JASON HARTMAN: Welcome to the Creating Wealth show. This is your host, Jason Hartman and this is episode number 331. Thank you so much for joining us today. Our guest today will be Meredith Whitney. You’ve probably heard of her. She is the one that I mentioned a couple of shows ago after I recorded this interview with her but she wrote a very pessimistic piece about CitiGroup back as the financial crisis was just starting, um, October 31st Halloween of 2007. Many Wall Street analysts listened. They paid attention to this, and she has since followed up with other reports and predictions. After she had done this, the companies which she was talking about experienced lower stock prices, as the stock market took her opinion seriously. So, she is going to talk about that today as well as some of her other predictions, and we’ll have her on here in just a bit. First, I’ve got Britney on with me. Britney has not been on the show for quite a long time. but if you’re a long-time listener or a new listener that is going back and listening to the prior 330 episodes, you’ve heard Britney on the show before. Britney, welcome back. How are you?
BRITNEY: Thanks, good to be back, Jason. Yeah, it has been a while, hasn’t it?
JASON HARTMAN: It sure has, and I have to say most of the team members that we have on the show are investment counselors. You are not an investment counselor. You worked on some of our marketing and communications things and helped us out with a lot of that stuff and have recently redone our membership site. So, maybe we could talk about that a little bit too, but first of all, I’m just back from Europe and you just got back from Europe a few weeks before I did. What did you think on your trip? How did you like it? I want to talk about mine a little bit too.
BRITNEY: Yeah, I’d like to hear from your perspective more on the economic site of it. You know, I had a great time as far as being a tourist, carefree, you know, enjoying all the different tourist cities with my husband. I went to Switzerland. We were in both Zurich and [UNINTELLIGIBLE]. We went over to Paris for a few days and then finished off in Italy between Rome, Florence, and down south in Positano.
JASON HARTMAN: Yeah, good stop. And Europe, that was I think, your second trip to Europe, right?
BRITNEY: It was yeah. Went back in 2007 for a few months. I was traveling over there as a student and that was amazing and great times again. It was interesting to almost see the same things, you know, as far as fashion and shopping at least. I was expecting to find different things. Say in Florence for example, at the different outside markets and I mean, gosh, it’s been several years and literally, the same things were being offered as back in 2007. So, it was a little disappointing on my end. [LAUGHING]
JASON HARTMAN: Well, you know, that’s a very interesting point that you raised. I know we have a lot of European listeners, a lot of European clients, and I was born in Europe and I love Europe. I’ve been there many times but I’ve got to tell you, I think Europe is in bad shape. When I say that it, of course, varies country to country. Germany is in pretty good shape, but when you go to the south, I mean, I was particularly concerned when I visited Barcelona. Now, I’ve been to Barcelona before, many years ago, and I went back this time and my trip, I, I should probably just say what this trip included. I started in Switzerland – I mentioned that a few episodes ago – when I said, if you want to know what inflation feels like, go to Zurich [LAUGHING] because everything is so expensive, but really, my opinion did not change much the whole trip. It was so expensive everywhere almost. I started in Switzerland. I went over to Germany where I was born. I actually saw my old house and this was kind of interesting. I said to my mom, I want to go and see that house where I climbed out under the roof as a little baby because I actually remember doing that.” She said, “Jason, that wasn’t in Germany. You climbed out under the roof when we lived in Rochester, New York, okay?” [LAUGHING] and I’m like, “Oh, okay. Well, whatever.” But it’s kind of like you have these very faint memories of even being a one or two or three-year-old. At least I do. I don’t know if you do, other people do.
BRITNEY: I do. I think most of the time I think I remember things but through pictures.
JASON HARTMAN: Right, yeah, yeah.
BRITNEY: Uh, I don’t know if your mom got any pictures of you crawling out on the roof if she had any time for that but [LAUGHING].
JASON HARTMAN: I don’t think I got a—there is no picture of me crawling out on the roof out of the window but yeah.
BRITNEY: Right. She didn’t pull out her iPhone and videotape it or anything?
JASON HARTMAN: You know they didn’t have, they didn’t even have Apple back then much less the iPhone [LAUGHING].
BRITNEY: How did you live?
