GARY SHILLING: PROFITS WILL PLUMMET AND STOCKS WILL
PLUNGE 43%
By Mamta Badkar | Business Insider
http://finance.yahoo.com/news/gary-shilling-profits-plummet-stocks-203000738.html
http://albertpeia.com/shillingsaysstockswillplunge43percent.htm
‘The S&P 500 just broke a
five-day losing streak today,
but the index is still down from its highs.
Market bear Gary Shilling
was on Bloomberg TV today saying that with a hard landing in China and a strong dollar, he expects the operating earnings of S&P 500
companies to drop to $80 this year.
He said this would almost guarantee a
major bear market with a PE ratio low of about 10, which implies that the S&P 500 index should be around 800—a
43 percent decline from its recent level.
"Bear in mind that the analysts
have been cranking their numbers down. They started it off at north of a 110,
then 105, they're now 102. They're moving in my direction.
But yeah I think that's true because
as you just mentioned you've got the foreign earnings that don't look good
because of the recession unfolding in Europe, a stronger dollar so there are
translation losses, hard landing in China and the U.S. I think we could see a
moderate recession led by consumer retrenchment, and I think that kind of earnings estimate is
not unreasonable."
Shilling said that while the
Shilling said he is sticking with his
"quartet"; i.e. he's long treasuries, short stocks, short commodities
and long the dollar.
Watch the entire
interview at Bloomberg
TV:
Don't Miss: Gary Shilling - 2012 Is Going To Be Totally Crappy > ‘
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Shilling
Shuns Stocks, Sees S&P At 800
Submitted by Tyler Durden
on 04/11/2012
In an attempt to not steal too much
thunder from Gary Shilling's thought-provoking interview with Bloomberg TV, his
view of the S&P 500 hitting 800, as operating earnings compress to $80 per
share, is founded in more than just a perma-bear's
perspective of the real state of the US economy. As he points out "The analysts have been cranking their
numbers down. They started off north of 110 then 105. They are
now 102. They are moving in my direction." The combination of a hard
landing in
Links to the three-part series that
Shilling (and his hosts) describe can be found here
(these are notes from the longer discussions):
Part
1 - Shilling Describes the key factors behind his recession call:
Consumers Are the Linchpin:
The
...
Spending, Saving and Debt: The support that consumer spending has received from less saving and
more debt appears temporary. Household debt -- including mortgages, student
loans, and auto and credit-card loans -- has fallen relative to disposable
personal income, though. In my analysis, this is largely because of write-offs
of troubled mortgages. Nevertheless, revolving consumer credit, mostly on
credit cards, is no longer being liquidated.
...
Consumer Retrenchment: The data so far aren’t conclusive, but
evidence of
Housing activity
remains depressed, with
the only signs of life coming from the multifamily component, which is being
driven by the appetite for rental apartments as homeownership declines.
Homeowners are losing their abodes to foreclosures; many can’t meet stringent
mortgage-lending standards; some worry about homeownership responsibilities in
the face of job uncertainty; and many have no desire to buy an asset that
continues to fall in price.
What Oil Threat?: Recently, there has been great concern
about $4 per gallon gasoline and whether, as in 2008, those high prices will
act as a tax on consumer incomes and force drastic cutbacks in other purchases.
Part
2 - Shilling focuses specifically on the employment picture
Job openings were up 16 percent in
February compared with a year earlier, but in a survey by the National
Federation of Independent Business, a net
zero percent of small-business owners said they planned to hire over the next
three months. Furthermore, would-be entrepreneurs aren’t all
that enthusiastic: Only
2.7 percent of job seekers started new businesses in the last quarter, down
from 12 percent in the third quarter of 2009.
Job openings: The U.S. has a
lot of job openings, but having endured huge layoffs in recent years, employers
are being very picky in new hiring. Contrary to Federal Reserve Board Chairman
Ben S. Bernanke’s assertion that high unemployment is mainly a cyclical concern
that will be solved by economic growth, I believe that a big part of the
problem is structural.
...
Business Cost-Cutting: During the sluggish business recovery that
began in mid-2009, sales-volume increases for
...
Manufacturing
productivity:
Labor-intensive factories producing items such as textiles or shoes have long
departed American shores for low-cost venues abroad and may never return. Those
that remain -- and the type of manufacturing that is coming back to the U.S. in
the much ballyhooed “reshoring” -- is
robot-intensive, highly automated production that requires limited labor.
Manufacturing output has recovered from its recessionary low, though not to the
previous peak. Yet output per person, a measure of productivity, after the
usual recessionary decline, has resumed its robust upward trend.
...
Jobs up, profits down: As in the past, the large share of
national income accounted for by high corporate profits is unlikely to last for
long. In a democracy, neither capital nor labor keeps the upper hand
indefinitely. Quite apart from the Obama administration’s determined effort to
redistribute income in favor of lower-income households, the seeds of narrower
profit margins have already been sown. In recent quarters, productivity growth
has been tiny. Have we reached bottom in terms of cost-cutting? Industrial
leaders say productivity- enhancing opportunities are never exhausted, but it
is possible that the low-hanging fruit has all been picked, at least for now.
...
Corporate earnings
implications: More jobs
are about the only spur to household incomes, and consumer spending is the only
source of strength in the economy this year. If new employees spend their
paychecks freely, they could create more consumer demand, additional corporate
revenues and profits, more jobs, and so on, in a self-feeding cycle. But, as I
discussed in Part 1, new and old employees are more likely to retrench and
precipitate a recession.
That would cause great disappointment
for corporate profits. In conjunction with a major recession in Europe, a hard
landing in
In Part 3, I’ll
examine why the Fed may embark on a third round of quantitative easing
if the economy weakens this year and whether Congress will be tempted to enact
policies of its own to address a huge fiscal drag in 2013 as payroll and income
taxes rise and unemployment benefits plunge.