Well followed Gary Shilling writes, "The 2007-2009 U.S. recession, the deepest since the 1930s, was the start of the worldwide deleveraging and the severe recession now unfolding in Europe. Like the U.S. Great Recession, the eurozone slump combines a financial crisis and a goods and services downturn. And it may be more severe in Europe where the eurozone, like the U.S., has a common currency and monetary policy but unlike America, lacks a common fiscal policy to deal with the mess. A list of problems facing the markets is in the accompaning photo.
This year we also look for a hard landing in China with real GDP growth dropping back to 5% to 6% annual rates, well below the 8% needed to provide jobs for new labor force entrants. We’re also forecasting a moderate recession in the U.S. as consumers retreat from their recent spending strength that flies in the face of declining real incomes. In sum, Gary Shilling expects a global recession this year."
Shillings recommendations and thoughts on investing in 2012 are listed in the accompaning photo along with some specific comments below:
Treasury Bonds Are Still Attractive. This is because we expect further appreciation with 30 year Treasury bonds, and because few other investors believe our forecast has any chance.
High-Quality Income-Producing Securities Continue to be Attractive. We continue to favor high quality income producing securities this year for several reasons. Many other investments such as stocks in general are unlikely to provide meaningful returns, especially on a risk adjusted basis. Furthermore, after the bloodbath for almost all securities in 2008, many individual as well as institutional investors prefer higher predictable cash returns.
Consumer Staples and Foods May Be Attractive Relative to the Stock Market. The S&P Consumer Staples Sector Index’s total return was up 14% last year and is likely to do well this year, at least relative to stocks in general. Items like laundry detergent, bread and toothpaste are basic essentials of life that are purchased in good times and bad, and we believe their producers' equities will be attractive relative to stocks in general in 2012.
The Dollar Should Continue to Appreciate, Especially Against the Euro But Also Against Commodity Currencies Like the Australian and Canadian Dollars as well as the Mexican Peso. Last year, the greenback fell against the euro early in the year but then rallied sharply. On balance, the dollar rose 3% vs. the euro.
Selected Healthcare Providers and Medical Office Buildings Remain Attractive. Last year, the Dow Jones Select Health Care Providers Index rose 10%. Health care is a huge sector, accounting for 17.6% of GDP and growing rapidly. Two major features of the current system almost guarantee explosive growth. First, most Americans don’t pay directly for their health care, which is primarily financed by employer sponsored insurance or the government through Medicare and Medicaid. Second, in pay for service plans, medical providers have many incentives to perform extra work because more office visits and procedures enhance their incomes and more procedures is encouraged to avoid litigation over mistakes.
Trade with a plan