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Banks no longer are the center of the market universe, with the new leaders to come through manufacturing and productivity, hedge fund manager Meredith Whitney said Wednesday.
Whitney, who made her name in the markets as a bank analyst, said she has seen analyses that put the banking sector as a leader in market growth ahead, and she disagrees.
"The U.S. economy is transitioning from a financial services economy to something much more real," she said at ETF.com's Inside ETFs conference. Whitney added that when that transition involves "significantly less leverage with real manufacturing and productivity, there are going to be growing pains."
The economy is about midway through transitioning from the debt-driven economy that helped fuel the financial crisis, she said. The bright side: Such changes are usually long lasting, continuing for as long as 60 years.
In the meantime, investors will see a climate with heightened volatility and low interest rates, she said. Whitney doubted that the Federal Reserve would be able to fix the structural unemployment problem, despite its years of ultraeasy monetary policy that is slowly coming to an end.
"The jobs that will continue to grow are jobs that require a very high level of education and also jobs that require not a high level of education," she said. "You'll see a bifurcation with that."
The Fed this year is expected to begin raising rates.
"The financial markets are not going to be helped by rising rates," Whitney said.
What will help the economy is cheaper oil prices. Whitney wrote a book a few years ago championing growth of heartland states, and she said that the recent plunge in oil will help drive economic fundamentals.
"Because of the energy revolution in the United States, our relative price and cost to access energy is surely going to be cheaper than China and surely is going to be cheaper than Europe," she said.
Whitney rose to prominence on Wall Street through her now-famous call in 2007, while an analyst at Oppenheimer, that Citigroup would have to slash its dividend due to write-offs it would need to take on bad housing bets.
While the call made her a rock star in the financial world, the road ahead would not be smooth.
In late 2010, after leaving Oppenheimer and opening the Meredith Whitney Advisory Group, she made an equally famous but far less successful call: That 50 to 100 municipal bond defaults would cause upward of $100 billion in damage.
While the muni market immediately moved on the call—delivered on CBS news magazine "60 Minutes"—Whitney's dire prediction soon proved unfounded, tarnishing her credibility.
More troubles were ahead.
As her advisory firm struggled, she opened a hedge fund in 2013. Almost immediately stories began circulating of trouble at the fund amid dismal performance. Some of her biggest investors either were pulling money or demanding their investments back, according to a report from Bloomberg, which said the fund lost money in the first half of last year.
The benefits of inflation—including increased employment and general economic stimulus—is a common reason people think monetary stimulus by the European Central Bank will work.
But Scott Minerd of Guggenheim Partners believes that it's really lower interest rates and increased consumer spending that will get Europe out of its economic rut.
"The real transmission mechanism will be if the ECB is able to introduce enough liquidity into the system to drive up asset prices, and through the process of driving up asset prices, drive interest rates down further," Minerd, chief investment officer of $220 billion asset manager Guggenheim, wrote in a recent client note.
"This would reduce borrowing costs for businesses, which would improve profitability and encourage them to hire more workers."
Many investors believe that declining oil prices are a good thing—for now—though some see $30 a barrel as the break point when the trend turns negative.
Earnings season has provided a good glimpse at how energy is impacting corporate America.
Outside the sector, this is turning into a pretty good quarter. Include energy, though, and things are fairly gloomy.
About 75 percent of S&P 500 companies that reported through Wednesday beat sharply lowered analyst expectations, according to S&P Capital IQ. That's come, however, amid a brutal quarter for energy companies, with the sector projected to show a 22.6 percent profit decline.
Overall, earnings for the fourth quarter of 2014 are expected to increase 4.4 percent, a number that's been drifting higher as results from 51 companies have come in.
The World Economic Forum in Davos has many different topics on the agenda, but this year it coincides with a hotly-anticipated announcement by Mario Draghi, the president of the European Central Bank (ECB).
As part of the ECB's attempts to stimulate the deflation-hit euro zone, Draghi's press conference at 13:30 GMT, with a rate decision due at 12:45 GMT, is widely expected to be the moment the bank's Governing Council launches some form of government bond-buying.
And with some of the most powerful people on the planet all meeting in a conference center in Switzerland, quantitative easing (QE) is one of the hottest topics of the week.
Christine Lagarde, managing director of the International Monetary Fund (IMF), said on Thursday that expectations of a bond-buying program in Europe had already had an effect.
"To a point you can say that it has already worked," Lagarde said on a panel in Davos. "If you look at currency variation and where the euro is at the moment, you can't deny that there is expectations there that QE is about to come and is announced and will be significant."
European laggard economies were poised to benefit from the higher inflation expectations which would come with quantitative easing, Lagarde added. Official figures released earlier this month revealed that the euro zone slipped into deflation in December for the first time since 2009.
