Friday, June 13, 2008

Gary Shilling still concerned about deflation

Gary Shilling, Pres. of A. Gary Shilling & Co., shares his thoughts about a possible US recession, the US dollar and China in a Bloomberg interview. He was early and spot on in predicting a decline in the US housing market. His thoughts are always pristine and consistent and have therefore excellent forecasting value. Let's just hope he is wrong.

Gary Shilling thinks that the UER in the US will peak at 7.2 percent in the second quarter of 2009. That will mark the bottom of the recession. He does not agree with Bernanke and thinks recession is the concern and not inflation.

Shilling looks for "biggest decline in consumer spending since the 1930", a decline of 2.5 percent in inflation adjusted consumer spending. The Fed would then be forced to ease again.

Gary Shilling sees opportunity to buy the short end of the Treasury in the futures market because he does not think the Fed will actually raise rates. By the end of the year he is more worried about deflation and not inflation.

He is also long the dollar against the euro. As this recession spreads globally he believes that there will be a run on the dollar as a save haven.

Shilling sees no decoupling of China from the US. He argues that China does not have a strong enough middle class to sustain their economic growth, and only 8 percent of the population has meaningful income to sustain discretionary spending.

click for video

video: Shilling Sees `Big Nose Dive' in Consumer Spending

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