Tags: Shilling | bonds | stocks | 2013

Gary Shilling: Recession Will Boost Bonds, Hit Stocks in 2013

Thursday, 27 Dec 2012 08:47 AM

By Dan Weil

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The economy will fall into recession next year, which will be good news for bonds and bad news for stocks, says independent economist Gary Shilling.

"I think you play it with a 'risk-off' kind of approach," he told Yahoo. "And that means you probably look for more appreciation in long-term Treasury bonds, which have been a favorite of mine since 1981."

Treasurys have enjoyed a bull market for 30 years. So far this year, the 10-year Treasury yield has dropped 13 basis points, to 1.76 percent as of late Wednesday.

Editor's Note: Economist Warns: ‘Money From Heaven a Path to Hell.’ See Evidence.

Shilling forecast that the 10-year yield will plunge another 76 basis points, to 1 percent, in 2013. Recessions typically boost bonds by pushing interest rates down.

As for stocks, they’re “vulnerable,” Shilling said. The recession will hurt earnings, as will a stronger dollar.

Pimco Chief Investment Officer Bill Gross agrees with Shilling that the economy will suffer. But he includes long-term Treasurys among his “pans” for next year

“[T]he inevitable policy response of developed economies to slower growth will be to reflate,” Gross writes in his latest monthly commentary.

“If successful, reflationary policies will gradually move 10- to 30-year yields higher over the next several years. … Investors should expect future annualized bond returns of 3 to 4 percent at best and equity returns only a few percentage points higher.”

Editor's Note: Economist Warns: ‘Money From Heaven a Path to Hell.’ See Evidence.

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