? Why We are Already in a Recession (w/ Gary Shilling) | Real Vision Classics

Gary shilling It’s great to talk to you and I’m really excited About this because you had a long and varied career and you also are making some non-consensus calls right now That we want to get into and as I told you before We started talking off camera that I wanted to go through the long arc of your career but then get to that non-consensus call that you’re making right now because I think that we’re at a critical juncture in the Economy. Let’s go back all the way to Standard Oil, you know my understanding y’all haven’t read your bio is is that you didn’t start out on Wall Street But you actually started out as an economist at an oil company. My biggest question is is why? Was an oil company looking for a macro economist That’s interesting and Standard Oil, New Jersey, which was the largest of the US oil companies they had what they call the general economics department and It really I think was because the Board of Directors and the Board of Directors. They were all inside Employees, they were guys who’d worked up through the ranch. They weren’t outside people. I think they thought that economists or something that was kind of good because everybody had one there were two things that They all felt they had to have and they didn’t know what to do with them one was computers and other was economists So it was it was not a terribly useful vehicle I I went from their Standard general economics department to what was called coordination and planning which was getting closer to the action there But then I left in four years and became Maryland’s first chief economist and been basically in wall street ever since right well Tell me about that transition to tomorrow and then white weld and what your thoughts are on how that was as compared to standard oil and Give me a sense of what the environment was on Wall Street back at that time Well, I was always interested in markets and of course Merrill Lynch was a lot closer to markets in at least in my position and then Standard Oil New Jersey was or Jersey as it was called in sight and it was interesting One of the things that you had to learn the jargon When I went there and they talked about defensive stocks. I thought they meant defense stocks You know frensley meaning things that are less volatile like utilities and consumer staples as opposed to things making air Planes and ships and so on and so forth and it was a it was a different atmosphere. It was it was sales driven And I did a lot of work with particularly the institutional salesmen in covering pension funds various fund managers mutual funds etc, etc, but it was a lot faster paced and Environment and one and I enjoyed much more. Yeah and Merrill versus white weld, I mean what what’s the difference there? Also the marrow of then versus the marrow that we know before blew up in 2008. What can you tell us about that? Well my history at Merrill Lynch was kind of checkered. I Forecast I went there in 1967 and I forecast correctly the 1969-70 Recession but that wasn’t being bullish on America in the Merrill Lynch parlor. So the guy running the shop Donald T. Regan, he was layer Secretary of the Treasury and chief of staff the White House We had a disagreement Obviously he won I took my entire staff went to white weld with no idea that in 1978 Merrill issued by white weld So the story on Wall Street was just really true with Schillings The only guy fired twice by don regan So I decided to limit the odds of that Third time and set up my own shop. But but white weld was a it was it had been a a You know white shoe very sort of conservative firm that had really grown by financing pipelines when they’re building pipelines from Texas up to the east and they kind of rested on their laurels and it’s interesting goldman sachs at that point was very much a smaller operation Well earlier than that but goldman sachs was out there soliciting clients and building relationships and y12 wasn’t and I think that’s why eventually white well again sold the Merrill Lynch because Don Regan wanted and Investment Banking Department and white weld was definitely for sale and then that’s sort of how Merrill became the behemoth that it is because before it was more into the stock broking interestingly enough I when you say white weld immediately it popped in my mind at mark Fabra. He actually was as well. Yeah Yeah, that’s where he he and I met there. He was a well. He was first a sort of a Under study if you will and then he was he was liaison between the research department and the foreign offices so he would get questions coming in and he come over and and Economic question we talked about it and he composed we composed The answers and that’s how that’s how we got to know each other, but it was a good firm really enjoyed it being there and And but you know that there’s been a transmission transition in in Wall Street and you know Merrill Lynch well, you know interesting thing of Merrill Lynch when there was made a 1975 when they when they Unbundled Commission. So there was that was the end official commissions and I had since that coming and in the because in the in 1973 soon after I got there there was a whole host of big-name economists testifying to Congress This is Milton Friedman and all these guys who basically said there’s no justification or fixed race and Wall Street Like like open markets, you know They couldn’t exist without competitive markets except in one minor area where we fix