Can Turtles Fly?

I lean towards deflation, although I don't expect outright deflation* in a country like USA, so I always pay attention to one of the few deflationists around: Gary Shilling. Writing for MarketWatch, Paul Farrell, summarizes Gary Shilling's thoughts in his new book, The Age of Deleveraging. I haven't read any of Shilling's books but I do plan to get to them eventually—at the rate I'm going, it might take 249 years ;) Shilling has been somewhat of a deflationist for almost a decade and his call in the late 90's turned out to be wrong. Needless to say, no one can predict the future precisely. However, some of his correct calls were very significant calls, such as the bullish call on US Treasuries in the 80's. With that said, you will find below a Farrell's summary of Shilling's key calls. Most of the calls are similar to what Shilling has said in the past and as should be expected with a deflationist, it goes against the consensus (big time!). As ...

One of the readers mentioned Gary Shilling and I was wondering what his stance is these days. Well, I ran across this Bloomberg video interview conducted a little less than a month ago (if link doesn't work, go here and click on video at the top .) Gary maintains his past stance (which likely means he hasn't done too well in the last year) and there isn't anything new in the video but it's still good to hear his contrarian stance on several issues. One thing did stand out in the interview for me: Gary is one of the few suggesting that the renminbi could go down. Gary throws in a big caveat—that being that all capital controls are removed, which is highly unlikely—but it's still interesting to see anyone remark that the renminbi could actually go down. Gary Shilling's view is that Chinese citizens will send capital abroad, hence pressuring the renminbi; whereas my view is that renminbi may decline because the Chinese government ends up devaluing it. As one o...

Gary Shilling must have had a very bad year in 2009. I think 8 or 9 of his calls were wrong. Nevertheless, going into 2010, he maintains most of his calls. I don't agree with all his views but I do share his thinking for the most part. Writing for MarketWatch, Paul Farrel summarizes Shilling's 17 picks for the year . Six of the seventeen are buys while the rest are sells. I think there is a typo with the numbering and I have corrected it below. For some of the points, I have chosen not to excerpt the detailed text. You can read the original article at MarketWatch if you are interested. I decided to do this to maintain fair-use (don't want to quote almost the whole article) and to avoid repeating the same points I have quoted in the recent past.

In an interview with Robert Huebscher of Advisor Perspectives , one of the true deflationists, Gary Shilling, sticks with his views. In particular, he says the recession may not end until 2010, which is contrary to the consensus view that the recession has already ended. Who knows if he is right since I lean towards deflation, and since Gary's views are contrarian, I pay attention to him. As he has said in the past, Gary Shilling repeats his view that the US government will likely enact a second major stimulus plan. Again, this is completely opposite most people's thinking. The market not only does not expect this, but believes that there is too much stimulus. I am not too confident with this call but I do think that the second stimulus view is probably correct. I'm not going to quote much from the interview since most of it has been covered on this blog before; the only thing I wanted to highlight was Gary Shilling's investment suggestions (long only.) The article also...

Some articles I found interesting... (Highly Recommended) When insiders act against shareholders - The VaxGen case (Greenbackd): Special situation investors, as well as microcap investors, should study this situation when they have some time. VaxGen was a potential liquidation that was very close to liquidation but the board of directors decided to enter into a questionable merger with another company at a low price. Depending on the purchase price, a special situation investor investing on the basis of a liquidation is looking at huge wealth destruction regardless of whether the merger goes through! (Further comment below) Going for the trifecta of stocks, bonds & gold (Buttonwood at The Economist): The buttonwood tree is always interesting and so is the Buttonwood column at The Economist : "Gamblers dream of achieving a trifecta: picking the first three horses, in the right order, in a given race. The payout is huge but so are the odds against success. The same could be s...

Gary Shilling had been forecasting deflation for many years. He was wrong most of the time but it appears he may finally be right. It's still not certain—consensus, as well as many superinvestors, seem to take an opposite view—but deflation does look highly probable. In one of his Outside the Box pieces, John Mauldin extracts Gary Shilling's latest newsletter, which deals with Shilling's US forecast for the next decade. Shilling expects 2% real GDP growth from 2008 to 2018. This compares with 3.6% GDP growth rate from 1982 to 2008 and arough 1% in Japan from 1990 onwards. Shilling is in the deflation camp and expects general decline in prices (although this article doesn't deal that topic in detail.) Since I was already leaning towards the deflation camp, a lot of the projections are not surprising to me. But one thing did stand out for me. Who knows how correct Gary Shilling will be but his forecast for US exports and imports is kind of scary. He is forecasting expor...

