While Lazar, vice chairman and co-founder of International Strategy & Investment (ISI), is full of praise for the “resilient” private sector and ongoing corporate profit recovery, she is less enamoured with Washington.
Lazar pointed to the University of Michigan’s Consumer Survey of Government Policy, which has hit an all-time low this year. Previous low spots included the crisis of 2008, and the election losses of George Bush in 1992 and Jimmy Carter in 1980; the latter led to a dramatic turnaround in the fortunes with the radical reforms of the Ronald Regan-led Republican government of the 1980s.
Current causes for concern include the stagnant housing market and high tax rates which have contributed to there being no real net job creation in the US for the past decade.
“US policy makers are just kicking the can down the road,” said Lazar. “We need major fiscal reform while federal debt to GDP is at 100%. We are similar place now as we were in 1979 and 1980 with high inflation, but no one wanted to bite the bullet and deal with it.”
“If Washington rallied and put in a five-year plan, or even a four-year plan, of credible deficit reduction, PE ratios would go up and consumer confidence would flourish.”
ISI’s own Company Survey has shown a steady improvement in business confidence, something Lazar attributes to yield increase in the financials sector – where US banks already have “cleaned house” and are in a better situation with regards to leverage than their European competitors – as well as cost cutting from domestically-focused businesses, and growth from multinationals with exposure to growth markets.
How the multinationals will be able to cope with the predicted stall in emerging market growth in 2012 remains debatable. However, Lazar is confident we are seeing something of a “manufacturing renaissance” in the US, helped in part by the fact that China’s costs have become higher, both relative to North America and other Asian economies.
She added: “US manufacturing could benefit from a host of long-term competitive advantages. Among the consequences should be stronger exports, restrained imports and more foreign investment.”
