SEATTLE – Banking analyst Meredith Whitney sums up the investment opportunity in the United States as “a tale of two countries” – the idea that states will grow unevenly based on how exposed they were to the financial crisis.
Whitney, who now has her own advisory firm Meredith Whitney Advisory Group, rose to fame for an accurate pessimistic report she issued on Citigroup in 2007. Speaking at the Investing Management Consultants Association annual conference in Seattle, she said she sees two stories emerging in the U.S. economy.
That includes certain areas of the country, the so-called sand states that were most deeply affected by the crisis including Arizona, California, Nevada and Florida, that are in the midst of a slow recovery with sub-2% GDP growth.
By contrast, the central corridor of the United States is thriving, Whitney said, with GDP growth in the high single digits. That comes as the aggregate U.S. economy is growing at about a 2.5% clip.
“It’s a tale of two countries, it’s a bifurcating country in ways that we see every generation,” Whitney said. The country’s last transformation took place in the late ’70s and early ’80s, when the economy transitioned from a manufacturing-based economy to one that was based on housing and leverage. Now, the areas that emphasized those areas the least are most poised for growth, she said.
The housing boom temporarily masked the weakness of such states as California, New York, and Arizona and encouraged their governments to spend recklessly. For Whitney, the future belongs to the unglamorous “flyover” states of the central corridor — Nebraska, Iowa, Indiana, South Dakota — places that never had a housing boom or bust, that benefit from low taxes and low debt, and that maintain the resources to fix their roads and nurture their schools. These are America’s new emerging markets, and they will thrive by pulling jobs and businesses from the old-economy states destined, barring a revolution in leadership, to keep spiraling into decline.
North Dakota – Just pumped an extra $12,225 per pupil into thriving school districts.
California – Residents owe a whopping $73,000 in consumer debt per capita, plus $11,000 in state obligations.
Illinois – Owes more than $200 billion in unfunded pensions, health care costs, and outstanding bonds.
Indiana – Has the third lowest debt per capita in the nation and a higher credit ratingthat the United States.
Connecticut – Has the third highest tax burden in the country at $18981 on average per person per year.
Louisiana – Boosted its economy 16% during the Great Recession.
Texas – Growing per capita income 71% faster than California with housing prices that are 60% lower.
Detroit – in 1950 in had a population of 1.8 million. today it is 600,000.
The strong growth of the central corridor states, is being obscured by the weakness in the debt-laden coastal states.
Indiana has been running ads in California that show a coffee-shop napkin with the following handwritten message…”Admit it, you find me fiscally attractive.”
Source – “The Uneven Recovery” by Meredith Whitney.