JASON HARTMAN: Yeah, how did they live, that’s a good point. Good question but anyway I was—she was in her investment club meeting in Alabama and I was texting her saying, okay, I’m gonna send you pictures of where—she actually remembered the address. She wasn’t sure she was right but I took a taxi—of course a Mercedes taxi – over to the house and, you know, it’s still there and that is exactly what you were saying. So little changes in Europe, and Dan Sullivan, who I had on the show, I believe he might have been episode number – just to guess here – number 130. Dan Sullivan is a fantastic business consultant and entrepreneurial expert. He counsels and coaches entrepreneurs. His company is called the “Strategic Coach.” He is great and I did a great interview with him on the show way back like episode number 130, I think it was, and Dan Sullivan makes this point. He says when you go to Europe, it’s really beautiful, of course, and it’s—this is especially when North Americans go there – their perception is there’s so much culture and so much history and beautiful architecture and museums and art and fashion and food and it’s just so cool and so great in so many ways, but if you actually move there and you say you start a business in almost any country in Europe, and you tried to get anything done, you find that the whole continent, and this is not just true of Europe but it’s true of other countries as well, that have a lot of culture and a lot of history. In the U.S. you can bash us here and Americans say, “You know we’re so Nouveau riche [LAUGHING] or we don’t have any sense of culture in history, and you’d be right if you’d say that, because most Americans don’t. You’re absolutely right so I’m kind of leveling the playing field. When a person or a country or a culture is so rooted in its past, it becomes hard to change, and I totally noticed this with Dan Sullivan and he talked about it too. He said, “You try to get anything done and it’s like all these road blocks come up.” and Britney, I gotta tell you. I’m not always the easiest customer, sometimes I am, but in the different hotels I stayed, there are a lot of times the internet wasn’t working and I got put into a crummy room and there is a man I’d ask to change the room or get the internet fixed or whatever it was and it’s like nobody really can lift a finger. It’s kind of the attitude.
BRITNEY: Yeah there’s never been any customer service of what we consider customer service.
JASON HARTMAN: It’s a tragedy. I mean it really is. I remember being in this one hotel in Spain and the internet didn’t work and I said, “What’s the problem with the internet?” and they tried to explain it to me. They blamed it on Telefónica, the provider, right. I walked over where they had some computers that were plugged in at a little business center area. People were using them and I said, “Does the internet work to the people there?” They showed me, “Yes, it’s working.” Well, I walked back to the front desk and I said, “It’s not the internet.” The internet is—they tried to tell me the internet in the entire town was down and it wasn’t, blaming it on the provider. I said, “No, the problem is with your router or your wifi system.” They couldn’t understand this, and believe me, there was no language barrier here, okay. I do speak a little Spanish but I didn’t even really need to. It was just this attitude of – they’re working on it. Someone else is gonna fix it. It just nothing is urgent and this whole concept of, whenever you’d have a problem or a challenge in a European city, it would be this is the procedure and you’re supposed to abandon any thinking out of the box because this is the way it is. That thinking is so rooted into—you know and I just wanna say it, the European mentality – and again, I love Europe, okay. I’ve thought about moving to Europe. I still might. I love a lot of the cities there and they are just neat, but, gosh! It’s like road block, road block, road block.
BRITNEY: And Jason, you’d think with their unemployment that there would be a ton of people out there willing to step up and maybe go above and beyond, like those employees that you were mentioning but it’s really not. You see the same people working at that front desk for years, whereas – there are so many people being a recent high school or college grad here – it can get very discouraging trying to find the job. We were looking up the statistics earlier we came across.
JASON HARTMAN: Oh, yeah, it’s mind boggling. I mean, yeah, in Spain right? And I talked about this on the show before. Overall unemployment, and this is the official numbers, Britney. I have no idea how these other countries may or may not manipulate their numbers. We know the US does it for sure and we –
JASON HARTMAN: Had John Williams on our prior, show the founder of shadowstats.com. He does some great analysis on the stuff. This is what the government was saying, the employment rate in Spain of 26.6%, and that is the general unemployment rate. That is how it was in the Great Depression back in the 30s in the US, but then you looked at the [UNINTELLIGIBLE] employment in Spain 56.5% for workers, if you can call them that. I mean, they are not workers, they are not working under 25 years old. This is shocking and you know when I was in Barcelona, Britney? I have been to that city before and having loved it the last time I visited. It’s covered in graffiti. It’s dirty. There is litter all over the place. I mean it’s sad.
