Many of you know my high regard for John Mauldin and his free weekly investment newsletter delivered by email to about 1.5 million readers worldwide (and translated into Chinese).
This week’s guest “outside the box” was from Gary Shilling’s INSIGHT investment newsletter and he was gracious enough to allow John to share.
The missive goes into great detail, and what Gary predicts for 2010 investment strategies goes against the grain of many of the other investment newsletter writers that I discuss here.
So let’s get into Gary Shilling’s investment predictions for 2010. (This is the condensed version, Shilling goes into great detail in the actual letter with data and charts to back up his predictions.)
6 Investment Areas to Buy:
- Buy Treasury Bonds. Contrary to Casey Research and Peter Grandich, Shilling actually expects that the additional problems all of these experts expect will cause T-Bond rates to come back down from the high 4% area to around 3% flat. And while that does not sound too exciting, bonds would actually appreciate 34% if that happened. If it happens over two years, with two years of interest besides, that’s a pretty good return.
- Buy Income Producing Securities. High quality corporate and municipal bonds as well as utility stocks, stocks of consumer product companies, health care firms and others that pay meaningful dividends. Shilling opens the possibility to MLP’s (Master Limited Partnerships) but only if the underlying business is sound. (My note: please consult your tax advisor before buying MLP’s.)
- Buy comsumer staples and foods. Detergent, soap, bread & toothpaste are essentials that people will not do without even in a lousy economy. Consumers are moving more toward house brands and generic, so be wary of premium brands.
- Buy small luxuries. People will still look to treat themselves in some small way. Some companies are adapting by offering cheaper versions of their marquee items. Cheaper “premium” wines and a lesser priced version of a Martin guitar were two examples cited.
- Buy the US Dollar. Ouch, did he really say that? Similar theme to other writers, though, the dollar is only a buy because other currencies are a bigger SELL! He does not think the US Dollar will lose reserve currency status despite rumblings by the Chinese, Arabs or whomever. He does expect COMMODITY prices to fall, and the A$, C$ and NZ$ to fall with them.
- Buy Eurodollar futures. Very liquid, leveraged and where the action is. He believes the recent rise of 1.22 percentage points will reverse by the same amount. That’s a 200% profit on a $1 million contract that requires only $1000 margin.
11 Investments to Sell or Avoid:
- Sell U.S. Stocks in general. Gary has a lot of company from my other favorite analysts on that one, so no more said.
- Sell homebuilder and selected related stocks. These companies have rebounded sharply since last March, but it won’t last. Excess inventory, mortgages underwater, etc, etc.
- Sell selected big ticket consumer discretionary stocks. First, the consumer is in savings and repair mode. Second, consumers are expecting sellers of these products to respond to lower sales with lower prices and other incentives to buy, forcing prices lower still – and profits with them.
- Sell Banks and other Financial institutions. I’m sorry, but I think some of the wrong banks went under and would love to see a few particular ones go the way of the Dodo. Maybe I’m just cruel, insensitive and unforgiving. Please, Mr. President, don’t bomb Iran, target Goldman Suchs instead.
- Sell consumer lender stocks. ‘Nuff said.
- Sell low and old tech capital equipment producers. This sits well with John Mauldin, I’m sure, as he is a guy VERY much in tune with new technology, techniques and what it will do for society. Out with the old – we just can’t afford it even if we did want it – and in with the new.
- Residential Real Estate you want to sell, sell it yesterday. It ain’t gonna get better soon. Shilling (and others) are expecting another 10% decline. And if the property is for investment, chances are you are having trouble finding a renter, right? And how about those property taxes, eh, going down with the value of the property? Not likely.
- Sell Junk bonds. They have done well for a while, but last years huge rally was overdone. If you missed it, it’s too late to get in. If you did get in, get out.
- Sell commercial real estate. We have been waiting a while for this “shoe” to drop, it’s coming they tell us; and it may exceed the problems in residential real estate.
- Sell most commodities. Shilling feels that supply and demand in a continuing global slump will drive down commodity prices.
- Sell both stocks and bonds of developing countries. Decoupling is not working out like some experts predicted. Shilling predicts big trouble for China. Lack of consumer spending in the U.S. is going to continue to hurt these developing nations.
Well, that’s it. Do I agree? Well, let’s just say I have been convinced otherwise in some areas by the experts at the Casey Report, Peter Grandich, Aden Sisters, The Trend Letter, etc.
Do your own due diligence before investing.
I think it is worthwhile to continue to test our own assumptions and beliefs; otherwise we tend to see (and read) what we want to see and expect to see and slant any information with it (John Mauldin just wrote about that danger last week with data to back it up!).
Gary Shilling has made some good calls in the past, including getting in on the bond rally starting in 1981 which by far eclipsed the rally in the stock market over the last 29 years. And I always thought bonds were boring!
So it makes sense to pay attention to what he says and NOT operate with blinders on.
Whatever happens in 2010, it should be exciting.
