Economist Gary Shilling has agreed to share with BloggingStocks his 18 investment strategies for 2011, beginning with Gary Shilling's Investment Strategies for 2011. But he will only be revealing them a little at a time, over the next few weeks, so check back often!
My investment strategies for 2011 are driven by my forecasts for the economies and financial markets here and abroad. In my view, the overarching reality that will dominate 2011 and, indeed, the next decade or so is financial deleveraging, as spelled out in my new book, The Age of Deleveraging: Investment Strategies for a Decade of Slow Growth and Deflation, which was published in November 2010 by John Wiley & Sons.
In the Jan. 2011 edition of my monthly Insight newsletter, I lay out 18 investment strategies for 2011 -- nine on the buy side and nine on the sell side. Earlier, I briefly discussed the first two "buy" strategies (Treasury bonds and selected income-producing securities).
Another investment theme on the buy side is one I call "small luxuries." Consumers, especially when they're hard-pressed as many are now, tend to buy the very best of what they can afford, even if it's within a low-priced category. I developed this investment theme of small luxuries years ago when I noticed this tendency in apartheid South Africa. Urban blacks there often carried the elegant, slim, and expensive umbrella typical of investment bankers in London. They couldn't afford cars or even taxi fares, but they did achieve status and satisfaction with fine umbrellas.
I think manufacturers and retailers that can adapt to the demand for small luxuries will be winners in the current environment. Some are adopting the small luxury mode by offering essentially the same products at lower prices by cutting their manufacturing costs. Another route to small luxury success is to continually introduce new and improved models that make their predecessors obsolete.
The U.S. Dollar
Fourth on my buy list is the U.S. dollar, especially against the euro. Dumping on the dollar has been the favorite sport of investors and the financial media for years. Then the financial meltdown in 2008 drove investors to the dollar as the global safe haven. But, in early 2009, that status faded as fears of financial collapse melted. Buck busters cited the record low short-term interest rates, with the federal funds target rate at zero to 0.25%, even lower than in Japan. This made the greenback the preferred funding currency for the carry trade in which it was borrowed and then sold for higher-yielding currencies, such as the Australian dollar or the Norwegian krona. The falling dollar against those currencies also enhanced the profitability of those trades.
Despite all the drawbacks, however, the dollar remains the world's reserve currency and safe haven, regardless of suggestions by the Chinese and others that the dollar should eventually be replaced by a global currency. But alternatives to the dollar as the world's reserve currency don't exist.
My basic argument for the greenback isn't that the U.S. is a shining example of fiscal prudence and monetary integrity, a global example of a high-saving, high-investment economy driven by productivity growth. Rather, it's my conviction that the dollar is the best of a bad lot and, at least for the next decade or so, the only reserve currency in town.
Furthermore, until early 2010, almost everyone was on the dump-the-dollar side of the boat, a situation similar to that early in 2008 that preceded the dollar's jump, which started in mid-year. History suggests that when that happens, the winds often shift and all those folks will get tossed into the water as the boat sails in the reverse direction.
A. Gary Shilling is president of A. Gary Shilling & Co., publishes Insight and is the author of The Age of Deleveraging.