BRITNEY: Well, for me that was most of the cities that I went to actually –
JASON HARTMAN: Yeah.
BRITNEY: I mean Paris for sure. Paris has graffiti everywhere. They were saying – a couple of the places we stayed – I’ve watched different house hunter shows and different things on TV as well, and people will often make comments about the graffiti. The real estate agents in the area will just reassure, whether they’re renters or prospective home buyers, that the graffiti has no effect on what that neighborhood is like. There is graffiti everywhere, even in the nicest neighborhoods to the poorest neighborhoods. That’s just how it is.
JASON HARTMAN: Yeah, it’s amazing. When I see a lot of graffiti, what that means to me, it either means gang activity or it means a lot of young – probably males – with no job and nothing to do. They’re just causing trouble and getting into trouble. Yeah, France has definitely changed a lot. And you know, the US is the most mobile population. People move here. They trade their homes. They don’t live in them a long time – and you can certainly criticize that and say – hey, people have no sense of roots in the US. They move around too much. They don’t have a sense of belonging permanently and community orientation and there is some truth to that. I completely agree, but from just an economic standpoint, that velocity, like the velocity of money when we talked about economic, is that is the velocity of people. It’s important that people can move and go to where the jobs are and go to seek opportunity in a more mobile culture. When I went to visit my old house, I was texting my mom pictures of street corners. It’s the little apartment building in Germany and she said yep, that’s the one. Finally, I waited and there was graffiti around the bottom of it, and some guy finally walked in because it had a locked door to get in the small four-story apartment complex. I said, hey can I come in? I used to live here when I was, like, 1 year old, and he said, sure. He let me in and I looked around. The startling thing, Britney, nothing has changed. In the decades ago that I lived in that property, it’s the same. [LAUGHING]. I mean it’s the same. It’s like they didn’t tear it down and build the beautiful glass encased high-rise building. They didn’t even tear it down and build another building. They didn’t remodel it. [LAUGHING] You know, these things just stay. They’re stagnant in a lot of places, so I don’t know. It was very enlightening. I’ve been reading about how the real estate market in Spain is so devastated, how the opportunities in Croatia are so great. I looked at property in a lot of these markets, and I’ve got to tell you, I did not find anything so far. My biggest hope for a local market specialist, Britney, was in Malaga in the south of Spain, which was beautiful. I was pleasantly impressed. Maybe it was the comparison with Barcelona, where I was disappointed with Barcelona, but it’s like a little Monaco down there. It’s super expensive, gorgeous, a lot of Saudi money flowing into their mansions owned by the Saudi royal family. One was an exact replica of our White House. I mean that’s kind of weird that a Saudi prince would go and build a replica of the White House, 1600 Pennsylvania Avenue, in Malaga, Spain. That is kind of odd but whatever [LAUGHING], I don’t understand it. Rolls Royces, Lamborghinis, Ferraris driving around the streets. Very posh. A little flat costs 750,000 Euros not dollars, Euros –
JASON HARTMAN: So multiple times 1.3, right, but incredible yachts in the harbor. There are some properties – not very far, about 10 minutes away – I call them outlying areas, that almost make sense and we might do a show on the JetSetter Show about real estate opportunities in Malaga, but I didn’t find anything in Croatia that made sense. It kinda seems like the [INDISCERNIBLE] [0:16:23] definitely been discovered, I mean there’s tons of tourists there and it is gorgeous for good reason. When you go back – Britney, you’ve gotta go to Croatia. Super impressed with Croatia.
BRITNEY: I heard, I know, but I got over there this time but –
JASON HARTMAN: Beautiful. People were really nice. The prices weren’t too high – the prices everywhere I went were higher than the United States, would you agree with that?
BRITNEY: Yes, definitely.
JASON HARTMAN: Yeah, everything was more expensive. In Iceland, oh my Gosh, in Iceland, I had a 19-dollar hamburger [LAUGHING].
BRITNEY: Well that’s worse than Switzerland.
