The economic fallout from the COVID pandemic will not end when the world begins to recover from its ravages. Those effects will mark the differences between the pre-coronavirus world and the one that follows. The commercial real estate sector, for example, will likely suffer. In his latest monthly Insight report, Shilling, a long-term bear on stocks and long-term bull on bonds, especially long-term Treasurys, lays out many changes in the economy, financial markets and social relationships that he foresees in the post-coronavirus world. Visit the slide show above to see what Shilling says is in store for us and note that direct quotes are from his report.
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I joined the call ten minutes late. Gary Shilling. If you are not familiar with Gary, he is founder and president of A. For more than twenty years, Gary has been focused on deflation. Gary is balanced, smart, and has a strong feel for what is going on. The call was hosted by J. After the call, Wade and I spoke. We talked about what a young CFA, you, or we can learn from someone like Gary. Gary has a feel for blending art and science.
Twenty-plus years of deflation. And he argues that deflation continues to dominate. What does that mean in terms of the direction of interest rates and global risk assets? That concludes my bullet-point notes. So, I like to combine my fundamental thinking with the cold, hard truth of what price is telling us. For example, I think interest rates are heading lower deflation, demographics, etc.
This is why I look to price. It tells me not what I think might happen but what is actually happening. In December , twenty-five out of twenty-five Wall Street analysts said interest rates on the year Treasury were going to go higher, from 2.
Some thought it might be 3. Rates finished the year at 2. They missed one of the best bond performing years in some time. What does one do? I too felt rates would rise that year.
My fundamental view was wrong, but the way I traded bonds was right. My go-to then was the Zweig Bond Model and it remains my go-to today. Bottom line: look at what price is telling you.
No model is perfect. Nor is following your fundamental research. You need to find a high-probability process you have confidence in and then stick to it.
I like price. I post this chart every week in Trade Signals. First, the rules. This is a price-based model that looks at both the movement in price and the movement in yields. Each of the five indicators is measured and the overall signal is based on the total model score. Chart 2 : Here is a look at the same chart showing drawdown comparisons drawdowns are the periods of loss :. One last note on the Zweig Bond Model.
It is equally informative in trading Treasury bonds as it is trading the Barclays Aggregate Bond Index. ZBM remains my go-to. New to my line-up of indicators is a process that measures the rate of change in the yield on Baa-rated corporate bonds. Pending approval from NDR to share the Chart. When in the neutral zone, returns were 0. That happened about All risk assets are priced off the discount rate and when rates rise, risk assets come under pressure.
I shared this next chart with you last week. It shows what happens to bonds when rates rise and fall. The high yield signal moved to a sell from a buy. The indicator is designed to highlight short-term swings in investor psychology. When cash is high and margin debt is low, investors have more available money to put to work. More buyers than sellers, prices rise. The opposite is also true. What is notable in the chart is investor behavior. It remains low. Lights on! Not a recommendation for you to buy or sell any security.
For information purposes only. Please talk with your advisor about needs, goals, time horizon and risk tolerances. I met Wade Barnett when our daughters were in preschool and a lifelong friendship was born—for both dads and daughters. Funny how that works out. Wade and I talk frequently, debate the markets, discuss our children, and golf together whenever we can. Shilling fan for years and I too like to follow Gary. We have a standing bet. A win and I put the cash in a safe spot.
And the wins do feel good. A loss and that cash goes back to Wade. While the bet is about short-term bragging rights; the real win is a lifelong friendship. The Inside ETFs conference was productive. The dinners were outstanding as was the red wine. I landed home late afternoon on Wednesday, passed out on the couch at 7 pm, and slept for 11 hours.
On a golf course in Florida, we heard the news about Kobe, his daughter, and their friends. I followed Kobe since he was in high school. Kobe, of course, led that team to a state championship. Kobe was in the gym every morning at am working on his moves.
He did it all year-round. He had the heart and the determination to seek his dreams. He did it in sport, he did it in business, and he did it with family.
And he left a legend. Bryant was one of the greatest NBA players of all time, and an icon in the sports world. In addition to his success on the basketball court, Bryant was known for a ceaseless work ethic and incredible drive. A great loss. My Brianna sent me the above quote and a selfie of the two of us on the beach early Wednesday morning. It should not be something that is intoxicating or out of character because you have seen this moment for so long that … when that moment comes, of course it is here because it has been here the whole time, because it has been [in your mind] the whole time.
The show was titled, Two Years Later. It was written and directed by one of the seniors. We were pulled into the story and emotionally blown away.
Ever forward…. Here are a few more shots from the Inside ETFs conference along with a link to the Nasdaq interview :. Talking about ETFs, markets, etc. Click here or on the photo above for the short interview.
Grab a cold beer, talk, debate, and set a side wager that enables you to poke a little fun at each other. The victory of friendship is the win. And hug your sons. And hug your daughters.
Subscribe to OMR. Stephen B. Investing involves risk. Different types of investments involve varying degrees of risk. No portion of the content should be construed as an offer or solicitation for the purchase or sale of any security.
References to specific securities, investment programs or funds are for illustrative purposes only and are not intended to be, and should not be interpreted as recommendations to purchase or sell such securities.
Due to various factors, including changing market conditions, such discussion may no longer be reflective of current recommendations or opinions.
GARY SHILLING: Buy bonds because deflation is here
Shilling is the President of A. Earlier, as a high school senior, he ranked 12th in the nation in the Westinghouse Science Talent Search. Before establishing his own firm in , Dr. A frequent contributor to the financial press, he is a regular columnist for Forbes magazine and his articles appear in other leading financial publications. He appears frequently on radio and television business shows.
Gary Shilling: 13 Predictions for a Post-Coronavirus World
You could say that Gary Shilling, economist and eponymous CEO of an advisory firm, is obsessed with deflation. Subscribe Now. Why am I seeing this? For questions call or contact us at customercare alm. Bernice Napach is a senior writer at ThinkAdvisor covering financial markets and asset managers, robo-advisors, college planning and retirement issues. More from this author. US Justice Dept.