Saturday, 20 December 2008

S&P 600: That's Gary Shilling's Forecast for 2009, Not an Index

1 comment:

Guanyu said...

S&P 600: That’s Gary Shilling’s Forecast for 2009, Not an Index

Aaron Task in Investing, Commodities, Recession
19 December 2008

The S&P 500 could fall to as low as 600 in 2009 and “alternative assets” like commodities and currencies will provide no shelter for investors, says Gary Shilling, president of A. Gary Shilling & Co.

Having been appropriately bearish heading into this year, Shilling sees “few good places to hide” in 2009. Currently, Shilling is long Treasuries and the dollar, but notes the bond market’s rally is getting long in the tooth.

Other than defensive plays like utilities and consumer staples, Shilling is short stocks. His “S&P 600” prediction, a 33% drop from current levels, is based on a view that S&P earnings will be $40 per share next year (vs. the consensus of $83) and the index will trade with a P/E multiple of 15. (Here’s the math: $40 EPS x 15 P/E = 600.)

Shilling is also commodities and remains bearish on emerging markets, most notably China. The theory China, most notably, could “decouple” from the U.S. doesn’t hold up to scrutiny, Shilling says, as evinced by the slowdown of China’s economy and the fact their middle class isn’t large enough to sustain growth internally.

Against that backdrop, Shilling isn’t only bearish on China as an investment, he sees the potential for major social upheaval in the world’s most populous nation.