We had Gary Shilling on TechTicker this morning. He was as bearish and charming as always.
Last summer, our guest Gary Shilling of A. Gary Shilling & Co. predicted that stocks would fall 30%. That hasn’t happened yet, but the extraordinary bull run that made idiots out of many of Wall Street’s greatest gurus last year has now finally reversed, and Gary is sticking by his bearish guns.
At Dow 10,000, Gary says, stocks are still priced to reflect a strong economic recovery throughout 2010 and 2011. And that’s not going to happen. Consumers still account for more than 70% of the spending in the U.S. economy, and consumers are retrenching. The value of their assets has plummeted, so they’re finally saving again. They’re unemployed. They’re tapped out. Put all that together, and consumer spending will continue to be weak, and the overall economy will only grow 2% a year.
When the market finally realises that its dream of a v-shaped recovery is too optimistic, stocks will go lower–perhaps much lower. In fact, Gary thinks there’s a 40%-50% chance they’ll crash right through the bear-market lows set last spring.
So what’s an investor to do?
Buy Treasury bonds, Gary says. Contrary to the concerns of they hyper-inflation crowd, the world is awash in excess capacity. We have too much production capacity, too many houses, too much labour. Overcapacity leads to deflation, not inflation. So today’s 4.5% long-term Treasury yield will go to 3%, making bondholders 25% in the process (50% if you buy zero-coupon bonds).
And buy the dollar. At the end of last year, everyone agreed that the dollar was going to continue to collapse. That was your cue to get the heck out. It’s not that we don’t have serious problems with deficits and debt in the U.S., Gary says–it’s that our problems are less bad than the problems facing the Euro. Gary thinks the dollar will rise back to parity with the Euro, a major move from the ~$1.35 it takes to buy a Euro today.
And sell commodities. China is overheating, and as it corrects, it will take global commodity demand down with it.
In short, Gary says, do exactly the opposite of what everyone was telling you to do at the end of last year.
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