An economy under constant barrage from housing, price inflation, and debt concerns actually has created investment opportunities, banking analyst Meredith Whitney said.
Though she's more widely known for strongly bearish positions—she notably predicted a wave of municipal bond defaults for this yearthat has yet to materialize—Whitney said the beat-down of asset prices is working in investors' favor.
"Fundamentals are not playing into valuations now at all. You've got great companies that are trading horribly, you've got pretty junky companies that are way overvalued," said the president and founder of the Meredith Whitney Advisory Group. "For the first time in three and a half years, I think you can begin to invest fundamentally and make money."
Whitney is probably best known for delivering a forecast that by many accounts was the first and most important warning shot of the financial crisis to come—that Citigroup in 2007 had billions of toxic assets on its balance sheet related to subprime mortgage exposure.
Since then, her opinions draw strong market attention as she has become a cultural touchstone from the financial crisis era.
But in remarks at the Delivering Alpha conference run by CNBC and Institutional Investor, Whitney said the current economic predicament is different than the 2008 crisis, and in some ways worse.
"To me this is really scary from a consumer standpoint," she said. "It's not like 2008, which was just jaw-wrenching. This is a constant beatdown with consumers. There is inflation everywhere you look without wage inflation...That does not sit well with consumers, which power the economy."
The battering of confidence has hit financial assets, particularly banks, in a meaningful way.
Yet Whitney believes some of the aversion to risk is overdone, and she sees pockets of opportunities in what she referred to as the "emerging markets within the United States."
It's a concept she has spoken of before in referring to those areas, primarily the agricultural heartland and areas not as severely impacted by the housing crisis. She said those regions can expand even as the broader U.S. economy remains mired in a slow-growth cycle.
"You have incredible opportunities that are being created outside the U.S. that actually will help the U.S. get out of its morass," she said. "The fact that China goes from a net exporter of food to a net food importer actually benefits the US. The fact that there's increasing global demand benefits the U.S."
"We should not underestimate the fact that there's an opportunity to invest in emerging markets within the United States," she added. "Every generation, the U.S. recreates itself economically."
She said that housing is unlikely to come back soon, so investors need to turn their attention away from states such as California and Florida, where recovery from that crisis remains elusive.
Yet she also encouraged looking at investing in infrastructure assets from states that are selling off assets to balance budgets.
As for investment areas to avoid, Whitney continued to remain skeptical on big banks, which have led the most recent stock market slump amid concerns about regulation along with exposure to European debt and a slowing U.S. economy.
"It's going to be very difficult to make money in the big banks. They're so laden with regulatory issues, unquantifiable legal issues, and lack of growth," she said. "Best case, they're atrophying. Worst case, they're forced to shrink drastically."
