In 2007, economist Gary Shilling predicted that housing prices would collapse and that stock prices would fall below their 2002 levels . Wow. I wish I had read Shilling's forecasts before all that happened.
While Shilling doesn't think 2010 will be as catastrophic, he predicts a bad year for investors. John Mauldin, a financial writer, provides a detailed recap of Shilling's 2010 outlook in his weekly newsletter.
As I wrote here, Shilling suggests three defensive types of stocks (and three other types of investments) to buy should 2010 turn out as he forecasts. He also identifies 11 types of investments to sell.
The first of these are U.S. stocks in general. Shilling believes that earnings expectations for 2010 are way too high, and that the market will fall back to a more reasonable P/E level. The second area is emerging-markets stocks. He thinks a slow U.S. recovery will negatively impact growing economies. He is also down on junk bonds, housing prices, commercial real estate, and commodities.
More specifically, Shilling recommends selling these five types of stocks:
1. Homebuilder and related stocks
Investors have been waiting for builders to rebound for a few years now, and will likely wait longer. Toll Brothers (NYSE:TOL) and peers should continue to struggle as capacity remains high and home prices continue to fall. Companies like Sherwin-Williams (NYSE:SHW) that outfit new homes will feel the pain as well.
2. Big-ticket consumer discretionary stocks
Shilling thinks consumers will put off big purchases from Tiffany (NYSE:TIF) and Nordstrom (NYSE:JWN) until the economy improves. They'll also postpone vacations, impacting airlines and companies like Estee Lauder (NYSE:EL), which rely on duty-free purchases.
3. Banks and other financial institutions
Don't look for bank stocks to recover. Risky financial stocks will be hit hard again. If you're holding Bank of America (NYSE:BAC) or other financials, Shilling thinks it's time to bank their recent run-ups.
4. Consumer lenders
Shilling thinks that consumers will spend more time paying down their debt than spending. This would be bad news for American Express (NYSE:AXP) and other credit card companies.
5. Low-tech capital equipment producers
Shilling still sees excess capacity in manufacturing, meaning that makers of machine tools, auto parts, and other equipment will struggle.
Is Shilling too negative, or is it time for investors to hunker down? Leave your thoughts in the comments section below.
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