SOS Age of Deleveraging

Gary Shillings' new book, the age of deleveraging

Here is the glimse:

1.U.S. consumers will shift from a 25year borrowing-and-spending binge to a saving spree. This will spread abroad as American consumers curtail the imports of the goods and services many foreign nations depend on for economic growth.

2. Financial deleveraging will reverse the trend that financed much global growth in recent years.

3. Increased government regulation and involvement in major economies will stifle innovation and reduce efficiency.

4. Low commodity prices will limit spending by commodity-producing lands.

5. Developed countries are moving toward fiscal restraint.

6. Rising protectionism will slow, even eliminate global growth.

7. The housing market will be weak due to excess inventories and loss of investment appeal.

8. Deflation will curtail spending as buyers anticipate lower prices.

9. State and local governments will contract.

MyView

Gary Shillings is one of the great investors for the past decades.

Here is his investment themes in the long run:

Gary discusses 12 investment areas to sell or avoid in the long run.

Included are expensive consumer discretionary purchases like motor vehicles, appliances, airline trips and ocean cruises. These will be hurt by consumers' zeal to save and by the self-feeding downward spiral of deflationary expectations. The latter has locked automakers into profit-killing rebates. Similarly, credit card and other consumer lenders will suffer from the household shift from borrowing to debt retirement. Conventional homebuilders and their suppliers will be pressured as more than 2 million excess house inventories drive prices down another 20%.

The 10 investment sectors he favors include Treasury bonds. Back in the early 1980s, when the 30-year Treasury yielded 15.25%, he said we were entering "the bond rally of a lifetime.” He believes that rally is still intact as 30-year yields head for 3% and 10-year yields for 2% amidst slow economic growth, deflation and Treasurys’ global appeal as safe havens.

Dr. Shilling also likes securities with high, reliable and growing cash returns such as stocks that pay significant dividends.As households increasingly separate their abodes from their investments, they’ll favor small single-family houses, especially the cost-effective homes built in factories. Rental apartments will also be attractive as younger couples stay in them until their children are old enough to need single-family houses, and empty-nesters will prefer rentals to condos when they sell their suburban money pits.

Our nation has decided to reduce its dependence on unreliable foreign energy sources, so he likes conventional North American energy suppliers such as coal, nuclear, natural gas, oil sands and related industries, but no government subsidy-dependent renewal energy such as ethanol, wind, solar and geothermal.

I believe some of the following sectors worth watching is:

1. High dividend yield stocks
2. Continuous high demand in emerging market such as Water, Health, Food

Let us look back his investment theme for 2010 below:

The good news: Six buys for 2010
Buy treasury bonds.
Buy income-producing securities.
Buy consumer staples and foods.
Buy 'small luxuries.'
Buy the U. S. dollar.
Buy eurodollar futures.

Now the bad news: 11 sells for 2010
Sell U.S. stocks in general.
Sell home-builder and selected related stocks.
Sell big-ticket consumer discretionary equities.
Sell banks & other financial institutions.
Sell consumer lenders' stocks.
Sell many low- and old-tech capital-equipment producers.
If you plan to sell a home or investment house, do so yesterday.
Sell junk bonds.
Sell commercial real estate.
Sell most commodities.
Sell developing company stocks and bonds.

I believe some of his 2010 predictions is too early, such as commodities. Only time will tell, still one and a half month to go.