**13/09/10 - 8.06am - by James Gerrish**
I read an interesting article in the AFR over the weekend that quoted Meredith Whitney, the US based banking analyst that came to prominence by correctly flagging the troubles at Citigroup prior to the crisis in 2008. She has since started her own shop and tends to have quite a large impact on banking stocks whenever she speaks.
In an article titled 'How to Kick Start the US Economy', she presents an interesting point of view and gave a perspective that I hadn't really thought of about a possible way out for the struggling US economy. When you think about it, the biggest question mark over the global economy is the huge debt levels in the US with Government Deficits now running at more than 9% of annual GDP. If the debt can be reduced to manageable levels, this will go a long way to supporting a more sustainable recovery in the US.
The majority of major US infrastructure is publicly owned. Toll Roads, Airports and Ports etc. Currently, there is a significant amount of corporate cash sitting on the sidelines looking for some type of relative return. At the moment, it seems that US Treasuries are attractive at 2.6% for 10 years ( I think this is ridiculous and the last thing I’d buy) so another alternative is likely to draw some attention. Local Governments are struggling with falling property prices reducing their revenue and high unemployment undermining confidence. 70% of US GDP is driven by domestic consumption and the majority of this was a direct result of strength in the property market - That party is now over..!
By looking to privatise major US assets it could deliver much needed cash for Government’s which would reduce debt, Corporate’s could borrow at favourable rates to purchase the asset while investors would benefit from the ability to buy into quality infrastructure with relatively stable long term returns. If we look at Europe, it’s a model they have used successfully in the past and its one alternative for US policy makers.
Macquaruie Group (MQG) would be one company well positioned to take advantage of any move by US policy makers to venture down this route. They're a company that does infrastructure funds very well and have been expanding operations in the US during the downturn. They have more than $1 billion in cash over and above regulatory requirements and looking at their recent profit downgrade, would be very keen to grow revenues. (MQG currently looks bearish but one stock I’d keep on the radar over the next few weeks/months)
This would be a major structural shift in the US and one I don't think will happen for some time - but it does show that there are options to reduce the massive debt in the States.
Last week we saw continuing improvement in Macros data out of the US (largely employment). This prompted buying into riskier assets and equities benefited.
On Friday, the DOW JONES added another +47 points or +0.46% to close at 10415. In the UK, the FTSE 100 rose +7points or 0.14% to close at 5494. Locally, SPI Futures are pricing in a rise of +12 points this morning.
The Aussie Dollar spiked on Friday trading to a high of 93.07c which was our that I flagged about 2 months ago.
