"Gary Shilling brilliantly exposes the delusions of the bullish consensus and the deadly dangers of debt accumulation, deflation, deleveraging, debt defaults, and double–dip and near–depression risks. He is one of the sharpest thinkers on economic issues and their market implications. This is a must–read book for all."
Nouriel Roubini, Professor of Economics and International Business, Stern School of Business, New York University
"Watch as the world Gary paints in this book comes to pass. And it is a very different world than the usual suspects want you to see. Ignore Gary at the peril of your investment portfolio. So instead of buying their funds, why not read Gary and let him show you alternatives that will work in a world of deleveraging, deflation, and slower growth."
John Mauldin, President, Millennium Wave Advisors, LLC (MWA), a three–time N.Y. Times bestselling author, and editor of Thoughts from the Frontline e–letter
"Gary Shilling is rarer than a black swan; he′s an economist who foresaw deflation. While central bankers were promising endless prosperity through managed inflation and influential economists were celebrating the ′New Economy,′ Gary′s followers were holding treasury bonds and preparing for the big shift. Shilling has predicted the ′impossible′ several times in his career, so his colleagues should no longer be surprised when he turns out to be right."
Robert R. Prechter Jr., author of Conquer the Crash
"This highly readable book, written by an accomplished economist, is certainly worth your attention. I have known Gary since 1973 and have always been impressed by his ability to recognize long–term trends. The Age of Deleveraging is the book you should definitely read."
Dr. Marc Faber, Marc Faber Limited
"Lots of unconventional insights of analyses. But remember the acid test of advice: those who followed Gary′s not–always–popular advice during these turbulent times made money. This man is an original and well worth listening to."
Steve Forbes, President and Chief Executive Officer, Forbes, and Editor in Chief, Forbes magazine
Introduction xivDelveraging, especially of the global financial and U.S. consumer sectors, will dominate the worldwide economy for years. It′s centered on five traumas so far. Three more possibilities loom.
Chapter 1 Spotting Bubbles 1
Economic and financial bubbles are time–honored and part of immutable human nature. I love to be among the few to spot them and predict their demise. They follow a welldefined pattern as they expand and burst.
Chapter 2 Making Great Calls 29
They involve important events that the consensus doesn′t foresee and unfold for the stated reasons. Here are five I′ve made: the 1969–1970 recession, the early 1970s inventory bubble and 1973–1975 recession, disinflation starting in the early 1980s, the demise of Japan′s 1980s bubble, and the dot–com blow–off in 2000.
Chapter 3 The Housing Bubble (Great Call 6) 53
Why I saw it coming in the early 2000s, how I forecast its demise and the way I personally profited.
Chapter 4 The Financial Bubble (Great Call 7) 95
The great disconnect between the financial and real worlds started three decades ago and accelerated in the 2000s. Soaring financial leverage, especially in the global financial and U.S. consumer sectors, made collapse inevitable.
Chapter 5 The Results of Denial 123
The 2007–2009 recession and financial crisis started in early 2007 with the subprime mortgage collapse, spread to Wall Street at mid–year, then moved to U.S. consumer retrenchment and global recession in late 2008. Investors thought every crisis was the last, and governments had no foresight or master plans.
Chapter 6 Slow Growth Ahead 159
Global slow growth in the next decade will result from U.S. consumer retrenchment, financial deleveraging, increased government regulation and involvement in major economies, low commodity prices and the shift by advanced lands to fiscal restraint.
Chapter 7 No Help from Anywhere 225
Four more reasons for slow global growth: Rising protectionism, continuing U.S. housing weakness, deflation and weak state and local government spending.
Chapter 8 Chronic Worldwide Deflation 273
Deflation comes in seven varieties, but is fundamentally driven by supply exceeding demand. Productivitysaturated new tech and globalization will drive the good deflation of excess supply while slow economic growth introduces the bad deflation of deficient demand. As the two combine, I look for chronic price declines of 2 to 3 percent annually.
Chapter 9 Monetary and Fiscal Excesses 311
The inflation–wary Fed will probably withdraw excess reserves if inflation looms. Federal deficits over $1 trillion will persist as weak economic growth forces government job creation and helps push those dependent on government to two–thirds of the population. Still, government stimuli will continue to only replace private sector weakness at best.
Chapter 10 The Outlook for Stocks 339
Corporate earnings grow with GDP in the long run. With slow growth and deflation in prospect as well as falling P/Es, stock appreciation will be muted and below dividend yields. History favors market timing over buy and hold, even more so in this environment.
Chapter 11 Twelve Investments to Sell or Avoid 363
Big–ticket consumer purchases, consumer lenders, conventional home builders, collectibles, banks, junk securities, flailing companies, low tech equipment producers, commercial real estate, commodities, Chinese and other developing country stock and bonds, and Japanese securities.
Chapter 12 Ten Investments to Buy 425
Treasury bonds, dividend–payers, consumer staples, small luxuries, the dollar, asset managers and advisers, factorybuilt houses and rental apartments, health care companies, productivity–enhancers and North American energy.
About the Author 493