JASON HARTMAN: Yeah, it is worse than Switzerland. It is really expensive in Europe. What’s interesting about that is people commonly ask me, hey Jason, in a lot of ways you’re very pessimistic about the future of the United States. We have so much that is gonna create inflation. The standard of living is gonna decline, and I think that’s true, and I think Europe is a great – and when I say Europe, of course, it is stereotype because it differs country by country and city by city – I completely get that. I’m making a blanket statement here, but I think European cities are very good example of what is in store for the United States. And what I mean by that is this. People say to me when I give some of my very pessimistic predictions about the future – especially as they relate to rather high inflation – they say, Jason, if it is gonna be so bad, who’s going to be able to afford to rent my investment property from me? Here is my answer. Something has to give, so in Europe when you look at how people live in Europe, what has to give is what gave. Food is expensive, housing is expensive, everything is more expensive there. They don’t have very many big box discount retailers like CostCo and Sam’s Club and Target and Wal-Mart. These kind of things are uncommon there. They don’t even have big supermarkets. We started that in the US, so we have much more efficient governmental systems because we have less socialism, although it’s going in the wrong direction [LAUGHING]. God bless Obama. He is in Arizona today so I’m guarding my wallet [LAUGHING]. I’m I’m holding my wallet because I know Obama is not far away. I wouldn’t get out there in a car because I’m sure the traffic is bad too, but we’re moving in that direction, unfortunately. What has to give? Well, the standard of living has to give. People would just live in a smaller house in an inferior neighborhood. They will have less clothing in their closet, less gadgets in their house. They will just have lower quality food, and they will still have to rent some house. You can catch the people who were doing better in 2013 by the time it’s 2018. If you’ve owned your properties for five years, you can catch them moving down the economic ladder. Some people you might catch them moving up but I say, on balance, more people will be moving down than up. That’s just the unfortunate reality. I don’t like it, but I think it’s the future, and I think we need to be landlords to serve these people and to provide housing for them. I’ve got to say something else too, Britney, and I’m sure you noticed this to when you were traveling around Europe. It is just amazing to me how – though Europe has more socialism than we do in the US – there are still these capitalist countries, of course. It is amazing to me how you can just show up in a foreign city and everything you need as a human being is there for you as long as you can pay for it. There is food for you to eat. There is a place for you to stay. There is a shower for you and a bathroom. There is an iron for you to iron your clothes in some hotels. [LAUGHING] Not all of them. There is transportation for you. You walk out of an airport – I mean – I remember I walked out of one airport. It was like 2:30 in the morning. There was a line of taxi cabs waiting to take me wherever I wanted to go. Isn’t it incredible how free markets just organize themselves? How efficiently capitalism works? It, amazing to me. It’s such a blessing. It really is such a blessing to all of us. So, hopefully we can keep the government away, whether they be in Europe or in the US, and we can have more capitalism and less socialism and be more prosperous. But either way, our investment plan works pretty darn well. [LAUGHING] So that’s my thought. What else do you think?
BRITNEY: I couldn’t agree more. It, it makes more sense the more we talk about it and being over there, seeing everything, you know we’re headed in that same direction. People need to rent houses. Why not rent it to them?
JASON HARTMAN: Yeah, exactly. Be there and provide that housing for them and you can create a lot of wealth for yourself in doing it. Before we go to Meredith Whitney, our guest today, Britney, let’s talk a little bit about the membership website and the upcoming property tour. And we have made the executive decision today to provide an executive property tour. [LAUGHING] And what do we mean by that? Well, we mean instead of going through all of the work of doing a Creating Wealth Seminar or boot camp in that city when we do a tour, we will do a very brief tour where you can come and go quickly. Tell them about what we have coming up, Brit.
BRITNEY: Yeah, I think our investors are really gonna enjoy this because we do have so many busy lifestyles out there, you know, a lot of business-oriented people that just don’t have time to take a long weekend to travel out to wherever it is to visit all these homes. So, what we put together for them is a very quick tour. They can even fly in and out that morning, depending on where you’re coming from. It will be Saturday, actually September 28, we’re gonna be doing it in Austin. This time around and, the next executive tour is gonna be somewhere else, but it’s gonna be from about 9 a.m., we’ll feed you breakfast. We’ll start touring around the city, going to see the different properties that are currently available in that market with the local markets specialists. We’ll stop for lunch somewhere. We’ll be back around 4 or 5 p.m. in the evening. And if you need to head out that night, you can. I’m sure we’ll get a small group to go to dinner if you’d like, but you’re not obligated to. We’ll head out from there and we’re limiting this –
JASON HARTMAN: Twenty people, yep.
