“I think the economy is in trouble,” says Gary Shilling, portfolio strategist for A. Gary Shilling & Co. “Housing is going to sink the economy and we’ll probably be in recession within the next couple of quarters,” he adds.
According to Shilling, weakness in housing will show its effects soon. “With sales having topped out in June 2005, we’re about due for the price decline. The interim period is when people are in denial–they don’t want to admit their houses are worth a lot less, but they finally give up and sell,” he explains. “I suspect we’re going to see subdued consumer spending, but the damage probably won’t come until a bit later. I would think by the second or third quarter we will start to see negative overall economic growth.” As for the end of the first quarter, Shilling thinks there will be positive growth and real GDP, however modest–at a 1%-2% annual rate. He favors Treasury bonds and domestic equities.