Shilling Sounds the Alarm: Investors, Load Up on Cash

"Global economic growth remains sluggish and Brexit is likely to weaken Britain and Europe. Massive excess industrial capacity and labor persist worldwide, and deflation is widespread. Zero and negative central bank interest rates as well as quantitative easing have failed to rekindle economic growth. But they have spawned severe distortions as investors refuse to accept low returns and move far out on the risk curve in search of higher yields."

At the same time voters in around the globe, unsettled by continuing stalled economies and "over a decade of declining purchasing power" are frustrated, "mad as hell" and "turning to political fringes on the left and right in despair as they reject mainstream politicians," writes Shilling.

He says a Donald Trump victory for president coupled with a Republican Congress could be "robust for the U.S. dollar" because of the threat of protectionism. If the U.S. doesn't buy the surplus good and services of other nations, their economies would suffer more than the U.S. economy and their currencies would decline against the dollar, explains Shilling. "When you have a surplus of goods and services … the buyer has the power, not the seller."

But he adds that a Republican sweep in the U.S. election could lead to a worldwide recession.

A Hillary Clinton victory for the White House coupled with a Republican House — and maybe a Republican Senate – would also not bode well for the U.S. economy, says Shilling. The gridlock that could follow "is not a particularly good situation," says Shilling, because it could also continue the lack of income growth that has led voters in the U.S. to political extremes, says Shilling.

He's hoping that no matter who wins the White House and Congress that massive fiscal stimulus will follow. Both presidential candidates have endorsed the idea but only Clinton has offered a specific plan – investing $275 billion over five years, including $25 billion to help create a National Infrastructure Bank – that would be paid in part by increasing business taxes.

Trump has said he would invest "at least double" what Clinton has proposed and would finance the plan by borrowing several hundred billion dollars. But that could be difficult since he's also proposed big tax cuts that the conservative Tax Foundation has said would reduce revenues by $4.4 trillion to $5.9 trillion over 10 years.

 — Related on ThinkAdvisor:

• Valliere: How Will Markets React to a Clinton, Trump Victory?
• 4 Events That Could Disrupt Global Markets in Q4: Russell Investments
• Markets Can't Hide From This Election
• Should You Hoard Cash Before the Election?