Asset Allocation

Behind the Numbers, with Gary Shilling

Shilling is still as concerned about excess housing inventories as he was in January when we talked to him about his 2009 outlook. “That’s a very big drag on the economy and will be until they are extinguished,” he says. Since then, he’s added corporate earnings to his list of worries as well. “They are in terrible shape and it just isn’t the financials that are disintegrating before our eyes and becoming wards of the government,” he says. “But also the nonfinancial area, which because the recession as of late last year has spread to the goods and services side of the economy from what earlier was almost entirely a financial recession, we’re now seeing the nonfinancial companies in big trouble.” As far as allocations go, Shilling suggests a very small stock exposure, with a heavy allocation to bonds. “I think you may get some opportunity in the higher grade corporate and muni bonds,” he notes. “Though, even there you have to worry about downgrades and force selling.” –Kara P. Stapleton