Gary Shilling’s Insights Newsletter is always full of interesting market commentary. While he’s been excessively bearish on the equity market in recent years, Shilling has nailed the overall macro outlook including the weak economic outlook, bear market in housing and the debt deflation environment. His latest monthly newsletter contains some good macro investment themes for the investor who is not overly enthusiastic about the economic backdrop:
“The turmoil in the Middle East has introduced considerable volatility into security markets and threatens global oil suppliers and the worldwide economic recovery. So have the earthquake and tsunami in Japan, the prospective hard landing in China, the continuing sovereign debt crisis in the eurozone and the renewed drop in U.S. house prices. In this environment, we’re investing cautiously.
Treasury bonds (favorable) Treasurys have rallied as a safe haven in a sea of trouble. Slowing growth and looming deflation will also favor Treasurys. These are available through security brokers, banks and www.treasurydirect.gov as well as via ETFs and futures contracts. Standard & Poor’s warned of a possible downgrade of Treasurys if the deficit isn’t seriously addressed until after the 2012 election, but the market dismissed the threat promptly. After failing to call the collapses in Enron, Worldcom and subprime mortgages, rating agencies have little credibility. Inflation fears are nearly universal, but commodity inflation is unlikely to spawn a wage-price spiral given high unemployment and ample global capacity. Also, both agricultural and industrial commodity prices may have broken (see Commodities below).
Income-producing stocks (favorable) Included are utilities, drugs and telecoms with high, safe and rising dividends. Also, master limited partnerships. They can be purchased individually or through ETFs.
The dollar vs. the euro and the yen. Also the Dollar Index (favorable) The eurozone remains in deep trouble and the buck is the world’s safe haven. The international intervention against the yen on March 18 may have marked its high water mark. Implement this theme with futures contracts and ETFs on the dollar index as well as put options. With almost everyone dumping on the dollar, it may soon rally, especially against the euro.
The dollar vs. Australia dollar (favorable) Australia has become a Chinese colony as the island continent’s minerals are dug up and sent to China. And China is in the “stop” phase of her stop-go economic policy. Implement this theme with futures.
Eurodollar futures (favorable) This theme depends on the Fed continuing to keep rates flat in the face of an uncertain economy, but this is becoming less certain beyond late 2011. Big moves in eurodollar prices are small in absolute terms, so an investor needs the leverage of futures contracts to make meaningful money. Calls on the futures are also available.
Rental apartments (favorable) are gaining 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.
North American energy (favorable) As a nation, the U.S. has decided to reduce dependence on imported energy from high-risk areas such as Venezuela, Africa, Russia and, especially, the Middle East. We like conventional energy investments including natural gas. New nuclear facilities may be postponed in the wake of the earthquake and tsunami in Japan. Renewable energy depends heavily on unpredictable government subsidies. Implement with futures, ETFs and individual stocks.
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. Implement with REITs and direct ownership. See “The Outlook For Health Care and Medical Office Buildings,” page 30.
Sell your house, second home or investment single-family houses yesterday, if you plan to do so any time soon (unfavorable) Excess inventories are likely to push prices down another 20%. See “Still Home Sick,” page 1.
Sell homebuilders in view of the deteriorating housing outlook. See “Still Home Sick,” page 1. Developing country stocks (unfavorable) China is likely to have a hard landing. Implement with ETFs on China related stocks.
Commodities (unfavorable) The commodity bubble may be beginning to break as others join us in thinking about a hard landing in China, falling U.S. house prices and troubles in Japan and the eurozone. Oil may be the exception with Middle East uncertainty. Implement with stocks, ETFs and futures. We’re short copper and sugar.”
Source: Gary Shilling’s Insights
Am I missing something? Why would he advocate owning rental property but not your primary residence?
OTS, Rental rates are going up across every market in this country. With home ownership not affordable for a lot of people despite prices falling, many people that normally wouldn’t are turning to rent. He mentions income producing stocks as well. If you own a rental property, the value of the building in the short term isn’t all that important as long as you have good cash flow from the rental units coming in to pay your mortgage. He like many believe with people out of work and unable to sell homes to move where jobs are, that rental rates are going to keep increasing. He also isn’t all that bullish on this space as he says owning rental units “may” still be attractive.