BRITNEY: Yeah, this time around, it will be about 20 just because we have had a little bit of talk about it and we know several people, many people, that are gonna want to come to this but it might even be smaller in the future. When these do become available on the website, just make sure you sign up right away if you are interested.
JASON HARTMAN: Think about the convenience of this. If you live close by, in another Texas city for example, you could fly in that morning to Austin. And fly out in the afternoon or early evening. If not, you can fly in Friday night. You only have one-night hotel and then you can just fly out on Saturday evening. And you can make it to church Sunday morning. It’s pretty good for busy people who don’t wanna commit a whole weekend to this tour, but we’re trying to not have to set up a big tour bus and coordinate with the hotels for the seminar, room and several different meals, and all of that stuff. It takes a lot of resources on our part to set that up. We’re trying to do this, what we call executive tours, kinda like an executive summary, and you can get in and out to see the properties, buy a property potentially, if you’re interested in one, really quickly. Go to jasonhartman.com. You can register for this. The price will be $297 and that includes breakfast and lunch and the tour and I will be there, of course. And we’ll have our local market specialist and some of our investment counselors there as well. If you become a member though, and remember, that membership we are really trying to increase the value of it and you know a lot more good stuff to come. You get a 20% discount on what, Britney?
BRITNEY: On any upcoming events or educational products that we have listed in our current store, any products, you could go on there right now if you’re a member and buy those at 20% or more off actually.
JASON HARTMAN: Yeah. So, so think about the way this works on a tour. The tour is $297. The way you want to do this is to sign up and become a member beforehand, because that’s only $10 a month so $120 a year. You’ll get a half year’s membership fee paid right away on the savings on the tour because you’ll save $60 on the tour. Definitely, become a member first and then sign up for the tour and you can do that all in just a couple of minutes on the website at jasonhartman.com. You’ll get a whole bunch of other member benefits. Britney, tell everybody about the next members’ monthly conference call that you’re posting on the website just here in the next day or two. What was the topic on that one?
BRITNEY: Every month we have a conference call with our members and, whether it’s Jason or one of our investment counselors, discuss the topic. Those are live. You can come on the call and ask questions. The recorded version does get put back up on the site. I will post here today and this last one was on best practices for 10-plus investment properties as far as financing goes. You know, a lot of our investors have 10-plus properties and they’re maxed out on their –
JASON HARTMAN: On their Fannie Mae lines, yeah, right.
BRITNEY: On Fannie Mae, yeah.
JASON HARTMAN: Because, and what she means 10 plus is, if you have more than 10 properties, more than 10 loans, it’s hard to get financing. That was the topic of the last call and we had one of the mortgage experts. I’m talking about ways to get around that, right?
BRITNEY: Exactly. So, just more added value and education as far as real state investing goes, and it’s right there for you. Really convenient right there in the members-only section.
JASON HARTMAN: Good. Fantastic. So, check that out at jasonhartman.com and Britney, thanks so much for talking to me about Europe today. We will witness the calamity that is going to occur there because it has been bad in Greece and next we’ve got Spain, Italy, and Portugal, and Ireland. They’ve got their own sets of problems. I don’t know. I don’t think Germany can save the world, [LAUGHING] okay?
JASON HARTMAN: And I certainly don’t think the US can either. Well, we’ll see as things unfold but remember, in every crisis, there is opportunity. The Chinese have a symbol that they use – is the same symbol for crisis and for opportunity. Literally translated that means crisis is an opportunity riding the dangerous wind. There is always opportunity out their folks. Keep listening to the show to discover where it is and check out some of the properties at jasonhartman.com. Britney, let’s get Meredith Whitney on here. We will be back with her in just about 60 seconds.
ANNOUNCER: Are you interested in a property outside of our network? Do you need a second opinion? No problem. Let Jason’s experts evaluate the deal. Our deal evaluator is only $50. For more information, go to jasonhartman.com now.
JASON HARTMAN: It’s my pleasure to welcome Meredith Whitney to the show. She is the founder of Meredith Whitney Advisor Group and author of Fate of The States, The New Geography of American Prosperity. She is a banking analyst, a frequent guest and contributor on CNBC, Fox Business, and Bloomberg News. Meredith welcome. How are you?
MEREDITH WHITNEY: I am good. How are you?
