GARY SHILLING’S FAVORITE 2010 TRADES

Gary Shilling has become infamous in the last few years for predicting the credit crunch and the bear market.  The bearish investor still believes deflation is the dominant force at work and that the credit crunch is in the process of unfolding.  But he isn’t bearish about everything.  The following are his 6 buys:

1. Buy treasury bonds – the safehaven trade will return.
2. Buy income-producing securities – high quality dividend names will be a safe place to hide.
3. Buy consumer staples and foods – consumers won’t stop buying the necessities.
4. Buy ‘small luxuries’ – consumers are trading down.
5. Buy the U. S. dollar – still the world’s safehaven currency.
6. Buy eurodollar futures.

Unfortunately for market bulls Shilling is generally bearish about stocks and the global economy.  His 11 sells:

1. Sell U.S. stocks in general – U.S. stocks are just too expensive.
2. Sell home-builder and selected related stocks – home prices will fall 10% in 2010 and the stocks will tank with it.
3. Sell big-ticket consumer discretionary equities –  consumers aren’t buying luxury goods due to the trade down.
4. Sell banks & other financial institutions – the days of big bank profits and bailouts are over.
5. Sell consumer lenders’ stocks – consumers will continue to deleverage.
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 – the real estate bubble is a slow motion train wreck.
10. Sell most commodities – the dollar rally will crush commodities.
11. Sell developing country stocks and bonds – there will be no decoupling.

Cullen Roche

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.