Over the next few decade, millions of American workers and companies are going to abandon states like California and New York and move to the country's interior. At least that's the message from US financial pundit Meredith Whitney. The former bank analyst believes this internal migration will throw up massive investment opportunities.
Whitney, 43, shot to fame in 2007 when she correctly predicted that America's mortgage-backed bond market was set to tumble. She was particularly bearish on Citigroup and her prediction that it would suspend its dividend which was widely derided at the time ended up being bang on the button.
The prescience of her call turned Whitney into one of America's best-known financial pundits. Yet her star lost some of its lustre in 2010 when she wrongly predicted that financially struggling local governments in the states would default on "hundreds of billions of dollars" worth of muni bonds'.
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In Whitney's defence, her prediction which was open-ended appears to have been willfully misinterpreted into a 12-month deadline by a financial media eager to crow about the latest downfall of a financial guru.
Now Whitney has responded with her book, Fate of the States, which offers a more nuanced, expansive version of her 2010 call on municipal finances. And over the last few weeks, she's been on the publicity trail explaining her new thesis to the critics.
One of the biggest losers will be California, Whitney tells Forbes. "California has a big problem pension funds." Increasingly the state is using tax revenue to pay existing pension obligations.
"Because California's budget has gotten so out of whack, California has had to cut the most from its education budget. And in the last seven years, the cost of four-year tuition in California has doubled. So it's becoming increasingly unaffordable to go to school money is going to pay for pensions, money is going to pay for bonds, and money's not going to critical issues like education."
At the moment, it doesn't seem to be a problem, says Whitney, as California is seen as a "beacon of education". But, in the longer term, "if you don't educate, you can't attract jobs". These fiscal problems will also make streets less safe, reduce public amenities and increase the tax burden on workers and profitable companies. And that, says Whitney, will encourage an exodus.
"Corporations, also smart money, are already voting with their feet. So they're choosing, instead of being in California, to build businesses in Texas, in Louisiana where they're going to be near, not just cheap energy, but right-to-work states so they can choose what they want to do with their employees and have more discretion in terms of what to do with their workforce. They're also choosing low-tax jurisdictions."
So how can investors benefit? According to Whitney, "it's an equity play involving all of the sectors doing business there. Chemicals and manufacturers in the central corridor with proximity to cheap energy. Construction, transportation they will all benefit."
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