Wednesday, December 24, 2008

Gary Shillings (author of Deflation) prediction for 2009

Gary Shilling, president of A. Gary Shilling & Co, and his prediction for 2009.

Please note that he wrote a book called Deflation, in 2001. He's been crying wolf for quite awhile but his prediction eventually came true. In the attached videos, he predicts S&P 500 at 600 ($40 in EPS for the combined companies and a 15 multiple). I think he might be too pessimistic .....My bearish scenario is 650 to 700 on the S&P500.

In this follow up video he says that China's middle class isn't large enough to absorb the decline in exports and, as a result, there might be social upheaval in China. I've already seen people flipping cars near police stations in China so I don't find this to be a big surprise.

A noted and notable bear, Shilling predicts the following will occur unless drastic action is taken:

Average U.S. home prices will fall another 20% from current levels, bringing the peak-to-trough decline to 37%. If prices ultimately do fall 37%, 25 million Americans — or about 50% of all U.S. homeowners with a mortgage — will be underwater, meaning their house will be worth less than their mortgage.
Millions of Americans won't be able to make mortgage payments, even if they're able to refi at today's low rates.

Shilling also indicates that there is too much supply vs. demand of homes. As a result, he proposes giving more H-1B visas to attract more highly skilled immigrants, who can then purchase homes, to absorb some of the inventory. My question is "Do H-1B visa people, who don't really have any sense of permanence here in the U.S., purchase homes?" I think I am qualified to ask this question as I gained my U.S. citizenship in July this year (long time procrastinator). On another note, my father worked 30 years + as a Sr. Exec for a major telecom equipment companies and was a HUGE user/supporter of H-1B visas over his years when they needed people with the right skillsets.

Dan Ross

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