Gary Shilling has been one of the few macro economists who has nailed most of the big trends during the Great Recession. His 2008 predictions prior to the market implosion were remarkably accurate. In his latest Insights column Mr. Shilling highlighted 5 favorable and unfavorable trends for an uncertain market:
Favorable:
- Treasury bonds – Treasurys will continue to rally as a safe haven in a sea of trouble, slowing growth and looming deflation.
- The dollar vs the Euro – The eurozone remains in deep trouble and the buck is the world’s safe haven.
- The dollar vs Australian dollar – Australia has become a Chinese colony as the island continent’s minerals are dug up and sent to China.
- Eurodollar futures – This theme depends on the Fed continuing to keep rates flat in the face of an uncertain economy at least through the middle of next year. Big moves in the eurodollar prices are small in absolute terms, so you need the leverage of futures to make meaningful money. Calls on the futures are also available.
- Income-producing stocks – Included are utilities, drugs and telecoms with high, safe and rising dividends. Also, high grade munis, corporates, preferred stocks and master limited partnerships.
Unfavorable:
- U.S. stock market – With the slowing U.S. economy, looming deflation and likely resumption of eurozone woes, stocks in general appear vulnerable.
- Commercial real estate – REIT’s look overblown in view of the continuing commercial real estate woes.
- Banks and other financial institutions – Medium size banks are laden with questionable commercial real estate loans, and large banks are under a cloud with the ongoing eurozone crisis.
- Commodities – Many commodities are priced in dollars, so the greenback’s strength depresses their prices. Also, popular sentiment is moving toward our forecast of slow global growth in the second half of 2010 and beyond. All will reduce demand for commodities as stockpiling in China ends.
- Chinese stocks – Chinese stocks remain questionable as the “stop” phase of her stop-go economic policy reigns.
Source: Gary Shilling
Mr. Roche is the Founder and Chief Investment Officer of Discipline Funds.Discipline Funds is a low fee financial advisory firm with a focus on helping people be more disciplined with their finances.
He is also the author of Pragmatic Capitalism: What Every Investor Needs to Understand About Money and Finance, Understanding the Modern Monetary System and Understanding Modern Portfolio Construction.
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