Buys;
Income Producing Securities
Treasury Bonds
USD versus EUR, AUD and JPY
Rental Apartments
Medical Office Buildings
North American energy
Sells;
Developed country stocks
Developing country stocks
US major and regional banks
Commodities
"Junk securities"
Home builders
Your house, your second home and your investment property
You can click through on the link above to get a little color on all 13 ideas, below I offers some thoughts on the list. For income producing Shilling mentions a lot of the usual suspects like utilities, telecom and MLPs, presumably he means just domestic. Seeking out yield is usually a good idea but the near term threat would be if somehow the Bush tax cuts are not extended. I can't envision this being allowed to sunset but if it does then a lot of dividend payers are going to endure a fast decline.
As for treasury bonds, this one is complicated. Yes, against some sort of austere and/or deflationary environment treasuries should go up in price (down in yield) but at 1.58% already we are in uncharted waters for the ten year and at some point people are going to get hurt owning treasuries.
Anyone wanting to follow Shilling on the currency ideas in a brokerage account could buy puts on the currency shares ETFs for the respective countries or sell the ETFs short; Euro (FXE), Australia (FXA), Yen FXY. Although the US fundamentals are not great they are better than the euro and the USD does still benefit from flight to safety bids. Shilling's suggestion though assumes a ongoing flight to safety in an age of austerity/deflation and I don't think that would exist perpetually.
For apartments he suggests REITs and there are quite a few apartment REITs out there. One niche in this group that has always intrigued me but we've never owned (I've mentioned these before) has been apartments that specialize in college campuses. American Campus Communities (ACC) is one and Education Realty Trust (EDR) is another and they've done quite well. A new risk to these might be the extent to which the recent theme about not going to college gains traction. Shilling notes that there are REITs available for medical office properties. If anyone knows of any please leave a comment.
North American energy is interesting. The long term fundamentals look good but energy stocks in general have been hit hard lately. I like foreign energy stocks but Shilling's theme here is the extent to which the US can reduce imports.
The idea of selling foreign stocks is one I disagree with to a point. If he means avoid eurozone countries and Japan then I agree. Shilling appears to not like China as he sees a hard landing. There may be some recency bias here in that I wonder if Shilling believes these countries are in for secular events like are going on in the US, Europe and Japan. It is not clear that China and by extension Australia are going to be in for the same type of thing the US has been but there will be countries that do well, maybe country selection will become more difficult--that seems plausible.?
Avoiding big banks is one I can get behind. As disclosed yesterday we bought a very small bank that generally avoids the problems that the big banks seem to have. We took a 2% weight and won't be going any heavier with domestic banks. Whatever you might do here, I would urge caution and small weightings.
Several years ago Mike Shedlock spelled out why he thinks gold would go up in a deflationary environment. Gold obviously went up a lot early in the crisis and now has fallen meaningfully. The PowerShares Commodity Portfolio (DBC) has had a rough couple of months as well. Anyone believing in a true debt deflation might want to go light on the commodities.
For junk securities Shilling believes default rates will skyrocket in a global recession. If you agree then avoid junk--we don't do much with high yield debt. Sell homebuilders? Fine with me. Selling your house and other property is obviously about getting in front of an other meaningful down leg in real estate prices. He believes increasing inventories will push prices down 20%. If you've been in your house for a while then selling now is selling after a large decline plus you probably get utility from your house that you may not want to give up. If your house is paid off do you want to sell at a reduced price and start paying rent?
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