our commitment our fees And so I went to Don Regan and I said, you know I think that fixed commissions are going to go and Merrill Lynch would probably set the Commission’s being the biggest of the retail brokerage houses And so he said well I you may be right, but do a study on this and I did and it was probably the first cost accounting attempt at a cost County study of any wall street house because Merrill Lynch at that point they basically assumed that their basic business was was stock brokerage in listed stocks, and it was on the new yorking and American Stock Exchange, and that bore all the costs And everything else was saying of a subsidiary with no accounting for costs or revenues or anything else. So we Devised a system and treat Merrill Lynch as a bank in fact Which lent and received money from its functional subsidiaries and it really was an odd situation. I mean like in commodities the customers put up more money as Margin than the then the broker puts up with the commodity exchange. So it generates capital what they were losing money now How do you compute contain a return when you’re generating capital? But losing money? What’s her return? It was it was really interesting exercise, but nothing much came of it But I think it was at least I learned an awful lot about how Wall Street firms actually worked from a financial standpoint, you know, I Don’t know in terms of sequencing whether I want to get to what happened in terms of 78 or move to the economy But let’s try talking about, you know You already sort of for shouted it in 78 when you left because of Don Regan and you went out on your own How was that for you in terms of that transition? Well it was it was it was a kind of rough because my wife and I and our four small kids we didn’t have a Meaningful assets and you know to suddenly basically be fired that was a it was a it was a bit of a trauma But I have some good backing What was a major trading operation the biggest? trader on the New York Stock Exchange spear leads in Kellogg I knew those people and they formed a provider contingency long and we set up we never drew on it luckily but but at least we had backing and and we did have a Lot of the clients that we had and we build up a business with in white weld not only serving financial institutions but also industrial corporations companies like like like 3m and AO Smith and major Industrial corporations and we were able to bring all that business with us So we got off to a start but you know It’s kind of scary when you’re when you’re suddenly out on your on your own and and you’ve got to start and and no no big meaningful capital as a Cushing Yeah, I can imagine and for me I’m thinking though and some level, you know that four-year juncture between 78 and 82 could have been fortuitous and not fortuitous because you were going out right at the Period I think that was the most volatile in terms The the end of that inflationary cycle and the seventies taking me back to what you’re thinking. Well, it was actually actually in by the late seventies I Concluded that inflation was on the way out Now the first book I wrote upon that the title was is inflation ending question mark are you ready question mark mcgraw-hill Probably said in the early eighties but what I saw was a Turning of the populace against Washington. It had previously the conviction that Washington Really knew what they were doing And but then he had two things that really destroyed confidence one was was Vietnam Which of course is very unpopular and the other was the Great Society program So it didn’t really work and of course they generated he was inflation because you simply had excess demand on a fully employed economy Well, something happened in 1978. It was called proposition 13 in California, which was it basically limited the the increases in local property taxes and it still exists and that to me was an inkling that Because California no colorful and there’s a rootless society. Most people have moved in. They’re from someplace else. They don’t have strong traditions They don’t show you further. It’s hula-hoops or for inquires or in this case limits on government spending You can see things start in California know they’re going to spread nationwide but anyway, I saw that and then of course, you got to the election of Reagan in 1980, and I said You know that this is a change of environment because I saw the the root cause of inflation as being excess demand and So that’s why I started forecasting the demise of inflation and with that a huge decline in interest rates Treasury bonds at that point where were long-term Treasury bonds earlier bonds were yielding fourteen point six percent So that was an extraordinary opportunity For appreciation because of course as as the yields go down the price goes up and what did you think by the way of Volkers attempt to deal with monetary policy by The money supply targeting the broad money supply which was a fail in the end I mean, did you think that was gonna work? Well, I you know, of course it’s debatable I think a lot of people would give good vulgar credit But I think it was really a shift in the attitude Of the American people and you know Booker couldn’t have done what he did if they hadn’t had the populist behind him in effect You know, I think inflation was was on the way out Anyway, before he before he acted, you know They jacked up interest rates about 20% short-term interest rates and you precipitated to back-to-back Recessions and and but that was that