You’ve got a history of low defaults, which is comforting. But that kind of sounds like what subprime sounded like back in 2006. You had a triple-A market that had never traded below par, the fundamentals were getting worse and it was owned for a technical reason. In the case of subprime, it was that triple-A rating that had such good treatment from the bank regulators, and the funds with their prospectuses could buy the triple-A rating and all of that.
And the muni market has never really had defaults and it's always had good recovery rates but the fundamentals are bad and its own for a technical reason, which is the tax benefit! People own it for the tax benefit.
I don't think you need to know what the default rates will be or how low 'low' is, munis are going to go down. There are going to be other shoes to drop. There might be so many that it looks like Imelda Marcos's closet when all of those shoes drop because all the states have to deal with this stuff.
Between here and the end game, lies the valley. And the valley is full of fear. I think the muni market is going to go down by at least, on the long end, something like 15 and 20 percent.
~Jeffrey Gundlach, CEO and "Bond King", DoubleLine Capital, CNBC interview, March 9, 2011