It’s hard to find anything in investing that everyone agrees on, but one thing almost everyone agrees on right now is the theory that bonds are terrible investment because interest rates are about to soar.
In fact, over the last several years, a parade of respectable economists and strategists have made the seemingly obvious observation that “interest rates have nowhere to go but up,” suggesting that anyone who is dumb enough to buy bonds will get killed.
And, so far, they’ve all been wrong.
One strategist who has not been wrong about bonds is Gary Shilling of A. Gary Shilling & Co.
Shilling has been pounding the table on 30-year Treasury bonds for years, even as almost every other strategist dismissed this view as loony. And, for years, 30-year Treasury bonds have delivered spectacular returns.
Well, Gary Shilling is still banging the drum for 30-year Treasury bonds.
Instead of going up, Shilling says, interest rates will continue to go down. And his projected move, from a 2.6% yield on the 30-year Treasury to a 2.0% yield, would deliver another very compelling return.
How about stocks?
Shilling is negative on stocks, especially in light of the recent rise. He’s not predicting an absolute calamity, but he thinks the U.S. is headed into recession and earnings on the S&P 500 could fall to about $80, versus the current projection of $100+. This, combined with a “bear-market price-earnings multiple of 10X,” Shilling argues, could send the S&P 500 plunging to 800.
(OK, maybe that is, in fact, a calamity. The S&P 500 is trading at 1,400 right now. A fall to 800 would be a 40% plunge.)
And how about commodities, which everyone else seems convinced you absolutely have to own?
Commodities are headed down, Shilling says. The world is going into a recession, and China is headed for a “hard landing.” As that happens, demand for commodities will continue to drop. And prices will fall. His favourite commodity short is copper.