Gary Shilling’s latest Insights Newsletter contains an updated list of his asset allocation. Shilling is a superb macro analyst. I thought you might find his positioning and insights useful when considering the current environment:
- Treasury bonds (favourable) – Treasurys have rallied as a safe haven in a sea of trouble and in response to slowing economic growth and looming global recession. The likelihood that inflation fears will turn soon to deflation worries will also propel them. The current 3% yield on 30-year Treasurys, however, is getting close to our 2.5% target, the 2008 post-Lehman low. These are available through security brokers, banks and www.treasurydirect.gov as well as via ETFs and futures contracts.
- Income-producing securities (favourable) – Included are stocks of utilities, drugs and telecoms with high, safe and rising dividends. Also, investment-grade corporate and municipal bonds and some Master Limited Partnerships. They can be purchased individually or via ETFs. The dollar vs. the euro, Australian dollar, Canadian dollar and Mexican peso as well as the yen. Also the
- Dollar Index (favourable) – The buck is the world’s safe haven. The euro may break as the financial crisis remains unresolved and the recession unfolds. Australia has become a captive mineral supplier to faltering China. Canada and Mexico are export- and commodity-dependent and tied to the uncertain U.S. economy. The yen is beginning to crack, as we predicted in our April 2011 Insight. Implement this theme with futures contracts and ETFs on the dollar index as well as put options.
- Rental apartments (favourable) – have gained favour by those who can’t afford home ownership and are discouraged by falling house prices. REIT prices seem overblown, but direct ownership of rental apartments may still be attractive.
- Medical Office Buildings (favourable) – The ageing postwar babies, the 2010 health care law and the migration of physicians from private practice to hospital employment will promote robust, steady growth in this real estate sector. But government regulations can be disruptive. Implement with REITs and direct ownership.
- North American energy (favourable) – The U.S. has decided to reduce dependence on imported energy from high-risk foreign areas. We like conventional energy investments including natural gas, on- and off-shore drilling and Canadian oil sands. Natural gas prices continue to fall, but with production rising due to leasehold requirements and desirable natural gas liquids, pipelines are attractive. New nuclear facilities may be postponed in the wake of the earthquake and tsunami in Japan. Renewable energy, including ethanol, is problematic since it depends heavily on unpredictable government subsidies. Implement with futures, ETFs and individual stocks.”
Source: Gary Shilling’s Insights