Gary Shilling’s month-end letter for July (subscription) “Underfunded Entitlements” covers the math of the current financial pandemic in detail. Sure, the Fed has been buying Treasuries and along with other fixed-income securities, so its assets have exploded to $7 trillion from around $4 trillion in February. Want to stay ahead of the herd? The likelihood that the corona-virus pandemic’s income supplements will persist beyond the recession implies that these trends will accelerate. Nevertheless, all this Fed-created liquidity hasn’t found its way into the real economy, as shown by the collapse in the velocity of money. Far from the Fed’s normal worries about an overheating economy and inflation, the central bank frets that low and even declining consumer prices will spawn deflationary expectations. When the only companies of interest to investors made gimmick cameras, ran amusement parks and built motor homes, it was clear the basic economy was in trouble. That number will surely grow as federal spending surges, the economy shrinks and tax collections fall. Fast forward and 30-year yields have fallen from 1.66% on June 8 to a recent 1.19% as their prices climbed 9%. Slow Growth And Deflation Author A Gary Shilling Sep 2012 The Age Of Deleveraging Investment Freebooksy is a free eBook blog that lists primarily free Kindle books but also has free Nook books as well. Yields fell from 2.34% on that day to 0.94% on March 9, as the price of the benchmark 30-year bond leaped 29%. The same concept is imbedded in substituting earnings yields, which is the inverse of sky-high price-to-earnings ratios. Goldman Sachs Group Inc. notes that these five have added more than a third to their market values this year, despite the sharpest recession since the Great Depression. Meanwhile, Social Security and Medicare benefits have been greatly expanded, and many federal programs created over the past 90 years remain in existence, some with changed mandates and others with questionable results. Then there was the dot-com equity dominance that preceded the tech collapse in 2000, the bank stock bonanza that peaked in 2006 and energy stocks that plunged along with crude oil prices after leaping to a new high share of the S&P 500 in 2008. They fell from a 1.8 million annual rate in January 2006 to 350,000 in March 2009 as the subprime mortgage market collapsed, but have only recovered to 940,000. A deep recession also breeds deflation to the benefit of Treasuries. Disdain for government in general was a big factor in Reagan’s election, but despite his declaration that government was the problem and not the solution, the vast federal bureaucracy remained intact during his presidency and has only grown. When that bubble broke, the Nasdaq Composite Index plunged 78%. The risk-free 10-year Treasury note yields about 0.85%, and with that as the discounting rate, $1 in earnings 10 years out is worth 92 cents today, almost 50% more than the 61 cents if that discounting rate were 5%. That interpretation would be a mistake. That’s because they have left the realm of reality for the land of zeal, hope and imagination that has no logical limits. The S&P 500 could see a decline of up to 40 percent, Stocks could fall 30 to 40 percent from its recent highs, People are getting used to Working From Home | Changes to consumer spending, Gary Shillings on big governments getting bigger, If the socialists take over, Stocks and Gold can both go up. Shilling explained that supply currently exceeds demand for oil and the only way you can support prices is by limiting supply. These programs eventually widened to include child nutrition, education, rural and urban development, affordable housing, air and water pollution levels, consumer protection and the availability of arts funding. Gary Shilling's Blog. Recent Posts. He received his bachelor’s degree in physics, magna cum laude, from Amherst College, where he was also elected to Phi Beta Kappa and Sigma Xi. A Gary Shilling & Co. A Gary Shilling PhD is President of A. Gary Shilling & Co., an economic consulting firm and a registered investment advisor. The Synthetic Fuels Corp. was established in 1980 to spearhead production of alternative fuels, but it ended up funding just four synthetic fuels projects, none of which survive today, before being abolished in 1986. via advisorperspectives.com/articles/2020/08/04/gary-shilling-stocks-may-start-sliding-about-7-weeks-from-now. Nevertheless, speculative periods often last for longer and go much further than rational analysis suggests. Recently, others are joining us in forecasting a recession, or at least entertaining a growing probability of one. Earlier, the Fed was run by Ph.D. economists who clung to widely-held theories even though they didn’t work. Crude oil prices, both Brent and West Texas Intermediate, are at four-year highs. Mortgage lending criteria have tightened and prime-age first-time homebuyers don’t have the necessary downpayments. British Numismatic Society Hugh Pagan Harry Manville and BNJ & NC Offprints 15-Sep-20 htt British Numismatics Hugh Pagan Coin pedigrees revisited: The Oxford Crown 13-Nov-19 htt G. Oddie The Rise of the Standard Catalogue 30-Sep-20 htt Forgery Robert Page Caveat Emptor: Some Modern Fakes of Henry III Long Cross Pennies 01 … Declining business activity saps private credit demand and makes Treasuries shine as havens. Past postwar recessions spawned financial problems, but nothing like the 2008 crisis. FANG