Shilling and Shiller See Stuff Slowing Down
Is the economy picking up or slowing down again? Lots of Wall Street economists are calling for a strong economy along with a rising stock market this year. No surprise there, since they're almost always bullish.
If you want to get some feel for what's going on and for what's coming up, you've got to read more than what Wall Street and the financial media feed you. So one of my favorite guys, John Mauldin, thinks 2011 should see strong growth (4%+) even though he's not all that optimistic about the next ten years.
Okay, that's something to note. His argument is sound. He simply sees this year being an exceptionally good year without having to rely on an analysis that claims we're completely out of the woods and back on track to the sort of growing economy we've pretty much seen over the last 30 years or so.
A couple of other guys who actually think things through - even though I don't always agree with everything they say - see slowing action coming up.
A. Gary Shilling's sticking to the "disinflation" thesis he posited around 1980 - when no one listened to him. In fact, he wrote a book, Is Inflation Ending: Are You Ready, in 1983, and still no one listened. It turned out he was right. Of course, he's been riding that horse for over 30 years now, so maybe the old mare's getting a little tired. But when a guy's been that right, he deserves serious consideration. So I'm going to read his latest book, The Age of Deleveraging: Investment Strategies for a Decade of Slow Growth and Deflation, just published. He's basically saying that it will take years and years to wring out the juiced-up economy we've had for the last 30 years - an economy driven by excessive borrowing. Until all that built-up credit is wrung out, we'll have slow growth - and definitely not high inflation. Shilling also thinks the US dollar will strengthen and that - even if the dollar eventually loses its "reserve" status - it will take at least ten years or more. He also thinks that yields on US treasuries will continue to stay low for the foreseeable future, and so disagrees with all those who say the bond bull market that began around 1980 is over.
I'm not so sure that the US dollar will be the world's reserve currency that much longer. I don't think the dollar will get stronger as a long-term trend and wouldn't be surprised to see yields on treasuries head up in earnest in the coming years, possibly even shoot up as our country's finances - a mess however you look at them - become even worse. I don't think Shilling pays enough attention to gold, and so misses the fact that, while the dollar may look strong at times relative to other currencies, all the currencies of the world are now declining in earnest in relation to the price of gold. Shilling just doesn't think this is all that relevant.
Robert Shiller created the Case-Shiller Housing Index and called the housing collapse before it happened. People ignored him in the early to mid-2000's, but he was right. So he's another guy to listen to. His October Index showed housing decline year-over-year (October 2009 - October 2010) by -0.9%. He's not sure that there's a "double-dip" in housing, based on that -0.9% year-on-year drop. On the other hand, he won't say housing's going to "bottom" and turn around this year, as some now forecast. He simply says it's too early to tell.
Shiller believes that the government stimulus packages (aka "bailouts") of the Bush and Obama administrations were good for the economy and that if we need more, we should go right ahead and stimulate. He wonders whether we may be in a similar situation to 1937-1938 when the economy was slipping back into Depression but the country didn't want any more government stimulus programs.
I don't believe the government bailouts will ultimately have good long-term effects. In fact, I wonder whether the continuing use of borrowing to revive an economy that collapsed under the weight of borrowing will simply cause another boom exaggerated by excessive borrowing that will just collapse even worse at some point.
Why do I read these guys if I don't agree with them? It's because just reading people you agree with, or reading things that make you feel good won't help you think. Reading people you respect - especially those who have demonstrated success in analyzing a situation previously - helps you develop your own thinking.
So that definitely leaves out most of the Wall Street economists and the financial media that pushes their babble out to the public. Most of them just blow with the wind. You don't really learn much - if anything - listening to or reading what they have to say.
If you want to get some feel for what's going on and for what's coming up, you've got to read more than what Wall Street and the financial media feed you. So one of my favorite guys, John Mauldin, thinks 2011 should see strong growth (4%+) even though he's not all that optimistic about the next ten years.
Okay, that's something to note. His argument is sound. He simply sees this year being an exceptionally good year without having to rely on an analysis that claims we're completely out of the woods and back on track to the sort of growing economy we've pretty much seen over the last 30 years or so.
A couple of other guys who actually think things through - even though I don't always agree with everything they say - see slowing action coming up.
A. Gary Shilling's sticking to the "disinflation" thesis he posited around 1980 - when no one listened to him. In fact, he wrote a book, Is Inflation Ending: Are You Ready, in 1983, and still no one listened. It turned out he was right. Of course, he's been riding that horse for over 30 years now, so maybe the old mare's getting a little tired. But when a guy's been that right, he deserves serious consideration. So I'm going to read his latest book, The Age of Deleveraging: Investment Strategies for a Decade of Slow Growth and Deflation, just published. He's basically saying that it will take years and years to wring out the juiced-up economy we've had for the last 30 years - an economy driven by excessive borrowing. Until all that built-up credit is wrung out, we'll have slow growth - and definitely not high inflation. Shilling also thinks the US dollar will strengthen and that - even if the dollar eventually loses its "reserve" status - it will take at least ten years or more. He also thinks that yields on US treasuries will continue to stay low for the foreseeable future, and so disagrees with all those who say the bond bull market that began around 1980 is over.
I'm not so sure that the US dollar will be the world's reserve currency that much longer. I don't think the dollar will get stronger as a long-term trend and wouldn't be surprised to see yields on treasuries head up in earnest in the coming years, possibly even shoot up as our country's finances - a mess however you look at them - become even worse. I don't think Shilling pays enough attention to gold, and so misses the fact that, while the dollar may look strong at times relative to other currencies, all the currencies of the world are now declining in earnest in relation to the price of gold. Shilling just doesn't think this is all that relevant.
Robert Shiller created the Case-Shiller Housing Index and called the housing collapse before it happened. People ignored him in the early to mid-2000's, but he was right. So he's another guy to listen to. His October Index showed housing decline year-over-year (October 2009 - October 2010) by -0.9%. He's not sure that there's a "double-dip" in housing, based on that -0.9% year-on-year drop. On the other hand, he won't say housing's going to "bottom" and turn around this year, as some now forecast. He simply says it's too early to tell.
Shiller believes that the government stimulus packages (aka "bailouts") of the Bush and Obama administrations were good for the economy and that if we need more, we should go right ahead and stimulate. He wonders whether we may be in a similar situation to 1937-1938 when the economy was slipping back into Depression but the country didn't want any more government stimulus programs.
I don't believe the government bailouts will ultimately have good long-term effects. In fact, I wonder whether the continuing use of borrowing to revive an economy that collapsed under the weight of borrowing will simply cause another boom exaggerated by excessive borrowing that will just collapse even worse at some point.
Why do I read these guys if I don't agree with them? It's because just reading people you agree with, or reading things that make you feel good won't help you think. Reading people you respect - especially those who have demonstrated success in analyzing a situation previously - helps you develop your own thinking.
So that definitely leaves out most of the Wall Street economists and the financial media that pushes their babble out to the public. Most of them just blow with the wind. You don't really learn much - if anything - listening to or reading what they have to say.
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