Gary Shilling on Why You Should Own Bonds

As a follow-up to Tuesday's post of Shilling on an Abundance of Commodities--Gary Shilling on Why You Should Own Bonds [Source: Advisor Perspectives, excerpt follows, full article at link]:

"Global devaluations - The currencies of commodity-producing countries have been weakening... The euro is being “deliberately trashed” by the ECB, he said, which is looking to spur exports. The follow-on will come from nearby currencies, Shilling said. South Korea is devaluing in response to Japan’s actions. While most central banks are devaluing through quantitative easing, some are cutting interest rates to weaken their currencies. We now face an environment of “universal devaluations,” Shilling said. The only winner is the dollar (except for Switzerland and Denmark who, he said, cannot devalue because of trading relationships). “We are stuck,” he said, with a strong currency.

"Investment recommendations - Shilling still recommends the long-dates U.S. Treasury bonds. Forecasts by economists have been for rising rates, he said, going back as far as 1981. But those forecasts have been consistently wrong. “I think the 10-year is going to 1%,” he said, “not 2.9% as economists forecast.” That would result in a 12% return over a one-year horizon. It’s not just because U.S. Treasury bonds are safe haven, he said, but also because their spread is high relative to all other sovereign bonds... Investors should short commodities, particularly copper, he said... Stocks overall, he said, are still expensive, based on the Shiller CAPE ratio...“With Fed out of the picture, we are going back to much greater dispersion and volatility.”... prepare for a risk of a “shock” that could result in a worldwide recession and a bear market... the only change to his investment recommendation would be to avoid all stocks...."

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