S&P predicted to Fall by 30%: That’s Gary Shilling’s Forecast

yahoo-finance

Posted Dec 19, 2008 12:33pm EST by Aaron Task in Investing, Commodities, Recession

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 short 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.

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