OTS where are all the people who can not afford a home are going to live? I would even say rental buildings with a lot of small units are the best.
So you believe he is saying that prices for multi-unit properties will decline less that single family homes?
Shilling’s advice rarely pays out in the short term as he is always way too early in his forecasts but his big bearish calls have been right. His investment advice is dreadful if you have a short term, follow the trend oportunistic, trading orientation in your investments. If you are patient and have nerves of steel, holding onto his recommendations may provide good to mixed results. e.g., he’s been calling por the euro’s demise virtually since the euro came out forecasting parity or even worse against the dollar. Even though this may turn out to be the case in the long term when, as u know, we’l all be dead. This is yet to occur. At present, his BIG contrarian calls is being USD bullish and 30 year stripped treasuries bulish despite Qn (i.e., despite all the liquidity the fed has and may continue to create. I greatly respect his macro forecasting skills so, I unlike JImmy Rogers, continue to mantain a signifcant usd position via stocks, cash, and long T bonds, in addition to the dollar bear/inflation hedge stuff (e.g, gold, gold miners, foreign equities). I am roughly following the permanent portfolio strategy. Not because I want to but because I don’t know any better in this environment and having retired at 46, capital preservation i a key consideration. If I were to follow my animal spirits, I would put HALF my money into 30 year strips and have a ball if Shilling turns out to be right. The long T is so universally hated that the contrarian devil in me keeps pushing me to make the move. However, I also continuosly hear this loud little angel’s voice: ‘U greedy SBO! if U turn out yo be wrong, U’l be wiped out!
Sorry about all, the typos, bad puntuation, run on sentences, etc. in my sporadic posts. About 6 months ago I switched from PC to cell-phone browsing and it is a pain in the neck just typing, never mind editing. I write from a sheep farm I own in Morrocoy National Park, Venezuela, where I spend part of the year putting up with the disaster Chavez has made out of this country. I do it just for the fun. It never gets boring here. Never need to hit the malls to kill time. Why the hell we come here? The movie Hurt Locker and this old cartoon, Cool Mc Cool, come to mind, as Venezuela, particularly the urban areas, are now lot more dangerous than Irak and RIO/SAO PAULO at their worst.
Octavio,
We Americans really appreciate all the international readers here at pragcap. It’s easy to get trapped in our little bubble here so it’s nice to get the alternative perspectives. It’s great to have the diversity that we do here on the site so don’t sweat the typos, etc. We know everyone is not from the states. In fact, I am pretty sure that the most regular commenters these days are probably 30% abroad. It’s a welcome development for all of us so thanks.
Thanks Cullen. I was born in Venezuela. My father came from Italy and my mom is from here (fourth generation spanish, who originally came here as farmers). I moved to the US in 1978 to attend college (Columbia U. BS CHEM E./MBA; MIT PHD Operations Research) and taught at U. Mass Boston for 15 years. I also went trough P&G thinking/writing school and I am not an anonimius poster. That is why I am concern about the poor quality of my posts. But tge urge to post overcomes that.
BTW, I mention school names and degrees but bragging is not my intention. I did si because this allows me to say with autority that school names and degrees don’t mean much in isolation. Intelligence ans education do not correlate perfectly with those. I am shocked at the number of mediocre people/people with terrible manners and modals with PHDS/degrees from big name schools I’ve met and continue to meet. The mean may be higher but the large standard deviation in the normal distribution shows up whenever you deal with large numbers, with the lower tail, unfortunately, having a higher probability than the normal distribution would predict (fat tail risk). So, yes, plenty of stupid people with no manners/ethics with PHDS/DEGREES from big name schoold zombie around.
Chris Whalen showing some MMT type beliefs (but not knowingly) and some not in this interview::
http://kingworldnews.com/kingworldnews/Broadcast/Entries/2011/4/29_Chris_Whalen.html
Banks, exchange rates, China, QE analysis, Japan, gold, dollar history, yada.
—
Felix Zulauf showing no MMT type beliefs (knowingly) in this interview:
http://www.netcastdaily.com/broadcast/fsn2011-0430-2.mp3
Inflation, Europe, China, gold, yada.