mavens also note that these businesses are relatively independent of the basic economy, which looks to drop well into 2021 as the pandemic intensifies and spreads. This time, the central bank kept its policy rate at the recessionary low of essentially zero until Dec. 2015, 78 months into the recovery. The net worth of households headed by 18-to-34-year-olds dropped from $120,000 in 2001 to $90,000 in 2016, a 44% decline adjusted for inflation. As the many examples of earlier speculations show, investors’ flights of fancy ultimately collapse, leaving many poorer investors gnashing their teeth. I don't think history will be kind to governments reaction to Covid-19. Text, Video and other content available on or via this blog are all available from public sources. The recent Treasury bond rally fits with our forecast that the recession has a second, more serious leg that will extend well into 2021, despite massive monetary and fiscal stimulus. Watch for specific imbalances, not typical past patterns. FANG mavens also note that these businesses are relatively independent of the basic economy, which looks to drop well into 2021 as the pandemic intensifies and spreads. The broader market isn’t doing as well, with the S&P 500 Index up only around 1% for the year and the New York Stock Exchange Composite Index down some 11%. These equities represented rapidly-growing companies, some based on solid long-term growth prospects, while others were simply fads. As in past crises that led to massive government interventions, new initiatives will largely stay in place once the business downturn ends to the long-term detriment of the economy, despite the “temporary” intentions of these programs. Nevertheless, investors have yanked more than $40 billion from dividend-focused mutual funds this year following their $3 billion withdrawal in the same period of 2019. That interpretation would be a mistake. If history is any guide, they and their constituents will come up with some rationale for the continued need for their functions. BNS Research Blog - Index Click the green box to go to the article. Covid has been used as an excuse by Governments to put people in chains and control them. He has been a columnist for Forbes magazine since 1983, frequently appears on business news programs, and is quoted regularly in the print media. Ronald Reagan once likened a government program to “the nearest thing to eternal life we’ll ever see on this earth.” A look at history suggests that once a new program or a new agency is established, with few exceptions, it stays established, regardless of whether it was intended to be temporary, whether it’s still needed and whether it actually solved the problem it was created to address. Another sign of equity investor discrimination in favor of tech stocks is their rejection of steady dividend payers, even though low interest rates should make attractive these 65 companies that have at least 25-year records of paying and increasing dividends. This is remarkably strong considering all the other possible influences on long-term interest rates such as federal budget deficits, wars, consumer sentiment and spending, and government actions. With the growing “on demand” economy—think Uber Technologies Inc. —many people trade flexibility in working hours for low pay. But they are very expensive and under fire from Washington and Europe for anti-competitive practices. Staying closed or holding virtual classes, however, promotes dropouts, pressure to cut tuition and fees and financial disaster for many schools. But for 10 years now, real 10-year Treasury note yields have been flat at zero (see my Nov. 19, 2018 column, “Zero Real Yields Are Tripping Up Investors”). That index is down 4.47% year-to-date. The first food stamp program was established in 1939 and ran for four years, followed in 1964 by the establishment of the program that today is called the Supplemental Nutrition Assistance Program and costs close to $70 billion annually. Recall that yields on 30-year government bonds started to decline on Jan. 2, anticipating the fallout from the budding coronavirus crisis that had taken hold in China. Panicked investors lopped a zero off of Polaroid’s stock price, as it fell from $140 to $14. These equities represented rapidly-growing companies, some based on solid long-term growth prospects, while others were simply fads. This select group of 10 companies consists of such household names as Facebook Inc., Amazon.com Inc., Netflix Inc. and the parent of Google (hence “FANG”). And their absence means market participants shouldn’t rely on them to divine the economy’s future. Tech stocks have benefited from their relative independence from the nuts-and-bolts economy. Fast forward and 30-year yields have fallen from 1.66% on June 8 to a recent 1.19% as their prices climbed 9%. This has contributed to the slow growth in productivity and the economy, especially in the last decade. Washington’s zeal to curb the power of certain tech companies may be that shock. The spread between 10-year Treasury Inflation-Protected Security yields and conventional 10-year Treasury yields, which is what bond traders expect inflation to average over the life of the securities, recently dropped to a miniscule 0.50% from 2.5% in 2012. Gary Shilling thinks oil prices may have peaked. Gary Shilling & Co "I give a business downturn starting this year a two-thirds probability," writes author and strategist A. Gary Shilling on Bloomberg.