A few months ago John Wiley & Sons released Gary Shilling's 500 page investing manifesto The Age of Deleveraging. If you aren't familiar with Shilling, he can probably be considered a heavyweight in financial circles with his impressive resumé: noted book author, Forbes Magazine columnist and respected money manager. His most recent claim to fame is being on the advisory panel of John Paulson & Company during its rise to prominence in the Hedge Fund industry when they bet against the housing market in 2006-2008. Shilling was in on the ground floor of one of the biggest financial bonanzas in history.
Unless you've been in a coma for the past 15 years, or, are new to investing, I'd skip the first 5 chapters and begin reading with chapter 6. Shilling doesn't mince words in this first section as he pontificates with evangelical zeal about the market bubbles since 1995 and the bursting of those bubbles. He goes into meticulous detail about the collapse of both the dot.com era and sub-prime crisis, to a fault in my opinion because it's all been said and done before. The mantra throughout this first part of the book is something like, "Gary Shilling made a lot of great calls in predicting the market's movements.". There was too much hubris in these chapters and quite frankly, was a bit of a turn-off. However, it didn't stop me from reading on because, if big egos were a problem, I'd have to stop watching sports, listening to music and going to the movies. Enough said.
The second part of the book is dedicated to Shilling's belief that the entire global economy is in store for a decade of slow growth and he gives ample proof to back up his argument. The author is of the school that that there is no such thing as decoupling and that the civilized world's economies are all hinged upon the success of what happens here in the United States. There are ramifications from the massive debts consumers and governments have racked up the past 30 years and here is where Shilling delivers the goods.
Shilling gives a list of nine causes of slow global growth in future years and then goes into painstaking detail about each of his points to insure there are no cross-currents in the data. Included in this list is the case for a deflationary era, unlike the majority of his contemporaries who cite inflation as the problem going forward. The author states that our path here in America looks very similar to the one Japan has embarked on for the last 20 years.
Shilling doesn't forecast a pyrotechnic environment for stocks in the coming decade: "...if I'm right that real GDP will grow about 2 percent per year for the next decade compared with 3.7 percent per year in 1982-2000, that secular bear market will continue to prowl. Stocks aren't likely to decline nonstop...But reflecting shorter, weaker economic expansions and longer, deeper recessions, bull markets are likely to be less robust than during the previous secular bull market, and bear markets will be frequent and more severe.". Later in the same chapter he goes on to say: "There is, of course, a slim, remote, inconsequential, highly improbable chance that I'm dead wrong in my forecast and, instead, the economy takes off like a scalded dog.".
The final section of The Age of Deleveraging encompasses 150 pages and Shilling gives you 12 investments to avoid, and, 12 investments to consider for the next decade. The author pulls no punches, and, like the section before (or the whole book for that matter), he goes the extra mile in backing up his thesis with plenty of statistics. It should be noted that he could have given you the abridged version of his lists and just shoehorned in some data, but he makes his points very believable with his presentations. I found it interesting that among the investments he says to avoid, he includes banks, commodities and emerging markets. On the buy side, he likes dividend paying securities, the U.S. dollar and healthcare.
He mentions throughout the book that he goes against the herd and if you've been following the market pundits of late, his investing ideas surely fit that bill. Shilling does not give any specific stock recommendations because he is not a stock picker. His approach is top-down which means he just invests in sectors or themes with ETFs or some mutual funds. He is also big on market timing and is not in the buy-and-hold camp.
I know how difficult it is to write a paragraph, let alone a 500 page book, and, I prefer to read every word an author writes to pick up the nuances in the text, but found myself skimming some parts of The Age of Deleveraging. The book was just so long and laden with statistics, it couldn't hold my interest in some instances. That's not to say it's not a good book. It is. You can get a lot out of this if you read it in small increments. If you are a bull, you may not agree with what Shilling has to say, but it might give you additional insight as to what may happen in the next decade. If you are a bear, it will give you plenty of ideas on how to make money in a contracting and volatile economy.