was the beginning of the unwinding but you know if it had just been monetary policy Why would you have inflation coming down for you know now almost 40 years? Well, I mean the peak was in 1980 So I think was I think was a much more profound change than simply monetary policy and it is profound I mean we’re gonna get to that at the end in terms of whether or not that cycle that you’re talking about Persists and continues now, but that was the the beginning of the great bull market The interesting bit is you know before this yesterday you sent me a chart on How we think about things when we think about the great bull market? We usually we think about equities and we think about 82 is the beginning and potentially continuing on but the chart you sent me was about zero coupon bonds tell me about that because it was shocking how the outperformance differential well, I started investing in in 30 years zero coupon Treasuries now zero coupon bonds Don’t pay any interest but they are issued at a discount and the interest in effect is is in effect built in the difference between the the issue price which is below 100 and they’re they’re They’re expiring at at a hundred it’s built in now the fact that it’s built in it has big advantages When interest rates come down you don’t have the reinvestment risk Enormous if you invested let’s just take an example. Let’s say you invest in a 10-year Yielding security and and the rates dropped to 5% Well, you’ve got to reinvest at 5% you no longer can invis at 10% that’s gone But the zero coupons build that in so you get actually about twice as much appreciation for given decline in interest rates for the zero coupon as With a coupon bond and the longer the maturity the the more bang for buck. Now it works both ways your lose What am I afraid to go up? But actually I started in with the zero coupon bonds for my own account in 1981 and by and by the mid-80s the shilling family on that one investment had achieved financial independence and It’s it’s been a tremendous Asset as a matter of fact since the early 80s and we have we have us documented that these zero coupon Bonds have outperformed the S&P 500 by five times. That’s including dividends. Yes and P But a lot of people that you know, they think that Treasury bonds are for little old ladies and orphans Well, I’ve never never never bought Treasury bonds for yield. I couldn’t care less what the yield is as long as it going down because When it goes down they increasing in price and it’s you know, I I born for the same reason Most people buy stocks. Most people don’t buy stocks for for dividends You have some for utilities and real estate investments But most people are looking for appreciation and that’s that’s what my interest in in Treasury bonds, you know We’re going now into asset allocation and stock picking and Investments and so forth. I understand that you have been associated. I think it was with for since nineteen eighty three one of the longest standing writers at Forbes and you know They even though you’re an economist they picked you as one of their You know favorites Analysts of the market how did that come about? We’re really, you know came about this through some various people like various people. I knew who had been writers at very places and ended up at Forbes and invited me in there to meet Jim Michaels who was just Legendary editor he was as one of these guys who ate nuts and bolts for breakfast and then moved on to solid food I mean just a classic Editor who chews you up and spit you out, but you learned a lot from him, but I got involved in 1983 and you know his attitude at Forbes as if you’ve seen it anyplace else it won’t be in Forbes He wanted things that were truly unique now. I don’t think that was always true Right, but he was very insistent on and that’s how I got I got started I got started there and at Forbes and been writing from them ever since a matter of fact I’ve been on they have Steve Forbes as these what they call crews for investors and there’s one coming up in second half of July that I’ll be on in the Baltic where I’ll be speaking and then they have Investors there or listen to the lectures, but he visits st Petersburg and various countries in airberlin various countries and around the Baltic. So I’ve done that a number of times too So that’s a another Aspect of the Forbes relationship this relationship you had with them has been through something like the Reeb isness cycles I think it was the 1990 downturn there was the 2000 the 2008 and now we’re still Potentially, we’re not at the end of the in the fourth downturn. I mean when you compare what could be happening now? What is the severity of? Today and how would you compare it? What what’s the most comparable that you would say? Well, I I made a career out of looking for four major bubbles As a matter of fact, I wrote a blast book I wrote was called the age of deleveraging investment strategies for a decade of slow growth and deflation published by Wiley in 2010 and In there, I listed seven different what I call it great calls We’re on that and and these were having to do with major with major cycles and cite three of them which really I think falling in with what you’re interested in one was in the early 70s you have very high inflation and as a result there was a feeling that Inflation was going to be in double digits forever. So what happened a lot of business people wholesalers retailers manufacturers doubled and tripled inventory Double and triple ordered inventories