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U.S. Debt Is ‘The Best of a Bad Lot’ and an ‘Attractive Investment’: Gary Shilling

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According to A. Gary Shilling America's economy is "the best of a bad lot". This thinking isn't going to make anyone break into a USA chant, but Shilling thinks it will be good enough to keep treasuries moving higher for the foreseeable future. "The U.S. is the ultimate safe haven in the world" he says. It's a statement at once reassuring and horrifying for anyone paying attention to the domestic economy.

The author of "The Age of Deleveraging" and long-time bond bull notes that Europe is going to hell in a hand-basket and China is slamming on the breaks, leaving U.S. bonds "very attractive", particularly the 30-year. When asked why anyone would buy a bond paying 4.2% Shilling says he simply couldn't care less what the yield is as long as it's going down. The genially gloomy investor is expecting yields to drop all the way to 3%, a move that would spell more than attractive returns for bondholders.

Of course you can't get excited about relative returns without asking relative to what other asset classes. Having already dismissed the rest of the global economy the obvious question is whether or not stocks can continue to levitate in the face of stubborn unemployment and anemic growth. In short, no. In longer form Shilling dismisses the bullish notion of a second half recovery. Even if the economy grows at the anemic sub-2% rate of late, and Shilling thinks GDP will be much worse, stocks are likely to start missing even low-balled estimates in Q's 3 and 4. Companies lowering estimates and missing earnings forecasts is not traditionally a bull market make.

As for buying gold on the notion that the U.S. is going to join Europe in the hellish hand basket, rendering our dollar more or less worthless, Shilling is "agnostic". The man has his thesis and he's sticking to it: China simply has to buy our debt and the EU is crumbling, both of which are bullish for our debt.

If you're looking for the inspirational equivalent of The Miracle on Ice it is time to start watching the women's World Cup. If you want a place to your money in the best of a bad lot of investment choices Gary Shilling says there's still plenty of time to buy bonds.

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