9781118150184

"You will be a better investor having read this book. . . I cannot recommend it (the book) strongly enough." -Dennis Gartman, from the Foreword, The Gartman Letter ". . . brilliantly exposes the delusions of the bullish consensus . . . one of the sharpest thinkers on economic issues and their market implications. This is a must-read book for all." -Nouriel Roubini,Professor of Economics "Gary Shilling is rarer than a black swan; hes an economist who foresaw deflation. Shilling has predicted the ' impossible several times in his career, so his colleagues should no longer be surprised when he turns out right." -Robert R. Prechter Jr.,Author of Conquer the Crash "Ignore Gary at the peril of your investment portfolio. Let him show you alternatives that will work in a world of deleveraging, deflation, and slower growth." -John Mauldin, President, Millennium Wave Advisors "The acid test of advice: those who followed Garys not-always-popular advice during these turbulent times made money. This man is an original-and well worth listening to." - Steve Forbes,President, CEO, and Editor-in-Chief, Forbes magazine Top economist Gary Shilling shows you how to prosper in the slow-growing and deflationary times that lie ahead. While many investors fear a rapid rise in inflation, author Gary Shilling, an award-winning economic forecaster, argues that the global economy is going through a long period of de-leveraging and weak growth, which makes deflation far more likely and a far greater threat to investors than inflation. Shilling explains in clear language and compelling logic why the U.S. and world economy will struggle for several more years and what investors can do to protect and grow their wealth in the difficult times ahead. The investment strategies that worked for last 25 years will not work in the next 10 years. Shilling advises readers to avoid broad exposure to stocks, real estate, and commodities and to focus on high-quality bonds, high-dividend stocks, and consumer staple and food stocks. . Written by one of todays best forecasters of economic trends-twice voted by Institutional Investor as Wall Streets top economist Clearly explains what to invest in, what to avoid, and how to cope with a deflationary, slow-growth economy Demonstrates how Shilling has been consistently right about major economic trends since he began forecasting in the early 1980s Filled with in-depth insights and practical advice, this timely guide lays out a convincing case for why investors need to be prepared for a long period of weak growth and deflation-not inflation-and what you can do to prosper in the difficult times ahead.

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A. Gary Shilling is President of A. Gary Shilling & Co., an economic consulting firm and a registered investment advisor. He has been a columnist for Forbes magazine since 1983, frequently appears on business news programs, and is quoted regularly in the print media. Shilling has been warning about the long-term threat of deflation for several years and has even created a board game, aptly titled The Deflation Game. He received his bachelor's degree from Amherst College and earned his master's degree and PhD in economics at Stanford University. Before establishing his own firm in 1978, Shilling was senior vice president and chief economist of White, Weld & Co., Inc. Earlier, he set up the Economics Department at Merrill Lynch, Pierce, Fenner & Smith Incorporated and served as the firm's first chief economist.

Foreword viii

Acknowledgments xii

Introduction xiv
Delveraging, especially of the global financial and U.S. consumer sectors, will dominate the worldwide economy for years. It's centered on five traumas so far. Three more possibilities loom.

Chapter 1 Spotting Bubbles 1
Economic and financial bubbles are time-honored and part of immutable human nature. I love to be among the few to spot them and predict their demise. They follow a welldefined pattern as they expand and burst.

Chapter 2 Making Great Calls 29
They involve important events that the consensus doesn't foresee and unfold for the stated reasons. Here are five I've made: the 1969-1970 recession, the early 1970s inventory bubble and 1973-1975 recession, disinflation starting in the early 1980s, the demise of Japan's 1980s bubble, and the dot-com blow-off in 2000.

Chapter 3 The Housing Bubble (Great Call 6) 53
Why I saw it coming in the early 2000s, how I forecast its demise and the way I personally profited.

Chapter 4 The Financial Bubble (Great Call 7) 95
The great disconnect between the financial and real worlds started three decades ago and accelerated in the 2000s. Soaring financial leverage, especially in the global financial and U.S. consumer sectors, made collapse inevitable.

Chapter 5 The Results of Denial 123
The 2007-2009 recession and financial crisis started in early 2007 with the subprime mortgage collapse, spread to Wall Street at mid-year, then moved to U.S. consumer retrenchment and global recession in late 2008. Investors thought every crisis was the last, and governments had no foresight or master plans.

Chapter 6 Slow Growth Ahead 159
Global slow growth in the next decade will result from U.S. consumer retrenchment, financial deleveraging, increased government regulation and involvement in major economies, low commodity prices and the shift by advanced lands to fiscal restraint.

Chapter 7 No Help from Anywhere 225
Four more reasons for slow global growth: Rising protectionism, continuing U.S. housing weakness, deflation and weak state and local government spending.

Chapter 8 Chronic Worldwide Deflation 273
Deflation comes in seven varieties, but is fundamentally driven by supply exceeding demand. Productivitysaturated new tech and globalization will drive the good deflation of excess supply while slow economic growth introduces the bad deflation of deficient demand. As the two combine, I look for chronic price declines of 2 to 3 percent annually.

Chapter 9 Monetary and Fiscal Excesses 311
The inflation-wary Fed will probably withdraw excess reserves if inflation looms. Federal deficits over $1 trillion will persist as weak economic growth forces government job creation and helps push those dependent on government to two-thirds of the population. Still, government stimuli will continue to only replace private sector weakness at best.

Chapter 10 The Outlook for Stocks 339
Corporate earnings grow with GDP in the long run. With slow growth and deflation in prospect as well as falling P/Es, stock appreciation will be muted and below dividend yields. History favors market timing over buy and hold, even more so in this environment.

Chapter 11 Twelve Investments to Sell or Avoid 363
Big-ticket consumer purchases, consumer lenders, conventional home builders, collectibles, banks, junk securities, flailing companies, low tech equipment producers, commercial real estate, commodities, Chinese and other developing country stock and bonds, and Japanese securities.

Chapter 12 Ten Investments to Buy 425
Treasury bonds, dividend-payers, consumer staples, small luxuries, the dollar, asset managers and advisers, factorybuilt houses and rental apartments, health care companies, productivity-enhancers and North American energy.

About the Author 493

Index 499

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The Age of Deleveraging, Updated Edition Investment Strategies for a Decade of Slow Growth and Deflation

The Age of Deleveraging, Updated Edition Investment Strategies for a Decade of Slow Growth and Deflation

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