Markets get a shock and Fed does nothing: Gary Shilling
The more things change, the more they stay the same. Could this be the mantra of 2015? With oil prices falling, Russia’s economy on the brink and slow growth in the U.S., it seems likely. These are all themes of the past year and they might just stick around for the next.
Gary Shilling, president of A. Gary Shilling & Co., Inc. says these trends aren’t going anywhere: “You've got deflation, the safe haven effect and foreign money pouring into treasuries. I think this is going to continue with all the drama we see in Russia and elsewhere.” Shilling, a long time proponent of investing in treasuries doesn’t plan to shy away from his staple investment next year either.
A strengthening dollar and weak overseas currency makes treasuries a good buy, according to Shilling: “You have rates below 1% in japan, Sweden and Germany. And the Dollar is rallying against the Yen and the Euro.” Shilling says the bond rally of a lifetime is still in tact.
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As for interest rates, Shilling doesn’t expect the government to intervene quite yet: “The fed is on hold for probably a couple more years. We’re in that deleveraging. It’s overwhelming all the fiscal stimuli we’ve had. It’s resulting in slow growth. It’s a continuation of the 2% real GDP growth in this country”, says shilling.
The champion of the treasury investment thinks stocks will remain risky. Shilling expects a major shake-up in the markets next year: “This shock might be coming out of what’s going on with the collapse of energy prices. It could also be China or a blow up in the Middle East.” Once this happens, Shilling expects the disconnect from stocks being up and economies being down to subside.
As for life after the “shock”, Shilling says you should invest in the “Safe haven of dollars and the treasuries. And get out of short stocks and commodities.” He recommends “defensive” investing in the stock market. Buying shares of utilities, health care and other consumer staples that have decent dividend yields and some kind of a cushion.
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