I'm A. Gary Shilling. I'm president of A. Gary Shilling, a company we're economic consultants and investment advisors.
Well I'm known for looking at, looking for bubbles.
I- I- I- I think we're headed for a recession.
I- I- I think that housing is going to see a substantial price decline.
Housing is starting to fall apart.
I've had reasonably good luck in spotting them. I was probably the only economist on Wall Street who saw the
big inventory built up in the in the early 70s led to the '73, '75 Recession which up to that time
was the most severe on record. I've been known probably the best for having said
in 1981, we renting airing a bond rally of a lifetime when Treasury bond yielded
14.6%, the 30-year bond. That also was pretty lucky in the housing bubble for
starting in 2002. We saw what we thought was an emerging bubble and followed it
on up and then correctly forecasted MI's and incidentally it paid off very handsomely for, for me and my clients.
You don't add any value by rehashing the consensus. That's already discounted it's fully worked in two markets.
As somebody who has, who has made a career out of spotting bubbles, I don't see anything right now that's really begging for that.
There are some possibilities one of them is what's happening in emerging markets.
These these countries feasted on cheap debt after the Great Recession. It was readily available.
Foreign investors were throwing money at them. They thought to get much better returns there and they borrowed a lot particularly in dollars.
Well guess what's happened now? The dollar has gone up. So, it costs them more than their local currencies to service those dollar debts
and also the import, the imported raw materials. You had a big problem with emerging markets in the
late 90s. There was contagion and that's the real risk but it didn't sink the world ship.
Debt in, in the U.S. you know, as long as, I've been in this business there's been
this constant harping about the size of government debt and oh
"your grand grandchildren are going to have to pay it off" and you know "the whole country is going to sink."
That may happen someday. I would say this. That, that if you look at you, look at debt, you got a look at it, not in dollars
you got a look at a denominator. You got a look at in terms of GDP. After World War II was 135%,
it got down to about 60%, now it's 80 some percent.
Now that doesn't mean... I'm no fan of debt. But we did some work on that and we and we said what would it
take in terms of, in terms of interest on the debt? 8%. Now it's a, it's a it's a little over 2%.
Now how would you get to 8%? You'd have to have either rampant inflation and and interest rates tend to go right
up with inflation or a complete loss of faith in the federal government. And if that were the latter were the case,
obviously you want to get your AK-47s and dried food and a lot of water and crawl into a cave.
I just don't think that's the case.
Bull markets and stocks and long runs and expansions in economies don't die of old age.
There's a reason and there two, there two of them that at least in the in history have been the case.
One is the Fed jacks up rates to the point that they kill the economy.
Now the Fed never starts off saying "we're gonna kill the economy! We want this baby to go down the tubes"
No! No! They just want to cool off what they think is an overheating economy or one that might get that way
and that's where they are now. By my count, they've tried 13 times in a post-World War II period to do that to cool it off but in 12 of the 13 times they
got a recession. The only soft landing in fact, where they did not have a recession the economy just slowed down
a bit was in the mid 90s. The other cause of recessions are shocks, financial shocks. And that's what we had as I
mentioned earlier with the dot-com blow-off in the late 90s and the subprime mortgage
collapse in the mid 2000s.
I would say that, I would say that's more likely that the Fed, the Fed's ends up precipitating the next recession.
A matter of fact, in portfolios were managed we're basically short stocks
because I think we are we are seeing in the stock market sell out perhaps the
last hoorah and the stock mark is a very good leading indicator of the economy.
So maybe that's another reason it's telling us that a recession is not too far ahead