American financial analysis and commentator Gary Shilling, a regular figure in publications including The Wall Street JournalI, The New York Times, and Forbes recently completed an interview and the following is a series of my takeaways from Shilling's 8 quotes from the article regarding the current stock market, the possibility of a recession, and commercial real estate (CRE) bubble. Shilling was credited with correctly forecasting economic events including the housing crash in 2008.
Quote 1) Most forecasters on Wall Street are brought in to make bullish predictions. Even if a forecaster makes a correct bearish prediction, its has a negative impact on job security.
Quote 2) Shilling has a firm opinion that stocks will decline from 30%-40%, peak to trough. Shilling's forecast indicates a 2,900 point fall for the S&P 500.
Quote 3) The Fed's credibility problem is a strong reason why they are going to kill inflation. If the Fed fails to kill inflation then their credibility will be impaired heavily.
Quote 4) If the Fed is going to kill inflation then a recession will be the price of that decision
Quote 5) Shilling says that there will be a recession coming in the near future. The inverted yield curve, LEI's and the Fed's battle with inflation are all points Shilling referenced for an upcoming recession.
Quote 6) It will be well into the next year before the weak economy expresses itself and inflation is cut back.
Quote 7) Shilling references the mid-2000s housing bubble and crash and says that the major banks had to be bailed out as well as the mortgage lenders and so on.
Quote 8) The biggest bubble right now is CRE. It is a bubble beginning to crack and many buildings have been stifled by the remote working boom.
When Gary predicted the 2008 housing crash was it just luck or did he have some economic backing? It seems like from his quotes he knows about the economy but it is still interesting to ponder on the question if it is just luck for predicting a recision. There are trends like we talked about in class but still those trends are not set in stone.
ReplyDeleteI do enjoy the quotes and my favorite one is #3 because of the weight that it holds. I do think it is so true though! If the feds do not keep their words then they will be not credible, and credibility is something that is hard to earn back when it is lost, it is just like trust.
It was interesting reading about Gary, and the blog you posted. Gary was one of the few who believed what most Americans refused to believe, that the housing market would crash large in 2008.
ReplyDeleteQuote 1 stood out to me as it seems Gary is talking from experience. To me it seems Gary is talking about a lose lose situation where no matter what prediction you make you will have negative impacts. For example, the wrong one and you are a bad forecaster, or the right one but unpopular and you are labeled crazy like Gary was with the housing market prediction in 2008.
Regarding the first comment, there is an interplay between such forecasts, consumers expectations, and market behavior. So, the motivations behind manipulating or undervaluing such forecast becomes apparent. The balance between providing accurate information and navigating the consequences underscores the shape of financial predictions on Wall Street.
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