Gary Shilling, well-known financial analyst, market strategist, and author of the must-read book, The Age of Deleveraging, tells Financial Sense Newshour that the US is and will continue to be stuck in a low growth environment of around 2%. Also, given the global trends outlined below, he offers his investment outlook on bonds, stocks, commodities, and the US dollar.
Here is a partial transcript of his interview that just aired on the Newshour Podcast page and on our iTunes page.
Financial Sense: What's your general investment outlook?
Gary Shilling: I think we are in this period of slow growth, which is continuing, and I don't know how many years but I don't think it's over yet by a long shot and from that I think there's three things or major developments. One is we're seeing weakness in commodity prices... Secondly, is the threat of deflation. You just have excess supply in the world—there's a lot more supply that was developed a decade ago when everyone thought that China was going to consume all the commodities in the world and the excess investment into mining, mines, copper, coal, iron ore... The third thing that is driving our investment strategies is this competitive devaluation. You have some countries whose currencies are going down against the US dollar because they're commodity exporters like Canada, New Zealand, Australia, and Mexico...but then you have the eurozone and Japan—they're deliberately trashing their currencies because they say, 'If we have a cheaper currency...it's going to increase import prices and they want inflation and also it'll increase exports...
FS: Given the three things you just listed above, how are you investing?
GS: First of all, we like long-duration Treasuries. I've been a big fan of Treasury bonds since 1981 when the yield on the 30-year Treasury was 15.21%. It's now down about 3.5% and I think it could go to 2% in a year's time or so. And if that's correct, you'd make in terms of total return an appreciation as interest rates go lower plus the coupon, you'd make about 25% on your money. We also are negative on commodities. We think that commodities are simply not the place to be. If you're in the mind to sell short, I think there's some beautiful shorts still available in the commodity area. In terms of stocks and the dollar, we are very bullish on the dollar against almost any other currency: the Australian dollar, the Canadian dollar, the New Zealand dollar, the Mexican peso, the euro and pretty much across the spectrum. And then, finally, in terms of stocks, we have a very defensive position. Defensive meaning we want things people buy regardless. These are things like utilities, consumer staples, healthcare—things that regardless of how good the times are, people are going to buy them. They also tend to have higher than normal dividend yields...
FS: Are there any areas overseas you think investors should consider?
GS: We're interested in stocks over in Europe and Japan. They're going through the same quantitative easing that drove US stocks earlier and I think you have the same effect there. But you have two caveats: one is that you have to do that on a currency-hedged basis because if the dollar is rising, if you don't have the currency hedged in effect, what you make in terms of a rise in stocks in euro terms, you give back because the dollar is strengthening against the euro. And the second caveat is that this assumes the US stock market is going to continue on a risk-on basis. In other words, it's still going to have an upward tilt because if you have a big spill in the US stock market—and I'm not predicting that, but I'm saying if you have it—well, if you get a big down day in US stocks, you know how stocks are going to open a few hours later in Tokyo and a few hours after that in Europe. They are going to follow suit on both the up-side and down-side.
To listen to the entire interview, please log in and visit our Newshour Podcast page or click here to subscribe.
