Courtesy of our good friend (and now intrepid roving reporter) Jonathan Lederer, here’s an exclusive scoop on Gary Shilling’s commentary from last week’s Altegris/John Mauldin Hedge Fund Conference in La Jolla.
1) Deleveraging has barely begun and will last for many more years due to the huge growth in credit since the 50s
2) He still thinks deflation is the outcome
3) Federal budget deficits will stay in the trillions for many years or else unemployment will spike back up and politicians won’t stand for that
4) Savings rates will rise back up to double digits; they came down since the mid 80’s due to people feeling better about their stock market equity and home equity, but the stock market and housing declines killed people and now they have to start saving again, especially with unemployment staying high and baby boomers unprepared for retirement
5) Fed hasn’t influenced the real economy at all
6) Money supply and velocity are still low
7) He said he thinks stocks went up when the fed eased due to pavlovian response of accommodative fed is good for stocks (not overly convincing IMO – JL)
8) House prices will fall another 20% before the market returns to equilibrium
9) He likes the apartment sector
10) High oil is a tax, not inflation with high unemployment and excess capacity
11) He thinks there are parallels between today and revolutions in 1848
12) Weaker US consumers will hurt Japanese exporters which could turn their trade surpluses negative and then create problems given their high sovereign debt levels and declining savings rates due to the older populations. He’s bearish on Japan long-term.
13) Commodity prices are going to come down because of a hard landing in China. He said the bubble has already started to break
14) The Chinese citizens have had little choice except to invest their high level of savings into property because real rates are negative at banks and they can’t put their money offshore. This property bubble will end badly he thinks because of inevitably higher rates given food price inflation there.
15) Buy Treasuries, the dollar, income producing securities, and North American energy, sell banks, junk bonds, emerging market stocks/bonds, commodities and CRE
16) The 30 year UST is going to 3% from 4.4%, says you could make 40% on a 30yr zero coupon bond if this happens.
JL commentary: I hate to say it, but it’s hard to dispute too much of his view.
Jonathan Lederer, CFA is President of Lederer Private Wealth Management.