Shilling is definitely worth listening to. He predicted 2008 meltdown. Consider these forecasts Shilling put out at the beginning of 2008:
* 1. Sell or sell short homebuilder stocks and bonds.
* 2. If you plan to sell your home, do so yesterday.
* 3. Sell short subprime mortgages.
* 4. Sell or sell short housing-related stocks.
* 5. Sell or sell short consumer discretionary spending companies.
* 6. Sell low-grade fixed-income securities.
* 7. Sell or avoid most commercial real estate.
* 8. Short commodities.
* 9. Sell or sell short emerging market equities.
* 10. Sell emerging country bonds.
* 11. Buy the dollar before long.
* 12. Sell or sell short U.S. stocks in general.
* 13. Buy long Treasury bonds.
Granted Shilling’s 2009 predictions were not as accurate.
Here are Shilling’s 2010 predictions:
The good news: Six buys for 2010
1. Buy treasury bonds – CHECK with monster rally!
2. Buy income-producing securities – CHECK since dividend yields are way above money market.
3. Buy consumer staples and foods. – CHECK
4. Buy ‘small luxuries.’
5. Buy the U. S. dollar.
6. Buy eurodollar futures
Now the bad news: 11 sells for 2010
1. Sell U.S. stocks in general.
2. Sell home-builder and selected related stocks.
3. Sell big-ticket consumer discretionary equities.
4. Sell banks & other financial institutions.
5. Sell consumer lenders’ stocks.
6. Sell many low- and old-tech capital-equipment producers.
7. If you plan to sell a home or investment house, do so yesterday.
8. Sell junk bonds.
9. Sell commercial real estate.
10. Sell most commodities.
11. Sell developing company stocks and bonds.
The Chances of a Double Dip
By Gary Shilling
Investor attitudes have reversed abruptly in recent months. As late as last March, most translated the year-long robust rise in stocks, foreign currencies, commodities and the weakness in Treasury bonds that had commenced a year earlier into robust economic growth – the “V” recovery.
As a result, investors early this year believed that rapid job creation and the restoration of consumer confidence would spur retail spending. They also saw the housing sector’s evidence of stabilization giving way to revival, and strong export growth also propelling the economy. Capital spending, led by high tech, was another area of strength, many believed.
Not So Fast
But a funny, or not so funny, thing happened on the way to super-charged, capacity-straining growth. In April, investors began to realize that the eurozone financial crisis, which had been heralded at the beginning of the year by the decline in the euro, was a serious threat to global growth. Stocks retreated (Chart 1 ), commodities fell and Treasury bonds rallied and the dollar rose. It is, after all, just one big trade among these four markets, so their correlated actions on the down as well as the up side aren’t surprising.