the underpublicized stories of the weakened conditions of Puerto RicoIllinois and California. Numerous cities and counties, such as Detroit, Harrisburg, Stockton (California) and Jefferson County (Alabama), are at risk of default, with tens of billions of dollars of debt outstanding all together. Now, muniland is in relatively good shape, but there are certainly outliers that are undergoing significant stress. It’s not a black-and-white story, as Whitney and Lebenthal would have you believe.

Both Whitney and Lebenthal have been riding the same storyline for over a year in their appearances on CNBC. Both have made mistakes when talking about the market. Everyone knows how Whitney said that there would be hundreds of billions of dollars in defaults in 2011 and it didn’t happen. Less well known is when Lebenthal said in this CNBC appearance that property and casualty insurance companies have half their debt holdings in municipal bonds:

[I]nsurers like Travelers and Chubb, 50 percent of their debt holdings are now in state and local munis. Is that a good thing? It actually is a good thing.

According to the Federal Reserve, property and casualty insurance firms like Travelers and Chubb have about 39 percent of their debt holdings in municipal bonds. That 11 percent gap between what Lebenthal claimed and their 4Q 2011 holdings amounts to $95 billion, which means Lebenthal’s error is of the same magnitude as Whitney’s (page 77). Furthermore, life insurance firms hold a mere 3 percent of their debt holdings in municipal securities. It’s not as though municipal bonds are the primary debt instrument for insurers.

CNBC could do its viewers an enormous service and move its muniland coverage beyond these two. There is a tremendous bench of municipal bond experts who could give much more interesting color on the state of the market. The Board of Directors of the Municipal Analysts Group of New York has some of the best municipal commentators around, including Thomson Reuters’ Daniel Berger, Schroder Investment Management’s Eric Friedland and others. Guy Davidson of Alliance Bernstein knows every nook and cranny of muniland and can give simple explanations of the complex bits. Of course, CNBC could always poach Peter Hayes of BlackRock from Bloomberg TV.

CNBC should do us all a favor and move beyond these two and start covering real stories. Muniland is a big market, and it affects bondholders and taxpayers alike.

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