Some of the statistics coming out of Detroit, which on 18 July became the largest US city ever to file for bankruptcy, with $18bn (£11.7bn) of debt, are staggering. The population of the spiritual home of the US car industry has fallen by a quarter in the last decade alone and, from a high of close to two million in the 1950s, has now dropped to 700,000.
Obviously there is a deeply sad vicious circle at work here and it is hard to blame any Detroit resident for wanting to move. Some 76,000 homes and buildings in the city lie abandoned, two-fifths of all streetlights do not work and it averages an hour for the emergency services to respond to ‘911’ calls – partly because only a third or so of Detroit’s 36 ambulances were in service in the first quarter of 2013.
So why, aside from the jaw-dropping nature of some of the above numbers, are we flagging up Detroit’s plight on The Value Perspective? In recent articles such as The nature of things and Dizzy heights, we have argued the importance of selectivity when it comes to investing in the US – whether that is in regard to valuation, sector or market capitalisation.
Plenty of commentators and investors are bullish on the overall prospects of the US but Detroit’s travails remind us that, underneath the broader figures, lie huge disparities in demographics, wealth, debt and so forth. Overall GDP growth for the US may now be a positive number but presumably it is a negative one in Detroit. Could any other US cities be approaching a similar position?