Investment advisor and economist Gary Shilling is worried about the global economy and financial markets. In his latest monthly Insights report, the founder and president of A. Gary Shilling & Co., recommends that investors keep “extremely high holdings of cash in portfolios.”
Shilling won’t get any more specific than that but “extremely high” is even more dramatic than the “unusually-large cash positions” he was recommending in September when the Dow was 3% higher and the 10-year Treasury yield was two basis points lower than they are today. In other words, those two markets were performing better then than now even though the global economy was experiencing the same pressures, according to Shilling, but he was less worried then.
Shilling tells ThinkAdvisor that market prices, for the most part, don’t make sense in the current “topsy-turvy world” where global growth is weak, central banks are impotent and political turmoil persists. “Stock prices are still high, commodities prices haven’t collapsed despite growing realization that OPEC will not be cutting production significantly…I like to invest when markets are confirming what I think is the fundamental reality.”
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Only the dollar’s movements makes sense lately, says Shilling, noting that it has sold off.
Shilling is cutting back on positions across the board, raising cash and shorting commodities, emerging market stocks and bonds, U.S. stocks and junk bonds. At the same time he’s maintaining long positions in long-term (30-year) Treasuries and the dollar versus the Euro and versus the currencies of developing economies, including those tightly tied to commodities – positions he’s been holding for quite a while.
But he seems more worried now, recommending even higher levels of cash holdings because the “current turmoil may be the prelude to major market disruptions in the meanwhile.”
Shilling explains in his outlook that “the investment climate has been extremely frustrating in recent months … since it is so divorced from what we see as the basic economic and financial realities.