From the July 2009 issue of Investment Advisor • Subscribe!

Asset Allocation

Behind the Numbers, with Gary Shilling

That there have been some positive indicators of late is no indication that we're out of the woods. "We've had 11 recessions, including this one, in the post-World War II period and in eight of those you had at least one order of increase in real GDP" usually accompanied by bear market rallies says Shilling, adding that there are three reasons the recession is likely to linger into next year. The first is excess housing inventory. "The second thing is consumer retrenchment," he observes. "It's a self-feeding cycle. People spend less and that means that there's more inventories, less need for production of goods and services, weaker consumer income, more retrenchment. Thus far the stimulus package has done really nothing to help this...The third thing that I think has to happen is handling the additional financial problems that keep surfacing," he says, noting that there are likely to be additional defaults that have not yet been accounted for.--Robert F. Keane

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