Monday, January 5, 2009

Gary Shilling's 2009 predictions

In the January 2008 issue of his INSIGHT newsletter, Gary Shilling outlined his 13 investment recommendations for 2008:

1. Sell or sell short homebuilder stocks and bonds.
2. If you plan to sell your home, second home or investment houses anytime soon, 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.

(Now here are his 2009 predictions. -AM)

December 19th, 2008
January 5th, 2009

Folks are going to go on a 'savings spree'.
Saving is going to be cool. Making virtue out of necessity.

The S&P 500 could fall to as low as 600 in 2009 and "alternative assets" like commodities and currencies will provide no shelter for investors.
There are "few good places to hide" in 2009. The bond market's rally is getting long in the tooth.

Other than defensive plays like utilities and consumer staples, Shilling is short stocks. His "S&P 600" prediction, a 33% drop from current levels, is based on a view that S&P earnings will be $40 per share next year and the index will trade with a P/E multiple of 15. (Says this[P/E] is on the high side, but interest rates are low, may be higher by end of the year due to an expectation for a recovery in early 2010.)

Sees another 20% decline in home prices. Doesn't see the decline being over until the end of 2010. Goods and services recession only really started late last year. Consumer discretionary will take a hit and there won't be a positive effect from the Obama stimulus until the end of 2009. Tax cut will be like the tax rebate last summer, mostly saved and used to pay debts.

Likes dollar and some high grade corporate and municipal bonds. Thinks that the GDP hit we take will be less than the hit the rest of the world takes - especially export dependent nations.

Shilling is negative on commodities and remains bearish on emerging markets,especially China. The theory China could "decouple" from the U.S. doesn't hold up to scrutiny, Shilling says, as evinced by the slowdown of China's economy and the fact their middle class isn't large enough to sustain growth internally.
He sees the potential for major social upheaval.

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