"If there is some re-anchoring of inflation in the euro area, those emerging European markets, which are pegged to the euro, will have the benefit of that," she said.
Speaking on the same panel as Lagarde, former U.S. Treasury Secretary Larry Summers added: "I am all for European QE."
A top German official has said the country supports Europe's efforts to kick start the region's economy -- including a quantitative easing (QE) program -- but that other countries have to sell reforms to their citizens.
"The task for Germany now today is, through its own policies, structural reforms, its own investments, to support the EU and the Commission when it brings on to the market, so to speak, its stability package," Sigmar Gabriel, vice-chancellor and federal minister of economic affairs and energy of Germany, said at the World Economic Forum Thursday in Davos, Switzerland.
"But every nation," he added, "has to have the courage to broach such structural reforms and speak clearly about them without making people afraid. This is difficult."
If Mario Draghi wants to have a significant market impact after Thursday's European Central Bank meeting, he better not think small.
The financial world's collective gaze will be focused on the ECB president after the session, during which policymakers are expected to launch a U.S.-style quantitative easing program aimed at injecting liquidity into the sputtering euro zone economy, and goosing asset prices in the process.
History, at least that generated by the Federal Reserve's historically ambitious three rounds of QE, would suggest that the initiative would boost stocks, commodities and bond yields and, hopefully, generate some real economic growth.
However, that's likely dependent upon how aggressive Draghi wants to get with the ECB's version of QE, and specifically whether it can shock a market that already is well aware of the plan.
"Our view is that the extent to which the ECB will surprise markets depends on size (well above market expectation of 500 billion euros) and the extent to which markets will perceive QE as being open-ended," Gilles Moec, European economist at Bank of America Merrill Lynch, wrote in a report for clients. "ECB communication will be the key."
A hedge fund manager told clients he is "truly sorry" for losing virtually all their money.
Owen Li, the founder of Canarsie Capital in New York, said Tuesday he had lost all but $200,000 of the firm's capital—down from the roughly $100 million it ran as of late March.
"I take responsibility for this terrible outcome," Li wrote in a letter to investors, which was obtained by CNBC.com.
"My only hope is that you understand that I acted in an attempt—however misguided—to generate higher returns for the fund and its investors. But even so, I acted overzealously, causing you devastating losses for which there is no excuse," he added.
Among the laundry list of achievements President Barack Obama touted in his State of the Union speech Tuesday was a "shrinking" budget deficit.
While that's true on its face, there's more to the story, and it's likely to become a significant headache for his successor.
Obama and his supporters are correct in reporting that a budget gap when he took office of some $1.4 trillion has been trimmed significantly. The 2014 projection was for a $506 billion shortfall, while the 2015 number comes down to $469 billion, according to the Congressional Budget Office.
"At every step, we were told our goals were misguided or too ambitious; that we would crush jobs and explode deficits. Instead, we've seen the fastest economic growth in over a decade, our deficits cut by two-thirds, a stock market that has doubled and health care inflation at its lowest rate in 50 years," Obama said.
"At this moment — with a growing economy, shrinking deficits, bustling industry and booming energy production — we have risen from recession freer to write our own future than any other nation on Earth," he added later in the speech.
Rising economic inequality is casting a shadow over the World Economic Forum, a conference dominated by the proverbial 1 percent.
Oxfam, in a report timed to the start of the Davos conference, estimated that the combined wealth of the world's richest 1 percent could overtake that of the remaining 99 percent by 2016.
"Inequality is rising, and rising fast," Winnie Byanyima, executive director of Oxfam International, told CNBC on Tuesday. "This is dangerous. It is bad for democracy and for stable societies and it is bad for (economic) growth. The poor hurt."
The World Economic Forum is teeming with elite investors this week, and it's not just to talk their own book.
"Davos," said Blackstone Group spokesman Peter Rose, "offers Steve [Schwarzman] an unparalleled opportunity in a highly efficient way to meet the leading politicians, business leaders, government officials, academics, central bankers and other thought leaders so as to better understand the myriad crosscurrents in the world's economies."
Indeed, most of the more than two dozen hedge and private equity fund managers—including Ray Dalio of Bridgewater Associates, Paul Singer of Elliott Management and David Rubenstein of Carlyle Group—make the long trip to the Swiss Alps to actually think about investing in the year to come, not just to sell potential clients or show their macroeconomic smarts on stage.
Hedge funds in both the U.S. and abroad are grabbing at investment opportunities in a distressed energy sector.
Analysts had expected the price to fall within a range of $17 to $19 a share, up from the original forecast of $14 to $16 a share.
Investors should not fear the market, BlackRock President Rob Kapito said. Here's what he'd do.