Meredith Whitney says economic and banking fundamentals in the US have not changed in the last year. Whitney sounds less optimistic now than when she upgraded Goldman a few months ago.
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Whitney made the following points:
"No bank underwrote a loan with 10 percent unemployment on the horizon".
"I think there is no doubt that home prices will go down dramatically from here, it's just a question of when."
She said local governments and states are chronically under-funded and "most states are under water," adding to the problem of low private consumption.
"If you look at the drivers for unemployment I don't see that reversing very soon," Whitney said.
If consumers were to decide to spend, "that would be a game-changer," but it would be an unnatural thing to do in a recession, she said.
"A lot of themes are constant, which is the US consumer and the small business doesn't have any credit, credit is still contracting." Whitney said.
Consumer debt and consumer credit have dropped according to the latest figures which also show that people have been spending more from their debit cards than from their credit cards.
"Obviously that doesn't bode well for spending," Whitney said.
Whitney maintains only one buy rating - GS - Goldman Sachs still has a lot of "gas in the tank" and it is taking up a lot of what Lehman left on the table.
"Banks are taking advantage of what the government is doing by artificially inflating asset prices so they can ride a steep yield curve and they're going to have a third quarter that reflects that."
The buy rating on GS is a reminder that PIMCO's advice to "shake hands with the government," and the 'new normal," remain significant themes in this market.
Source: CNBC.com, September 10, 2009
