Gary Shilling: There’s a ‘Grand Disconnect’ Between What Investors See and Reality

Tuesday, 30 Apr 2013 08:57 AM

By Dan Weil

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While many investors see nothing but blue skies for stocks, economic performance around the world continues to sag, creating a “grand disconnect,” according to economist Gary Shilling.

“The reality is that investors are only enamored with what the [Federal Reserve] and other central banks are doing,” he told Yahoo, referring to easing programs.

“Their attitude is don’t fight the Fed. As long as the money is there, I’ve got to own stocks. They couldn’t care less about what’s happening to economies on the ground.

Editor's Note:
 
'It’s Curtains for the US' — Hear Unapologetic Warning from Prophetic Economist.

And what is happening to economies on the ground?

“They’re limping along at best,” Shilling, president of A. Shilling & Co., explained. “Europe is in recession, Japan is barely growing and China’s growth is slowing. The U.S. economy is certainly underperforming.”

When you add in investors’ hunger for yield and willingness to ignore major risks to achieve it, “you really have an unsustainable situation,” he said.

So what’s the ultimate outcome of this?

“Nobody will stop a party like this voluntarily,” Shilling noted. “It will only come to a grinding halt when there’s some big shock,” like a blow-up in North Korea or the failure of a European bank.

In this type of environment, Shilling recommends investors buy stocks in companies that are increasing dividends or healthcare stocks and consumer staples. He’s also long 30-year U.S. Treasuries and is shorting the yen and buying Japanese stocks.

David Stockman, White House budget director under President Ronald Reagan, says the Federal Reserve is encouraging a bubble in financial markets just as it did in decades past.

“Now, they’re back doing the same thing [easing], and, if you look around, you see all of the same speculative behavior,” he told Newsmax TV in an exclusive interview.

Editor's Note: 'It’s Curtains for the US' — Hear Unapologetic Warning from Prophetic Economist.

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