Reader John responds to the Gary Shilling interview I discussed last week —unfortunately he seems to have lost his original message he was typing up :(—and makes an insightful point generally missed by many, including me. His point is in regards to Gary Shilling's statement that he got all 13 his predictions correct last year and this had a probability of 1-in-8192. John argues that the probability is probably more like 1-in-2 since all the investments were likely to be correlated: John: After reading Taleb's writings, I'm now very skeptical towards anyone claiming credit of predicting the economy. (Can a climatologist claims credits for predicting long range the weather pattern?) Shilling said getting 13 out of 13 right has a chance of 1 out of 8192. I haven't got a chance to read his original 13 recommendations. But one would imagine all 13 recommendations should be strongly correlated, or even perfectly correlated. Hence, the chance of getting all of them right is cl...

Sticking to my contrarian knitting, albeit with the potential to go completely astray and lose my shirt, let me go against a strongly rallying market and present a bearish view from Gary Shilling. Thanks to GuruFocus for pointing me to a Gary Shilling interview with Advisor Perspectives . For those not familiar, Gary Shilling is considered by the mainstream to be a perma-bear since he has mostly been bearish and called for a deflationary bust that never materialized in the late 90's. I dismissed him a few years ago, similar to my ill-advised dismissal of Jeremy Grantham, because he seemed too bearish. One of the things that has separated Gary from other bears is that he is an economist and approaches things from a macro point of view. In contrast, many other bears tend to be traders that rely on technical analysis (Mike Shedlock of Mish's Global Econmic Analysis blog, for instance, says a lot of economics but seems to make his investment decisions off technical analysis.) In a...

Superbear Gary Shilling is still maintaining his bearish views. Many have accused him of being a permabear--Shilling had been bearish for many years and was even bearish during the 90's, with several calls for a deflationary market crash--but he was proven right with the stock market crash that started in 2007. Gary Shilling is also unique in being one of the few true deflationists out there. His deflation call was completely off in the late 90's--he even wrote a book, that I plan to read--but he has maintained that view. Also, unlike many fairweather deflationists, he put his money where is mouth is, by going long US Treasuries. Bloomberg has a nice, short, interview that updates viewers on Shilling's current stance . Here are some quick notes on some of his comments: Gary Shilling says that the bank tests need to be made public . He expects all the banks to pass the test; otherwise, the bank has to be seized or nationalized right away. I think the bank situation is going ...

MarketWatch has a quick recap of four strategists that correctly called the bear market. My interest is superbear Gary Shilling so let me quote some of his views: He's looking for a peak-to- trough decline of 40% in housing prices nationwide. As of the fourth quarter, the 20-city Standard & Poor's/Case-Shiller home price index had fallen 27% from its high in 2006. At the bottom, Shilling expects some 25 million borrowers will be underwater on their mortgages. That's half of all mortgages and one-third of all owned houses in the U.S. Similarly, he doesn't think the current recession will end until at least early 2010. That would make this the longest recession by far since World War II. He thinks the market might actually bottom some time this summer at around 600 on the S&P 500 - at 15 times estimated earnings of $40 -- six months or so before the economy does. But he doesn't see prosperity just around the corner. "It took about 30 years to build up th...

We had a huge rally this week but my concern has always been whether any raly will be sustainable. Here are some articles you may find insightful... Using trough P/E and trough earnings to figure out the bottom is wrong (The Peridot Capitalist): Chad Brand of Peridot Capital Management points out a mistake made by many. When trying to figure out a rough bottom for the market, one should not use a trough P/E along with trough earnings. Using peak earnings multiplied by trough P/E seems like the appropriate method. (Recommended) A methodology for fundamental analysis (Old School Value): Jae Jun, who is a bottom-up value investor, goes through his methodology for analyzing potential investments. I always like reading everyone's methods because I pick up little bits from each person. I don't think there is one right method; everyone should develop a method that suits them. I think the details depend on the individual and the investing strategy utilized. I quickly notice some bi...