Features

A. Gary Shilling: a recession is coming

A. Gary Shilling was among the few investors to correctly predict a lengthy stagnation in the wake of the financial crisis. Now he's warning of a recession.

941_MW_P15_Guru_Shilling

A. Gary Shilling, president,A. Gary Shilling & Co

"I give a business downturn starting this year a two-thirds probability," writes author and strategist A. Gary Shilling on Bloomberg. Recession warnings are hardly unusual, but it might pay to listen to Shilling: he was among the few investors to correctly predict a lengthy stagnation in the wake of the financial crisis. In his 2010 book, The Age of Deleveraging: Investment Strategies for a Decade of Slow Growth and Deflation, Shilling warned that the US was set for a prolonged period of slow growth, and outlined ways for investors to profit from it.

However, notes Shilling, investors shouldn't lie awake at night fearing a repeat of 2008. Of the 11 recessions the US has seen since World War II (including the 2007-2009 slump), only three have been the result of "major financial or economic excesses". These were the mid-1970s crash (which saw the S&P 500 in the US fall by nearly 50%); the tech bubble and bust (where the tech-heavy Nasdaq index lost nearly 80%); and the subprime crisis, when stocks fell nearly 60%.

The other eight recessions were simply down to "normal late economic cycle business and investors' overconfidence". On average, stockmarket losses amounted to slightly more than 20% in these sorts of recessions, which is the sort of peak-to-trough loss that Shilling now expects. That would take the S&P 500 down to around the 2,300 level. Of course, the Fed might cut rates and deliver a "soft landing", as happened in the mid-1990s. But that would just delay the downturn until 2020, he says. According to Bernice Napach on ThinkAdvisor, Shilling reckons any recession will boost the US dollar, spelling bad news for commodities and emerging markets.

Recommended

The charts that matter: China upsets cryptocurrency markets
Global Economy

The charts that matter: China upsets cryptocurrency markets

Bitcoin slid again this week after China declared all cryptocurrency transactions illegal. Here’s what’s happened to the charts that matter most to th…
25 Sep 2021
Rob Arnott: Covid's hidden investment opportunities
Investment strategy

Rob Arnott: Covid's hidden investment opportunities

Merryn talks to Rob Arnott of Research Affiliates about some of the unexpected consequences of Covid and their opportunities for investors, plus the "…
24 Sep 2021
The Information Age is about to get interesting
Economy

The Information Age is about to get interesting

The IT revolution has been around for a while now, says Merryn Somerset Webb. But we're just getting to the good bit.
24 Sep 2021
Evergrande: Chinese property giant spooks global markets
China stockmarkets

Evergrande: Chinese property giant spooks global markets

Global markets fell this week as investors worried about the fate of Evergrande, China’s most indebted property developer, which is teetering on the b…
24 Sep 2021

Most Popular

A nightmare 1970s scenario for investors is edging closer
Investment strategy

A nightmare 1970s scenario for investors is edging closer

Inflation need not be a worry unless it is driven by labour market shortages. Unfortunately, writes macroeconomist Philip Pilkington, that’s exactly w…
17 Sep 2021
Two shipping funds to buy for steady income
Investment trusts

Two shipping funds to buy for steady income

Returns from owning ships are volatile, but these two investment trusts are trying to make the sector less risky.
7 Sep 2021
Should investors be worried about stagflation?
US Economy

Should investors be worried about stagflation?

The latest US employment data has raised the ugly spectre of “stagflation” – weak growth and high inflation. John Stepek looks at what’s going on and …
6 Sep 2021