Gary Shilling Sees `Significant' Stock Selloff Within 12 Months

[Joanne98]

By Rita Nazareth - Nov 12, 2010 Gary Shilling, who predicted the U.S. housing collapse, says the stock market is overvalued and foresees a “significant” selloff within a year as the Federal Reserve fails to stimulate economic growth.

The Standard & Poor’s 500 Index has climbed 17 percent since July 2 as investors anticipated the Fed’s plan to buy $600 billion in Treasuries to boost growth. The benchmark gauge for U.S. equity trades for 15 times profit from the past year, up from 13.7 in July, data compiled by Bloomberg show. Fed Chairman Ben Bernanke previewed his strategy of quantitative easing in an Aug. 27 speech in Jackson Hole, Wyoming.

“I don’t think it’s enough to make a great deal of difference,” Shilling, 73, president of the investment research firm A. Gary Shilling & Co. in Springfield, New Jersey, said in a telephone interview. “The earlier QE1 didn’t and I don’t think this will, either. The economy is weak and it doesn’t take very much of a shock to push it into negative territory. I don’t think that’s enough to justify where stocks are now.”

Shilling, who predicts real gross domestic product growth of 2 percent “and maybe less in the next couple of years,” said the government is out of options for fixing the economy.

No Magic Bullet

“There’s not much that can be done,” said Shilling. “There isn’t any magic bullet. There isn’t anything in my view that’s going to return us to the solid days of the 80s and 90s when consumers were spending freely. I don’t think that’s going to come back. The need to deleverage is just too great.”

http://www.bloomberg.com/news/2010-11-12/gary-shilling-sees-equity-selloff-within-year-as-fed-fails-to-fix-economy.html

[Delphinus]

1. We need

to find a better way to live - is that what he's saying?

[DoctorK]

5. he sees the deleveraging as inescapable

and I think he is right.

Bernanke aims to inflate away the relative size of the existing debt load, while others prefer a more honest accounting of the bad debt/reduced asset value.

For over 20 years the Federal Reserve has misled the actors in the economy as to the true amount and value of savings to support consumption/production.

[madrchsod]

2. blame boner!

the republicans might have a problem in the next few years

[bemildred]

3. Actually $600B could do a lot if put into making good jobs for the unemployed.

There is plenty of work that needs to be done too.

Edit: but he is right, that would not do all that much for the "markets". Late state Ponzi schemes get harder and harder to prop up.

[iamjoy]

4. I Fear He's Right

I'm no expert, so for me it has just been pessimism, but I think the US is in more or less permanent decline. It will not get better. Politically, look for President Obama to be out in 2012 and the Republicans to re-take the Senate, maybe increase majorities in the House. People will blame the Democrats for this mess. Liberals will feel very stung because their policies will be "rebuked" when really it is the Republicans who caused this economic disaster.

Or is it? This economic disaster has been 30 years in the making, right? How can we reasonably expect our economy to be strong when we have real middle class wage growth and greater concentration of wealth? How can we expect it to be strong when we dismantle or fail to enforce regulations meant to protect consumers? It's very convenient to blame Ronald Reagan (and the two Bushes), but did President Clinton do enough to reverse that disastrous route? Nope, he made some minor course corrections but kept steaming along toward this final destination. And looking back at the past thirty years, Democrats have controlled Congress for slightly more than half of them. What Democrats did was cave on the issue of getting real wage benefits for workers in exchange for easy credit. Democrats and Republicans liked easy credit because it made home ownership easier and in general made it easy for American workers to maintain or improve their standard of living despite no real wage increase. Oh, and the powerful bankers accrued more wealth. The other thing that allowed us to maintain/improve our standard of living was cheap goods made overseas. Of course, this cost American jobs and sent our wealth to foreign countries. But we didn't notice because baby boomers could easily afford to buy items that were luxuries in their childhood.

Well, now, the bill is due. At some point, that credit card gets maxed out.

Some blame the American worker as being greedy and wanting too much. Well, they're right to an extent. A corporation is not concerned with abstract values such as patriotism and America first. They are only concerned with the bottom line. If they can manufacture something overseas for a fraction of what it costs to produce it here, why wouldn't they? And in the short term, this benefits us too. And in those third world countries of desperate poverty, the factories (as horrible as they are) still provide an opportunity for a life other than subsistence farming. Maybe those factory workers are where we were one-hundred/one-hundred fifty years ago. So, yes, perhaps if we reversed every gain organized labor has made over the past century and a half, manufacturing jobs would return, but our quality of life wouldn't be any better. Because, it is all those gains that enable our middle class to grow and our economy to thrive. Or maybe the labor in those countries will organize and start demanding more/better (fairness). In that case, either the cost of our goods will go up (thus making it harder to buy the luxuries we can't live without ) or companies will find the next 3rd world country whose workers are desperate enough to be exploited and abandoned the recently emerged nation.

Of course, I'm no expert on anything.