Gary Shilling.
President Donald Trump, with his strategy of creating uncertainty, is helping to bring about a U.S. recession that likely began early this year and is an "odds-on bet" to deepen, Gary Shilling tells ThinkAdvisor in an interview.
The ace bubble-detector, who accurately called the 1960 and 1991 recessions, is president of A. Gary Shilling & Co., an economic consultancy and investment advisory in Short Hills, New Jersey.
Uncertainty impedes spending and investing, Shilling notes; and, he adds, recession makes the re-election of incumbent presidents tough. Indeed, a plunging stock market would "kill [Trump's] chances of re-election," he argues.
As for investors, they're so focused on what the Federal Reserve does or doesn't do that they don't fully realize the implications of weakening corporate earnings and forecasted year-over-year declines of at least 5%.
Though Shilling continues to urge caution on stocks, he remains bullish as ever on bonds.
ThinkAdvisor held a phone interview Tuesday with the former physicist and longtime apiarist. Similar to analyzing the U.S. economy, keeping 100 beehives requires precision and vigilance. What do bees and the economy have in common right now? Not too much: Now that the summer heat has hit, Shilling's bees are happily aloft collecting nectar; the economy, on the other hand, is headed on a downward trip, he insists.
Here are highlights of our conversation:
THINKADVISOR: How deep a recession do you predict?
GARY SHILLING: An average recession. I don't see a big financial crisis like the subprime mortgage collapse, the dot-com blowup or the 1973-1975 recession, which was the second deepest since the 1930s. But this one would probably be a substantial decline from Christmas Eve 2018, when the market declined almost 20% from its peak in early October.
Are President Trump's chaotic White House and his other challenges a cause of the recession that you perceive?
Those are contributing to a recession. Uncertainty seems to be his strategy. It seems he wants to keep everybody off balance. We see that particularly in the trade area. It holds back spending and investing. And, of course, there's the prospect of an all-out trade war with China. The issue isn't [just] a trade imbalance. It's got a lot to do with China's hopes of becoming an even more powerful country than the U.S. Trump realizes that the way they're trying to do that is by using Western technology, and he doesn't want to see that happen.
But you're saying that a recession has probably started.
Yes, and for incumbents in Congress or in the White House to get re-elected in the midst of a recession, or even early in the aftermath, is very difficult.
Still, uncertainty isn't good for the stock market, right?
It isn't. But, apparently, Trump isn't yet concerned enough that the stock market is going to sink and kill his chances of re-election next year.
Please discuss corporate earnings' role in your recession scenario.
They're already weakening, as you know. The earnings' estimates are for declines of 5% year over year. But that's from Wall Street analysts who are paid to be bullish. So you can well imagine that earnings are going to be weaker than that. But this hasn't hit home yet.
What do you mean?
Investors are preoccupied with the Fed. People think if the Fed eases, it's a wonderful world.