in order to make sure they had supplies because they knew the the cost of replacing those Would be higher later Well, it was just one of these coincidence I’d spent a summer to San Francisco fed when I was getting a PhD At Stanford in economics and I came across a book called hand-to-mouth blind and it and it described what happened in 1919 when after World War one they took off wage and price control and wholesale prices literally doubled overnight and so at everybody Ordering these inventories held her skelter. Well, they all arrived and he had the sharpest recession on record in in 1920-21 And I’m a great believer at then the in the repeat aspects of history History doesn’t Mark Twain says history doesn’t repeat but it rhymes human nature doesn’t change much So people react with similar circumstances in similar ways so on a basis of that and in some work we did in the steel industry that showed that the steel production was not being matched by supposedly what people were Using up and we said there’s a lot of excess inventories and so when a result of that a correctly forecast at 73 75 recession Which was a sharpest tone record at that time Now that was an economic phenomenon that was excess inventories that they’re there to others that you Alluded to one was of course that go up in the dot-com bubble at the end of the 90s and that was just wild speculation and Obviously that came at greevil that was another been looking on that one And and then the third one of course was the it was a big housing bubble the sub mortgage and we actually started in in 2002 Saying that housing was showing signs of bubble and followed it up and had had very good success For ourselves and for our clients and in forecasting and demise of housing now those things those three were really outstanding crises if you will I don’t see anything right now that could could stack up to that mere possibilities a Corporate borrowing has been very heavy in this country. There’s been a lot of subprime barbering or mere subprime the triple B’s are 50% of bonds and one notch below that they’re they’re junk and a lot of institutions can’t hold junk They have to sell it. You could get a few millimeters of sell-off another one is emerging markets they borrowed very heavily in dollars after the Great Recession this 2007 2009 recession but the dollars been rallying. It makes a dollar much It makes it much more expensive in terms of local currencies to pay for those dollar deaths That’s another source of possible and the third one courses That is the trade wars with China which we might talk about in more detail But you know, we you know Those might blow up But but I’m not I’m not I don’t see those as big bubbles like these three I mentioned they’re just waiting to be pricked So yeah, I think we’re we’re probably already in a recession, but I think it would probably be a run on the mill affair Which means real GDP would decline One and a half to two percent not two three and a half to four percent you had in there Very serious recessions stocks probably wouldn’t fall if they fall the average you take out those three and look at the average stock fall it was 22% from the peak in the other recessions on average and that would take you a little bit below a couple hundred points SNP Points below where it was on Christmas Eve So now from here it would be a shock to people but but I’m saying I don’t see a catastrophe out there You know you sit in a very Placid sanguine way, but I mean you’re making a very bold call in terms of the recession Let’s unpack that I mean because my understanding is is from the last letter that you wrote the last insight you were saying Actually, we could be in a recession right now. What’s the data behind? well if you look at if you look at a number of things you looked at the previous weakness in housing now that Looks like it may be a bottom because of the decline in mortgage rates, but industrial production is declining employment picture, you know 75,000 payroll employment increased last month, which is Extremely low about a third of what was what was average you look at the New York Fed. They have a recession indicator, which is now in Recession area you look at the Organisation for Economic Cooperation Development indicators, they’re declining. There’s just a whole host of Indicators that are declining the thing about recessions is that you never know You’re in one until almost. It’s all over the 2007-2009 recession the most severe since the 30s the National Bureau of Economic Research, which is the official arbiter of this No administration ever wants to declare a recession No, no, no leave that to this private organization and they started setting business cycles back in the 30 So they’re the guys who call the shots They did not say that that December 2007 was the peak which it was until a year later December 2008 because what happens it takes time for the data to come in and Then you get all the revisions and it Peaks The revisions are on the downside almost invariably they let me explain why let’s say employment They want to release the employment numbers the first Friday of the month following the month in question They want the data out there while it’s still relevant, but they don’t have all the survey results in there So, what do they do? they base their their initial estimate partly on a surveys and partly on the momentum of recent months now when you’re at a peak the momentum moves up like this and then when they get the Rest of the survey data in