GARY SHILLING’S 6 FAVORED ASSET CLASSES
7 March 2012 by Cullen Roche
18 Comments
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 (favorable) – 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 (favorable) – 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 (favorable) – 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 (favorable) – have gained favor 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 (favorable) – The aging 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 (favorable) – 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
Skip the 3% yield on Treasury Bonds and go for the Series I instead. You get a similar payout to the 30 year, but only have to hold it for one year (sacrifice 3 months interest if cashed before 5 years). It also can’t fall below par value (deflation), is state income tax exempt, and can’t be traded or stolen.
It pays 3.06% right now, but will probably be readjusted upwards on May 1st due to the increase in energy prices.
Limit $10,000 a year.
1. Yes, I expect the USD to go up as well in the coming deflationary disaster. But the USD a safe haven ? He’s got to be joking ! And a (sharply) rising USD is the worst nightmare for the spendthrift politicians in Washington D.C. because it’s a sign the entire financial system system (including in the US) is crashing/is coming apart at the seams.
2. Although Gary Shilling along with David Rosenberg still favours T-bonds, both have become more cautious about T-bonds and rightfully so. That 30 year bull market is coming to an end.
3. I would prefer corporate bonds over stocks of the same companies. Because dividends will be cut and even eliminated in order to be able to pay the bondholders.
4. Energy is a commodity and demand for commodities WILL go down the drain in the coming deflationary storm/disaster.
5. I didn’t and I won’t touch any real estate with a ten foot pole in the last 12 and the next 10 years. And the events since 2006 here in the US convinced me to continue to rent.
Shilling Sticking to S&P 600 Target, Despite Pressure to Cave
Posted May 13, 2009 10:55am EDT by Aaron Task in Investing, Recession
Back in early March when the market was in freefall, many of the hardcore bears like Doug Kass, Barry Ritholtz and Richard Suttmeier flipped to a bullish view. Not so for Gary Shilling, president of A. Gary Shilling & Co., who stuck with his bearish stance here on March 12.
Fast forward to today: despite a 30%-plus rally off the March lows, Shilling is still sticking with a target of 600 for the S&P 500 in 2009. Shilling concedes the rally has been powerful and that he’s getting some “flack” from clients about possibly having missed a major turning point.
Kass and Ritholz are not bears, they are traders. I read Ritholz’s Big Picture blog. He’s been mostly bullish last 2 years.
Akron Beacon Journal : BEARS SAY RECESSION IS POSSIBLE \ …
$2.95 – Beacon Journal – NewsBank – Feb 15, 1995
Gary Shilling, president of A. Gary Shilling & Co. in Springfield, NJ, sees the recession arriving even earlier — perhaps by the middle of the year. …
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CASH MAY BE INVESTORS’ KEY TO KEEPING TIME WITH FED’S ORCHESTRATION
[3 STAR Edition]
Orlando Sentinel – Orlando, Fla.
Author: Dick Marlowe of The Sentinel Staff
Date: Sep 9, 1994
Start Page: B.1
Section: BUSINESS
Text Word Count: 612
Abstract (Document Summary)
A. Gary Shilling expressed an interesting view of the current economic situation recently. Writing in the July 18 issue of Forbes magazine, Shilling – an economic consultant and investment adviser who is president of A. Gary Shilling & Co. – said the money-tightening strategy of the Federal Reserve won’t turn out any different this time than it has before. “The Fed has tightened 13 previous times in the postwar era,” Shilling wrote, “and in 9 of those, it continued to raise rates until a recession resulted.” High interest rates, he explains, are not kind to corporate earning, and “recessions have a way of causing earnings disappointments.”
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Some say earnings must fall
Pay-Per-View – San Diego Union – Tribune – ProQuest Archiver – May 30, 1995
Capital goods are booming But they are a small part of the economy Consumers still represent twothirds of it Springfield N.J.based economist A Gary Shilling …
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LAUREN COLEMAN-LOCHNER, Staff Writer
The Record (Bergen County, NJ)
07-12-1996
PROPHET OF DOOM RESOLUTE — N.J. ANALYST WARNED OF RISING DOW JONES
By LAUREN COLEMAN-LOCHNER, Staff Writer
Date: 07-12-1996, Friday
Section: BUSINESS
Edition: All Editions — 3 Star, 2 Star P, 2 Star B, 1 Star Late, 1 Star Early
As the Dow ascended and the world applauded, there was none more
miserly with praise, no bear more bristling, than Gary Shilling, the
Springfield sage who heads Shilling & Co., an economic consulting and
investment firm.
