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Dont believe everything you read (or hear). Whats going on in California and is it a precursor for the rest of the country? (A Case Study)
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Copyright 2012 by Gurtin Fixed Income Management, LLC Chicago | San Diego
Our View: there are few seasoned and skilled professionals trained in true fundamental municipal credit analysis.
No part of this presentation may be copied, reproduced, stored in a retrieval system, or transmitted in any form or by any means electronic, mechanical, photocopying, recording, or otherwise without the written permission of Gurtin Fixed Income Management, LLC. This presentation is incomplete without the accompanying oral commentary and discussion.
Copyright 2012 by Gurtin Fixed Income Management, LLC Chicago | San Diego
Conclusion: The lack of understanding and knowledge of municipal credit quality creates confusion, misperception, and volatility.
No part of this presentation may be copied, reproduced, stored in a retrieval system, or transmitted in any form or by any means electronic, mechanical, photocopying, recording, or otherwise without the written permission of Gurtin Fixed Income Management, LLC. This presentation is incomplete without the accompanying oral commentary and discussion.
Copyright 2012 by Gurtin Fixed Income Management, LLC Chicago | San Diego
1) Widely reported credit stress, some of which is real 2) Concerns are warranted, but are overblown by lack of market knowledge and ratings agencies unwillingness to focus on forward looking research 3) Somewhat a precursor for national trend, but manageable This creates opportunity for seasoned professionals with strong research
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Copyright 2012 by Gurtin Fixed Income Management, LLC Chicago | San Diego
3% 9%
Individuals buy and hold many bonds directly Many bonds are purchased and held with little to no credit analysis Insecurity stems from a lack of credit analysis
7%
49%
Property/Casualty Insurance Co. Money Market Funds Commercial Banks Life Insurance Co. Closed-End Funds
9%
16%
Other
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Copyright 2012 by Gurtin Fixed Income Management, LLC Chicago | San Diego
Insured
Issued
Insurance in the municipal market is akin to giving a person an umbrella when its sunny, and taking it away when it rains.
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Copyright 2012 by Gurtin Fixed Income Management, LLC Chicago | San Diego
No part of this confidential presentation may be copied, reproduced, stored in a retrieval system, or transmitted in any form or by any means electronic, mechanical, photocopying, recording, or otherwise without the written permission of Gurtin Fixed Income Management, LLC. This presentation is incomplete without the accompanying oral commentary and discussion.
Copyright 2012 by Gurtin Fixed Income Management, LLC Chicago | San Diego
Incident Rate 0.00% 0.00% 0.20% 0.49% 0.85% 2.56% 4.76% 5.26% 7.69%
Copyright 2012 by Gurtin Fixed Income Management, LLC Chicago | San Diego
In a world with a dearth of research and an unsophisticated buyer base, are the credit ratings agencies good arbiters for forward looking credit risk assessment? This leaves the market vulnerable to Armageddon-like prognostication by market pundits, untrained in municipal research, such as Meredith Whitney predicting hundreds of billions of imminent defaults in late 2012.
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Copyright 2012 by Gurtin Fixed Income Management, LLC Chicago | San Diego
10
Millions ($)
10 YR AAA GO
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Yield (%)
2.50
Copyright 2012 by Gurtin Fixed Income Management, LLC Chicago | San Diego
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Copyright 2012 by Gurtin Fixed Income Management, LLC Chicago | San Diego
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Conclusion: The State of California as a sovereign entity is actually a solid credit safe for investment.
No part of this confidential presentation may be copied, reproduced, stored in a retrieval system, or transmitted in any form or by any means electronic, mechanical, photocopying, recording, or otherwise without the written permission of Gurtin Fixed Income Management, LLC. This presentation is incomplete without the accompanying oral commentary and discussion.
Copyright 2012 by Gurtin Fixed Income Management, LLC Chicago | San Diego
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Copyright 2012 by Gurtin Fixed Income Management, LLC Chicago | San Diego
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Conclusion: The City of Stocktons bankruptcy created contagion across all credits with Stockton in the issuer name.
No part of this confidential presentation may be copied, reproduced, stored in a retrieval system, or transmitted in any form or by any means electronic, mechanical, photocopying, recording, or otherwise without the written permission of Gurtin Fixed Income Management, LLC. This presentation is incomplete without the accompanying oral commentary and discussion.
Copyright 2012 by Gurtin Fixed Income Management, LLC Chicago | San Diego
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Yes The number of weak obligors experiencing credit stress is increasing. No Some issues are distinct to California (i.e., redevelopment agencies).
No part of this confidential presentation may be copied, reproduced, stored in a retrieval system, or transmitted in any form or by any means electronic, mechanical, photocopying, recording, or otherwise without the written permission of Gurtin Fixed Income Management, LLC. This presentation is incomplete without the accompanying oral commentary and discussion.
Copyright 2012 by Gurtin Fixed Income Management, LLC Chicago | San Diego
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