In the wake of the trifecta of California municipal bankruptcies, we couldn’t help but remember Meredith Whitney’s December 19th, 2010 prediction that “between fifty and a hundred counties, cities, and towns in the United States would have “significant” municipal bond defaults starting in 2011, totaling “hundreds of billions” of dollars in losses.” Whitney had received much fame for her accurate and bearish prediction on Citigroup (C) back in 2007 when she was with Oppenheimer and Company and she had made this prediction when she appeared on CBS’s 60 Minutes.

Since the largest annual amount of municipal bond defaults was $8.2B in defaults for 2008 at the peak of the crisis, many individuals and professionals felt that she was exceedingly bearish on the municipal sector and needlessly trying to top her call on Citigroup. We decided to use the performance of the iShares S&P National AMT-Free Bond Fund (MUB) as a proxy for municipal bond performance since Whitney’s prediction because it is the largest municipal exchange traded fund. Since Whitney’s prediction of doom for municipal bonds, the MUB has generated a total return of 16.5%, which exceeded the SPDR High Yield (JNK) and the iShares BarCap U.S. Aggregate Bond ETF (AGG). We expected it to underperform the iShares TIPS (TIP) but surprised to see it underperform the iShares California Municipal ETF though.

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