Market prophet Gary Shilling issued a raft of dire warnings to investors in an interview this week.
Stocks may crash 30%, a recession is imminent, and commercial real estate is a bubble about to burst, he said.
The Fed is likely to crush inflation and start cutting interest rates next year, Shilling said.
Stocks could crater by 30%, the US economy is careening toward recession, and commercial real estate is a bubble about to burst, a legendary market prophet warned this week.
Gary Shilling, a veteran economist known for correctly forecasting events such as the housing crash in 2008, also predicted on “The Julia La Roche Show” that the Federal Reserve will beat inflation and start cutting interest rates next year.
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Here are Shilling’s 8 best quotes, lightly edited for length and clarity:
1. “It’s fair to say that most forecasters on Wall Street are paid to be bullish. I know from personal experience that if you’re bearish, even if you’re correct, it’s very detrimental to job security. That’s why I set up my own firm many years ago, to avoid that hazard.”
2. “I’ve been of the opinion that stocks would decline about 30% to 40%, peak to trough. You’d have a further decline of about 30% from here to get to that 40% overall decline.” (Shilling’s forecast suggests the S&P 500 could fall to around 2,900 points or its lowest level since the pandemic.)
3. “The Fed was very much late to the party. They had a huge credibility problem, and I think that’s a strong reason they’ve decided they are going to kill inflation. They realize that if they don’t, their credibility will be very seriously impaired, and they’ll have a much tougher time later.”
4. “There’s a growing realization that the Fed is serious, that they’re going to kill inflation, that recession is probably the price of that, and that the Fed is restoring its credibility.”
5. “We probably do have a recession coming shortly, if we’re not already in it — nobody rings the bell. If you look at many of the major indicators that are reliably forerunners of recessions, when you look at that combination of things, it’s pretty hard to escape a recession.” (Shilling pointed to the inverted yield curve, leading economic indicators, and the Fed’s crusade against inflation as some of the key reasons he expects a recession.)
6. “Maybe when the Fed finally does see the footprints on the ceiling and starts to cut rates, it could come with a lot more speed. But it could be well into next year before they finally see enough evidence of a weak economy and inflation cut back, to lower rates and make a decided shift from credit tightness to ease.”
7. “What was amazing to me was, when it just seemed so obvious that this was an unbelievable bubble, that a lot of people believed it. It was just so extreme, but it took a long time for people to realize that. Why? Well you see what happened, all the big banks had to be bailed out, the mortgage lenders and so on, and a lot of blood on the floor. There were a lot of people who believed in free lunch.” (He was reflecting on the mid-2000s housing bubble and subsequent crash, and said he made 20 times his money with the help of hedge fund manager John Paulson.)
8. “I think the biggest bubble right now is commercial real estate. This isn’t of the magnitude of the subprime-mortgage bonanza, but I think it is a bubble which is beginning to crack.” (Shilling pointed to not just office buildings, where occupancy has been hit by the remote-working boom, but also hotels and shopping malls that have been struggling for a while.)
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