Gary Shilling’s excellent book, The Age of Deleveragingpublished in May of 2010 predicted a future that has only become all too obvious to the world in the last few months. Conveniently for the reader’s sake Shilling divides his book in two parts: the first part which is 90% or more of the book is devoted to laying out his thesis of slow growth and deflation and the last chapter details his investment ideas on how one can benefit from this state of affairs. Unfortunately he doesn’t provide many specific capital investment ideas other than his love of the long bond and all of its manifestations. In fairness to Mr. Shilling, he writes, “Be aware, however, that I’m not a stock picker. My approach is top-down, as outlined early in this book. I start by examining the economic, financial, and political spheres and then the forecasts they seem to point to. From there, I distill the investment themes and strategies for implementing them. In managing our portfolios, we seldom use individual securities except for Treasurys since we’re interested in broader industries and financial sectors. Instead, we rely on exchange-traded funds (ETFs), which are increasingly available as are some mutual funds on a wide variety of stock and bond escorts, commodities, and curriencies.
I agree with many of his points and highly recommend the book but if you are time constrained and already a believer in his thesis, you might want to cut to the chase.
His ten investment ideas to buy are as follows. We’ve highlighted some individual names, stocks and ETFs, that we own as of a certain date. Don’t plan on us keeping this list current as we are a trading fund not long term investors generally. Shiller doesn’t recommend specific stocks to own or short.
- Treasurys and other high-quality bonds.(TIP Treasury Inflation Protected)
- Income-producing securities.(CLMT, NS, MRK,SEE 10-30-11)
- Food and other consumer staples.(PG,TSN,SFD,ADM)
- Small luxuries.
- The U.S. dollar.(UUP,EUO 10-30-11)
- Investment advisers and financial planners.
- Factory-built housing and rental apartments.
- Health care.(MRK, MYL, EXAM)
- Productivity enhancers.
- North American energy. (HES,XCO,SLB,WFT,CLMT,NS, CHK,APA 10-30-11)
- Big-ticket consumer purchases.
- Credit card and other consumer lenders. (AXP,DFS,
- Conventional home builders and suppliers.
- Antiques, art, and other tangibles.
- Banks and similar financial institutions.
- Junk securities.
- Flailing companies.
- Low- and old-tech capital equipment producers.
- Commercial real estate.
- Commodities.
- Developing country stocks and bonds.
- Japan—a slow train wreck.
We've invested heavily in a few of these ideas and will outline specifics in later posts.