JASON HARTMAN: Good. Great to have you on the show. You talk a lot about the different problems with the states and municipalities and how the geography – well, as the title of your, the subtitle of your book would imply – how the geography of prosperity is changing and the sort of feedback loop that is going on between businesses coming and going from various localities and tax revenues changing and so on and so forth. Tell us about that if you would.
MEREDITH WHITNEY: Well, what happens is, what I see over the next, you know, 10, 20 plus years is the strong states getting stronger and the weak states getting weaker, which is responsible for who is largely responsible from that is the scars left from the housing bust, has impacted certain states more than others. Housing built in subsequent bust means that um, many people are over leveraged, from the consumer standpoint, and many governments are over leveraged from state and local government perspective. The commonality of both is that both assumed that home prices would never decline, so spending continued, the leverage continued and then, when the housing bust occurred, both were lost with – this is both the government and the individuals – very difficult decisions in terms of how to get the path to balance all that, uh, balance all that out. So a consumer obviously had to de-leverage, cut back dramatically, and government had to de-leverage, cut back dramatically. When the government, or so, when a consumer cuts back, that pain is felt by the individual consumer. When the government cuts back that pain is felt very specifically by every tax payer, so if the tax rate go up, services go down, and you get into this feedback – negative feedback loop – whereby people are paying more, getting less, so rich people and businesses live, therefore weakening the tax base still further. So services cut, get cut even further and that is your basic cycle, a very difficult cycle to break. On the other hand, in the strong state, the strong states that don’t have a de-leveraged government, don’t re-leverage consumers are spending higher tax receipts, more investment in the states, better services, attracting more people and so you see that, I am sorry, I mean by the weak getting weaker and the stronger getting stronger.
JASON HARTMAN: Yeah, it certainly is true. I mean, just from real estate only standpoint, when property prices are up, property tax revenues go up, of course spending goes up in the local economy, home improvement and so forth but then, when the property prices decline, everybody starts disputing their property tax assessments. Revenues decline and some people just don’t pay, so you have the foreclosure rate and so forth, but is it different this time. I mean, I grew up in California and spent the vast majority of my life there, until about two years ago, and now we are seeing another nonsensical speculative frenzy form. But I guess when Bernanke creates so much fake money out of thin air, [LAUGHING] you know it is bound to happen again and again. You look at a state like California, that is so important on the national scene, and it seems like the middle class is just flunking out of it. People at some point decide it is just not worth it, but then you’ve still got a lot of money there. You see real estate prices increasing again. I kind of can’t believe it.
MEREDITH WHITNEY: Well, they are increasing also, in very low levels, and just to get back to, just a second, it becomes extremely expensive for rich people who pay more and want to live in California. They will have to pay more to live in California because, as the services cut back, you have to pretty much cover these services or substitute these services with your own money. So if a school bus line gets cut back, you have to drive your children to school. If, as an example, libraries are closed, then you have to figure out a place for your kids to go to after class, before you get home from work. It is disruptive and becomes incredibly expensive for all parties involved and then ultimately, let’s talk about the middle class. There is a high structure on employment rates in California, so are people going to be able to afford to live in states like California, when there is no job creation and, as businesses do move outside of California, then there will be fewer and fewer jobs inside of California. I really believe Americans go where the jobs are. They are not driven by home ownership. They are driven by opportunity and opportunities around jobs.
JASON HARTMAN: Could not agree with you more. Job creation is, is critical and people go where the jobs are. No question about it. You talked, Meredith, about the interior states, and you know, of course North Dakota has its own oil boom going on, but a lot of our investor clients are looking at places like Indiana, Texas, Georgia, many other places as well and how attractive these states are compared to the coastal states California, New York, and Florida. Just give us a little more insight on that, if you would and what the future holds there? I mean, we talked about it, but I want to get a little deeper on that.
MEREDITH WHITNEY: Sure. You know when I talked about North Dakota in my book, I am using it as an example because it is such an outlier in terms of opportunity growth, personal income expansion, and so, I don’t want to live in North Dakota. Okay, then don’t because you can’t. LAUGHING] Ah there are many people living in North Dakota, fine but you have, you know, 8% of the population living in Texas. You don’t pay income taxes and sales taxes. There is incredible job creation in Texas as there is in places like Indiana, Tennessee, Utah. So many states within the central core or tracking businesses are creating jobs, creating opportunity, and that’s just really exciting. You are going to go ultimately where you are going to find the highest quality of life for you, and the jobs in North Dakota are paying. They’re paying 20 bucks an hour for work in quick service restaurants, like McDonald’s. You could not get that in New York. You could not get that in other areas. They are paying because they need to attract people. It is easy to say, “Oh my gosh, I have the equivalent job and that the standard of living was the equivalent, would you take Des Moines or California? Most would take California. But it’s not the equivalent standard of living. It hasn’t been and it’s increasingly no longer even comparable.
