Gary Shilling Explains Why The S&P 500 Will Plunge To 800 This Year

Gary Shilling

Photo: Bloomberg TV

Financial analyst Gary Shilling joined Bloomberg TV today to give a new round of bearish calls about the U.S. economy, and—his favourite—the housing industry.Of all his bearish predictions, his outlook for equities proved the most frightening; he believes that the S&P 500 will fall to 800 this year.

That’s based on his projections for $80 S&P operating earnings and a P/E multiple for equities of 10x at a bear market low.

“Look at the good news,” Shilling said optimistically. “That’s only 36 per cent lower than it is now. If we go back to the peak in early April it was 43 per cent lower. I mean, we’re getting there!”

His outlook for housing wasn’t any prettier.

Predicting that we have another four years until the market absorbs all the excess housing supply, he said that Americans have finally reached an important realisation that could change their views on homeownership in the future.

“People now realise, for the first time since 1937, that house prices can and do fall,” Shilling said.

“The next event to watch is what happens in the next few quarters,” he continued, arguing that major banks and the government “did not want the bad PR of a big wave of foreclosures” while they were mediating an end to the robo-signing crisis. “Now they’re going to come back with a vengeance,” he predicted.

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