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Gary Shilling’s Insights Newsletter is always full of interesting market commentary. While he’s been excessively bearish on the equity market in recent years, Shilling has nailed the overall macro outlook including the weak economic outlook, bear market in housing and the debt deflation environment. His latest monthly newsletter contains some good macro investment themes for the investor who is not overly enthusiastic about the economic backdrop:
“The turmoil in the Middle East has introduced considerable volatility into security markets and threatens global oil suppliers and the worldwide economic recovery. So have the earthquake and tsunami in Japan, the prospective hard landing in China, the continuing sovereign debt crisis in the eurozone and the renewed drop in U.S. house prices. In this environment, we’re investing cautiously.
Treasury bonds (favorable) Treasurys have rallied as a safe haven in a sea of trouble. Slowing growth and looming deflation will also favor Treasurys. These are available through security brokers, banks and www.treasurydirect.gov as well as via ETFs and futures contracts. Standard & Poor’s warned of a possible downgrade of Treasurys if the deficit isn’t seriously addressed until after the 2012 election, but the market dismissed the threat promptly. After failing to call the collapses in Enron, Worldcom and subprime mortgages, rating agencies have little credibility. Inflation fears are nearly universal, but commodity inflation is unlikely to spawn a wage-price spiral given high unemployment and ample global capacity. Also, both agricultural and industrial commodity prices may have broken (see Commodities below).
Income-producing stocks (favorable) Included are utilities, drugs and telecoms with high, safe and rising dividends. Also, master limited partnerships. They can be purchased individually or through ETFs.
The dollar vs. the euro and the yen. Also the Dollar Index (favorable) The eurozone remains in deep trouble and the buck is the world’s safe haven. The international intervention against the yen on March 18 may have marked its high water mark. Implement this theme with futures contracts and ETFs on the dollar index as well as put options. With almost everyone dumping on the dollar, it may soon rally, especially against the euro.
The dollar vs. Australia dollar (favorable) Australia has become a Chinese colony as the island continent’s minerals are dug up and sent to China. And China is in the “stop” phase of her stop-go economic policy. Implement this theme with futures.
Eurodollar futures (favorable) This theme depends on the Fed continuing to keep rates flat in the face of an uncertain economy, but this is becoming less certain beyond late 2011. Big moves in eurodollar prices are small in absolute terms, so an investor needs the leverage of futures contracts to make meaningful money. Calls on the futures are also available.
Rental apartments (favorable) are gaining 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.
North American energy (favorable) As a nation, the U.S. has decided to reduce dependence on imported energy from high-risk areas such as Venezuela, Africa, Russia and, especially, the Middle East. We like conventional energy investments including natural gas. New nuclear facilities may be postponed in the wake of the earthquake and tsunami in Japan. Renewable energy depends heavily on unpredictable government subsidies. Implement with futures, ETFs and individual stocks.
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. Implement with REITs and direct ownership. See “The Outlook For Health Care and Medical Office Buildings,” page 30.
Sell your house, second home or investment single-family houses yesterday, if you plan to do so any time soon (unfavorable) Excess inventories are likely to push prices down another 20%. See “Still Home Sick,” page 1.
Sell homebuilders in view of the deteriorating housing outlook. See “Still Home Sick,” page 1. Developing country stocks (unfavorable) China is likely to have a hard landing. Implement with ETFs on China related stocks.
Commodities (unfavorable) The commodity bubble may be beginning to break as others join us in thinking about a hard landing in China, falling U.S. house prices and troubles in Japan and the eurozone. Oil may be the exception with Middle East uncertainty. Implement with stocks, ETFs and futures. We’re short copper and sugar.”
Source: Gary Shilling’s Insights
Am I missing something? Why would he advocate owning rental property but not your primary residence?
OTS, Rental rates are going up across every market in this country. With home ownership not affordable for a lot of people despite prices falling, many people that normally wouldn’t are turning to rent. He mentions income producing stocks as well. If you own a rental property, the value of the building in the short term isn’t all that important as long as you have good cash flow from the rental units coming in to pay your mortgage. He like many believe with people out of work and unable to sell homes to move where jobs are, that rental rates are going to keep increasing. He also isn’t all that bullish on this space as he says owning rental units “may” still be attractive.
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