JASON HARTMAN: Yeah, it’s amazing you know. I look at, you know, I remember back to my days in California, leaving it two years ago, and I mean, so many people, Meredith, they’re living in literal shacks. I mean little crappy, tiny apartments and with parking problems and just – the quality of life just isn’t good, you know. Could that same person on a lower income move to Texas? Or Arizona or so many other places with their own, you know, have their own sense of beauty to them. You know, it doesn’t all have to be waves on the beach which, those people don’t live at those places anyway. You know [LAUGHING] they don’t live in Malibu. They don’t live in the coastal areas of Newport Beach. They live interior and, and it’s just a much better deal in my opinion.
MEREDITH WHITNEY: The original idea was the California was a better deal, right? People, the people are not dummies. They’re going to reside where they saw the opportunity was, but there, you know, since the current crisis, the opportunity has changed and shifted and that’s what I want people to be really aware of.
JASON HARTMAN: Yeah, well, it seems to me that a place like California is riding on a reputation that it gained 30 years ago. I mean, it just –
MEREDITH WHITNEY: Or a 100. Over the last 150 years, yeah.
JASON HARTMAN: Sure, well, I’m not going back to the gold mining days. [LAUGHING], minding that –
MEREDITH WHITNEY: [LAUGHING]
JASON HARTMAN: But you know, I am going back to the days that it was really a nice place to live, a lot of television and movie production came out of there and people around the world saw California, maybe the last example of that is Baywatch. [LAUGHING]. I don’t know, but yeah, it’s just really changed. It’s amazing to me, when you look at the public schools in California, and they are just decrepit, places falling apart that haven’t had a coat of paint in over a decade. Then you go to Texas and you look at gorgeous public schools that look like, really like universities. I mean, they’re beautiful with big stadiums and facilities galore and it’s just an amazing contrast. There really is, I mean, people, if they haven’t gone and seen this for themselves, they really just, they don’t know. They’re living in a small world. Oh, I looked at the schools I went to in California and they’re just – they just have no money.
MEREDITH WHITNEY: Well, here’s something interesting. If you look at the last seven years, the rate of tuition at four-year colleges, California public universities, has doubled. Right, where it has not in states like Ohio, and has moved barely in states like Wyoming. So it’s a lot more expensive to access public education in a state that was so famous for it’s exemplary education system.
JASON HARTMAN: I couldn’t agree more. Tell us about your outlook on, and by the way before I say this, you know, if people don’t know, you became very well-known back in 2007-2008 when you made a big prediction about CitiGroup that was contrarian at the time, wasn’t it? Maybe tell us about that first because I want to ask you some of your predictions or outlook on some other things, but can you give us a little background on it?
MEREDITH WHITNEY: Well, in 2007, I could really see the market decline financial crisis. The day that I issued the report that said that CitGroup would have to raise 30 billion dollars to 100 billion on assets and cut its dividend, the market went down $400 billion and that was the beginning of a year and a half worth of real chaos in the markets. I looked at things, you know, at a very simple level. CitiGroup was far over leveraged, far worst leveraged than any of its peers. Very shortly after that, I appreciated that the scope of the problem was so much bigger and again for, you know, 15 months or so, that was the direction that the market was going, and I was ahead of it the whole time.
JASON HARTMAN: So, you made that prediction about CitiGroup and that, you know, really obviously that whole sector was in so much trouble, but CitiGroup especially. Then, I guess, number two to CitiGroup was probably BofA, right?
MEREDITH WHITNEY: I would say that it was Citi, it was Merrill Lynch over UBS. BofA was very involved but not as – the damage was not as bad as City, UBS and Merrill. Those were not only institutions that originated a lot of [UNINTELLIGIBLE] products, oh and obviously their insurance agreements, but also bought a lot of products. So there were lots of troubles spots in the market back then.
