Economist Gary Shilling has for sometime now said, that he expects the
“Grand Disconnect between robust security markets and subdued-at-best economic reality,”to close.
He believes the Fed taper could just be the shock that gets the ball rolling. Though the Fed still needs to clarify when it plans to begin tapering its monthly $US85 billion bond buying program.
The global economic outlook is mixed at best. On one hand growth is slowing in China, strikes might be coming to Syria, and tightening is coming to the Fed’s easy monetary policy. On the other hand, Europe is emerging from a recession ane growth returning to Japan on the other.
In his latest Insights newsletter, Gary Shilling writes that their investment themes now “tilt toward risk-off.”
Here are the main investment themes:
- “Long Treasury bonds, but modestly. They’ve been beaten up, maybe too much so. Also, they serve as an anchor against a sudden Grand Disconnect-closing shock.”
- “Short commodities in view of continuing declines in commodity prices as well as the slide in Chinese growth and the quenching of her thirst for commodity imports.”
- “Long the dollar, the safe haven in a global sea of trouble.
- “Short commodity-exporter currencies, especially the Australian dollar due to the vulnerability of that country’s exports to flagging growth in China.”
- “Short emerging market stocks and bonds. Those economies are export-led, and with slow U.S. and European growth, global export demand is weak. The Fed’s impending tapering is forcing many developing lands to raise interest rates, to the detriment of their economies.”
- “Short U.S. homebuilders. The housing market is too dependent on rentals, with first-time homebuyers absent. The one percentage point rise in 30-year fixed mortgage rates is starting to slow activity.”
- “Short the U.S. stock market, but modestly.”
Shilling publishes his report every month, and here’s what changed from last time.
- “Deleted: Long positions in utilities, consumer staples and health care in view of a possible sell-off in stocks.”
- “Deleted: Short yen and long Japanese stocks. It’s been a great run, but appears to be on hold for now, especially as global stocks weaken and the yen resumes its safe-haven role.”
Shilling however continues to remain cautious and is advocating “heavy cash positions.”
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