Meredith Whitney More Bullish On U.S.

Maria Bartiromo of CNBC is at the Delivering Alpha conference and she is speaking with Blackrock

CEO Larry Fink, Meredith Whitney, Jim Leech, and Pierre Lagrange. Meredith Whitney said that she is more bullish on U.S. then other markets, for the fact that the U.S has "ermrging markets" within it, namely the agricultural states. She said the fact that China is going from a net food exporter to importer helps the U.S. Increased global demand helps the U.S.. She is a conservative person, and she likes known rules, and we not need to underestimate this. Whitney said that the agricultural rich states have the cleanest balance sheets, and have easier comps as they have not benefited over past 25 yrs from the housing boom. The U.S.'s biggest problems are California and Florida. She believes that housing will not come back because we do not have a national housing policy. We need to highlight the areas of growth, instead of trying to help problem areas. Fink is talking about Europe, and what we are seeing is a lot of de-risking going on. There is a lot of money sitting in cash in Europe, as well as a lot of money that is "short" Europe. The situation in Europe is different from 2008 and 2009. Europe will solve its problems, but Germany will need to be a major player. He does not think we can "spin out Greece" because their liabilities are in Euros. The whole nation would default, unlike Argentina, which had its own currency. No one in Europe would survive a Greek default, as they can not just go from the Euro straight to the drachma. To save Europe, it will require a huge amount of money from the ECB, and the European Union. When asked about a potential Greek default, Fink said that he did not know the definition of default, as they own so many assets, not just Treasury assets. Whitney was asked about investing in the U.S., and she said that growth will be meaningfully lower than current estimates, but we need to realize that the U.S. is more attractive because European banks are loaded with "PIIGS" debt. She mentioned asset managers as being particularly attractive. She said that U.S. companies will have opportunities to grow, but thinks stocks will get cheaper. The fundamentals are not being recognized at all currently. She did say however, that for the first time in three and half years, you can begin to invest fundamentally and make money. It has previously been a macro market. Sovereign wealth funds helped banks in 08, but given those bets have turned bad, Fink thinks sovereign wealth funds will invest for the long term, as opposed to investing for the short term. There is less U.S. dollar investing then in past, and they are as opportunistic as they were in 2008. The world going forward has a greater ability to diversify, there will be less U.S. dollar based investing going forward. He does not see this as unusual, because the world is larger and richer than it was before. He believes that stocks will be higher 10 years from now, but we could go 10%, or 15% lower first. You can not make money making 2% returns in bonds. Low interest rates are harming the vitality of pension funds. To diversify, you need dividend stocks. Fink believes the crisis of the future will be under-investing. Whitney said that the U.S. is grossly behind on infrastructure investing, and that infrastructure investing is desperately needed because we have to improve infrastructure and improve investment returns. Ohio is selling infrastructure investments, and believes more will follow. Fink was asked about what it would take to get European banks back in favor. In U.S. we have uncertainty about leverage, housing, and impact on profitability. U.S. banks by in large in good shape. European banks are dealing with sovereign credit issues. The European banking situation could be seen for years, and we are now dealing with these problems. If it is dealt with the right way, with enough money behind it, the sovereign credits will go back to lower yielding items, and impairments on bank balance sheets will improve. However, this is a binary situation, and investors need to be able to trust governments to do what they did in 2008 and 2009. Governemnts can not force change, and force austerity plans, which will only lead to greater unrest. Europe needs a liquidity bank, perhaps a Eurobond backed by Germany. This will allow other countries to finance their deficits. Fink said that you can still buy European equities, as multinationals will do fine over the long term if you believe govt's will do the right thing. Larry Fink believes that gold stocks are priced at $800 an ounce, whereas gold is around $1,800 an ounce. He believes that investors are running away from equities, which is the reason gold stocks are mis-priced. Whitney said she does not want to touch the big banks, as it will be difficult because of regulatory issues, legal issues, and lack of growth. Whitney said that at best case, the big banks are seeing atrophy. At worst case, they are shrinking. She said to look at where the economy is growing in U.S., and these banks will do well. She also mentioned Turkish, Brazilian and Mexican banks as being attractive. Fink thinks we need another two years before we see relative stability in housing. Housing will be a drag for the next one or two years on the big banks. Fink would avoid 2% U.S. Treasuries. He is more frightened owning corporate bonds yielding 80 or 90 basis points over Treasuries. There are going to be some great credit opportunities in Europe for investors. Jim Leech said he would avoid 2% Treasuries.