JASON HARTMAN: When I asked that question, I was just talking about the sort of retail-consumer type banks, although, I know all of those entities you mentioned.
MEREDITH WHITNEY: Sure.
JASON HARTMAN: Probably have a hand in that market as well, but what are your thoughts and what is your outlook on housing prices, jobs, just generally around the nation, if you want to be geographically specific – I’d love that – but maybe discuss your outlook there before we let you go.
MEREDITH WHITNEY: Okay. As I outlined in this book, and there is so much data that supports this, the US economy is a merging market style growth in the central corridor and there is economic stagnation on the coast. When you look at a number 2-1/4% GDP, it really is not telling you the full story. The full story is that, again, a country of two economies. So I think the US economy is rebalancing itself. If I may just give an example, in 2006, the central core of 17 states that I talked about were a mere 23% of US GDP, states over 25% of GDP, so it is carrying more of the weight of economy, but it is really rebalancing of a large number, so let’s see. In terms of the broader economy, it’s all about structural shift again that the United States goes through every 40 to 60 years. I am actually incredibly optimistic about the economic opportunities within the US. They just happen to look different from how they were over the last 40 to 60 years.
JASON HARTMAN: Yeah. Sure. I mean one of the things you say is forget everything you think you know about the direction of the American economy.
MEREDITH WHITNEY: Yeah.
JASON HARTMAN: About the growing need for foreign oil, about the rise of the service economy and the decline of American manufacturing. The story of the next 30 years will not be repeated with the last 30. Do you want to mention any sectors there, the people should be paying attention to?
MEREDITH WHITNEY: Well, actually, it is every sector, so think about how you would have approached investing 40 years ago and over the last 40 years. Had you known there was going to be outsized growth in the Sun Belt, you would have bought the home builders. You would have bought the financials in those areas. You would have bought transportation companies, um the restaurant companies, materials company.
JASON HARTMAN: Right and I would have bought bunch of houses too. [LAUGHING]
MEREDITH WHITNEY: Yeah, well, there is one part of the market that it is the fastest. There is not a lot of home development in terms of new building permits. There has not been in this area, you know, let’s say, forget Texas, we’re not Texas, but [INDISCERNIBLE] [0:42:43] has gone up dramatically. You know, the hedge fund investors buy all the equity. They spent the last three years buying up land in those areas.
JASON HARTMAN: So what about housing, in general. Any general statement about that?
MEREDITH WHITNEY: Oh, so then in housing, you mentioned California, the house home prices have picked up. Phoenix, Arizona, has been the area in the United States that has had the most dramatic balance year in and year out in real estate values, but real estate values are still, home prices are still 45% lower than they were at the peak of the market, so surely, they are better than they were, but in no way are they where they need to be to get people sold on housing.
JASON HARTMAN: Okay, so what does that mean?
MEREDITH WHITNEY: It means don’t get too excited about the housing. Housing is all about employment, GDP, and household formation, and you have that in the central corridor. You don’t have them on the coast.
JASON HARTMAN: Right, right. I agree. I mean, it is cheaper in many of these good areas that make sense – Texas, Indiana, other places as well. It is actually a better deal to own than to rent and that to me –
MEREDITH WHITNEY: But you can also afford more if you have a job.
JASON HARTMAN: Yeah, right, right obviously [LAUGHING] yes, and you actually have a job there rather than being on some sort of government assistance or being a discouraged worker who is not counted anymore so, very good points. Well, anything you would like to say, anything you would like people to know in closing?
MEREDITH WHITNEY: Go out and buy the book. I mean, it is really, it is a fast read and these are really important issues.
JASON HARTMAN: Fantastic. Well, Meredith Whitney, thank you so much for joining us today. The title of the book is Fate of the States: The New Geography of American Prosperity is the thesis of it. I could not agree more. Thank you for joining us today and reinforcing some of these ideas.
MEREDITH WHITNEY: Thanks so much for all the smart questions.
ANNOUNCER: This show is produced by The Hartman Media Company. All rights reserved. For distribution or publication rights and media interviews, please visit www.hartmanmedia.com or e-mail [email protected] Nothing on the show should be considered specific personal or professional advice. Please consult an appropriate tax, legal, real state, or business professional for individualized advice. Opinions of guests are their own and the host is acting on behalf of Platinum Properties Investor Network, Inc. exclusively. (Image: Flickr | EnergeticNYC)
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