I know I’ve been talking about the population boom in Texas quite a bit lately, and I promise to move to other subjects soon, but I really do feel like this is the biggest story nobody is talking about—especially if you’re on the lookout for stocks to buy.
Most investors like growth. I’m no exception. And in this era of the perpetual non-recovery recovery, the only place to find real growth (on this continent anyway) is deep in the heart of the Lone Star State.
Yesterday, Toyota announced that it is relocating its North American headquarters from the LA suburb of Torrance to the Dallas suburb of Plano.
Toyota is far from the first company to leave California for Texas in recent months. In the last three years, public California companies Copart, Waste Connections, Primoris, Vermillion, Pain Therapeutics, and Tenant Healthcare have all joined the exodus. Many private companies have moved as well, including Santa Monica money manager Dimensional Fund Advisors, which moved to Austin three years ago. But these previous relocations have been minor tremors in terms of employment and tax revenue. Toyota’s move is a major earthquake. It’s the kind of shift that can remake a region.
Unless California gets its act together and rethinks how it treats the private sector that drives its economy, many more vital employers are going to move and the Golden State is going to wind up looking a lot less golden.
I’d like to expand on something I wrote near the end of my last post on the current boom in Texas. As I said, buying into or shorting secular trends is a key investment strategy for me, and Texas’ explosive growth is a major opportunity. But I don’t think most people understand why the state is doing so well. It’s not just because of its low taxes and hands-off regulatory regime. If that were the case, low-tax backwaters like Alabama and Mississippi would be thriving, too. What sets Texas apart is education, especially the public UT system, which possesses the third largest endowment in the country behind only Harvard and Yale.
Dynamic, innovative economic regions–with the highest per capita incomes–always benefit from quality educational systems. Silicon Valley and the Northeast are the most obvious examples. But other places like North Carolina’s research triangle have also been fueled by great schools. The reason for this isn’t rocket science. You simply can’t have sustained economic growth without a steady supply of smart, highly educated people.
The problem is that schools cost a lot of money. And most states these days–especially the state where I live, California–spend far more on prisoners, public employees, and old people than education. It’s a disturbing secular trend, so disturbing that if California were a stock, I’d short it.