Shilling had been skeptical of the zealous march of the Dow long
before it heaved itself up over the 5,000, …
Read all of this
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Recession in ’95? One economist is saying so
Pay-Per-View – San Diego Union – Tribune – ProQuest Archiver – Jul 12, 1994
Economist A Gary Shilling is all by himself again far out on a limb … The consensus was for economic growth of 2.6 percent Shilling looks for a decline of …
Related web pages
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Article: THE DOW CLOSES IN ON 5,000 – The Record (Bergen County, …
Pay-Per-View – The Record – ProQuest – Nov 17, 1995
A Gary Shilling president of the economic consulting and investment firm Shilling & Co said he’swaiting for the other shoe to …
Related web pages
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A whoop-de-doo economy can be confounding
Pay-Per-View – San Diego Union – Tribune – ProQuest Archiver – Mar 15, 1998
But economist A. Gary Shilling of Springfield, N.J., disagrees. The most likely scenario, he says, is that the Asian flu will wallop U.S. profits, …
All 9 related – Related web pages
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St. Louis Post-Dispatch : SHORT GAME: THEY HOPE FOR MARKET …
$2.95 – St. Louis Post-Dispatch – NewsBank – Feb 12, 1994
A. Gary Shilling, president of A. Gary Shilling & Co. of Springfield, NJ, with assets of $100 million, believes the market might have peaked last week and …
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The Atlanta Journal and The Atlanta Constitution : ATLANTA BUSINESS: …
Pay-Per-View – Atlanta Journal-Constitution – NewsBank – Apr 17, 1994
More pessimistic is Wall Street analyst A Gary Shilling who thinks were in a bear market that will be like a Chinese water torturea relentless neverending …
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Article: MASTERS OF THE MUTUALS – The Record (Bergen County, NJ) | …
Pay-Per-View – The Record – ProQuest – Dec 7, 1994
A Gary Shilling a noted economist who runs a hedge fund predicted that the bear is about to go on a tearIm short everything in sight he announced …
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Business outlook.
Pay-Per-View – Chicago Tribune – ProQuest Archiver – Oct 16, 1995
… shocks warns economist A Gary Shilling who forecasts thatearnings reports over the next year will almost certainly disappoint investors making the stock …
Reply
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hahahahah I love these posts. Phenomenal.
Further – Schilling has been calling for a Chinese “hard landing” for the last two years. He just copies and pastes prior year forecasts into a new year. Ridiculous.
Most of the articles are dated ’94-’95. Only two are not. You can’t pretend you haven’t made a bad call in the market.
1. Timing is always a very precarious thing. A lot of folks know problems are coming but when those problems are coming is very hard to predict.
2. According to my info the US economy was at its best in the 4th quarter of 1997. Although the US economy recovered from 2003 up to 2007, it never went back to its 1997 strength level. So, he may be a lousy timer he certainly was right in 1994 & 1995.
Shilling recommends Income-producing securities (favorable) – Included are stocks of utilities, drugs and telecoms with high, safe and rising dividends.
I’m holding the ETF’s VYM and SPLV (low-volatility). What other good dividend-paying stocks and/or ETF’s do readers recommend? In this case, Shilling is like Rosenberg, who advocates Safe Income at a Reasonable Price. The key question: are the prices now for dividend equities reasonable??
As mentioned above, I would prefer (corporate) bonds over (dividend paying) stocks. And when those dividends are shrinking then I would ditch the bonds as well. But that’s my personal (biased) view.
A quick note on medical office and apartments: unless you are a bazillionaire who can afford his on in-house management team to properly source, underwrite and MANAGE, this sector makes absolutely no sense. The reality is most investors, up to and including those with seven and eight figure taxable asset bases, can’t access deals with the necessary economy of scale to make this work. Finally, by definition, apartments and medical office are the same asset class: real estate.
OK all you nay-sayers.
Shilling’s #1 investment (Stripped Treasury Zeros – EDV for you ETF folks) has trounced the equity markets nearly ten-to-one since 1982.
Folks who followed that advice are SET-for-life!
Smile…
Who speculates on a 30 year time horizon?
Calling apartments and medical buildings the same asset class (real estate) seems a bit obtuse. It would be like calling PG and FSLR the same asset class (
equities). Also, the fact that Mr. Market is renting because of uncertainty in real estate kind of falls right into half of Schilling’s rationale.
ZEROHEDGE had a very interesting post featuring two videos from a guy called Grant Williams. In the second video he goes “”off the deep end”" because he predicts hyperinflation. Another guy that doesn’t know the difference between money/currency and credit.
(ZEROHEDGE seems to have a inflationary bias ?)
But the first video was the most interesting. In it Williams featured four (4) bull markets. And of those four bull markets three bull markets (gold in the 1970s, the Nikkei index in the 1980s and the NASDAQ in the 1990s) ended with a “”blow off”. The 4th bull market (gold in the 2000s) didn’t have a “”blow off”" (yet ??). That changed my mind. I now personally think that we’ll have a “”blow off”" in gold still up ahead (in the next say 2, 3 or 4 months) before gold completely collapses in the upcoming deflationary storm.
When I look at the “”blow off”" graps then it comes to mind that in the late 1970s there was another market that experienced a “”blow off”": The T-bond market with yields blowing higher. But since 1980 there has been a bull market in government bonds and it will – IMO – end with a “”blow off”" in T-bonds as well. But now with yields blowing much lower.
http://www.zerohedge.com/news/grant-williams-simplicity-owning-gold
TPC, Perhaps this is something for a new separate post ?
I’ve written about this in the past. I do think gold will become a full blown bubble at some point. http://pragcap.com/there-is-a-high-probability-of-an-irrational-bubble-in-gold
A. Gary Shilling rishes three false notions:
1. “”Peak oil is NOT a problem.”"
2. “”The US exposure to Europe is limited”". Europe and the US are joined at the hip.
3. “”There will be only a mild deflation”". I expect HYPER-deflation.