you get a downward revision And that’s what’s happened in the last three months early in the year The revisions were up in employment now in payroll employment now, they’re down the last three months That’s that’s probably the strongest indicator Matter of fact I’m like, you know I write Columns for Bloomberg online and I’m just I just agreed I’m gonna do one on that my next column as a matter of fact interesting you know because I know that the revisions wiped away even the 75,000 from last month as you were saying I was thinking about the birth-death model Which is one of these? swags that they have in order to understand, you know based upon the number of Companies that come into being versus the number of companies that are going out of existence in terms of the employment. That’s Created by that small business sector. How does that play into things at the turn of the side? Well, it’s that’s always a you know Obviously the the people at Bureau at the Bureau of Labor Statistics do their absolute best and these are thorough professionals they can’t be fired the RGS rated Employees and they they are apolitical and I don’t anybody who questions that their? Biases is really barking up the wrong tree, but you know that they are struggling with the issue in this and this birth-death model They’re trying to say how many businesses came into existence how many went out of business and and that’s it that’s a tricky composition, but it It has a definite effect on the overall Statistics they revise it every year and then every five years in detail as they get more data But it can be very distorting in a short-term sense but again, when you see changes on a month-to-month basis like we’ve seen recently I I would not write that up to Some data glitch like that, right? Yeah, I mean so I mean it could be to the degree that the We’re seeing a trend downward in terms of revisions that those revisions will actually increase well That’s a good point. They probably very well would because yeah your your points well-taken because You’re probably a lot more more small businesses going out of business when times are tough because they’re the most affected They’re the the least capitalized the most vulnerable No, you mentioned the New York Fed’s Recession indicator and I looked at that and you know, this is the highest it’s been since the last business cycle end, right? It’s you know in the order of twenty nine to thirty percent right now as of their June fourth data it has to do with where they’re getting their numbers from they’re talking about the yield curve being a huge impact upon that can you Talk about yield the yield curve the yield curves inversion and what that really means Or is signaling about the economy. Well, you know and this is this is really the difference between Treasury yields the most common one is the difference between the the Yield on a two year Treasury note and a ten year Treasury note and by the way Anything issued ten years or less is a note it has to be over that they’re called bonds A lot of people talk about bonds and they’re talking about duration maturity of two or three years. Those are not bonds No, no No and that that’s why that’s why a lot of people deny the The power of the bond rally in the last almost 40 years because they’re looking a very short term We don’t get much bang for buck. Because rates come down. That’s another story. But anyway, this two versus ten most common that is not quite inverted it or whenever it has you’ve had a recession no exceptions in the post-world War two period You have had inversion in a three-month bill versus a ten-year Treasury note and anything under under one year is a bill by the way versus notes and bondage That’s a nomenclature in any event, you know, those are statistics and you have to say what happens there Well, what happens is when you could when you get to this point in this cycle The investor is looking longer term in this case a 10-year yield this starts a sense I think two things one is a recession also lower inflation of not deflation and these both tend to depress Longer-term yields the Fed though is is always behind the curve so they have their forecasts But when they make their decisions, I think it’s fair to say that they are they’re trying to react promptly But they react to current events So they don’t they don’t they’re not going to cut the short term rates the overnight Fed Funds rate that they control Until they see the whites of the eye have a recession So by then you’re in it and the longer-term yields have Anticipated that so that’s why you get this inversion Now when the Fed cuts rates and question of how soon they’re going to do it it’s going to be soon But you know this month next month I remains to be seen but then what you have is you you then the curve goes back to normal because the short rates are then dropping below the longer-term yields, but I think it’s really more of a timing of Understanding what’s going on in the economy. So right now it’s the three-month to the three-year yield that is inverted So when you go from three years to five and five to seven and Beyond it’s the normal slope What do you think that indicates that it’s only in that particular section and it’s not the two to ten that you’re talking about? Yeah, I I think though that the way things are going and you know We’ve had a very strong rally and in Treasuries and in the last and last month or so and I think it probably wouldn’t be Unless the Fed cuts rates very very soon on the short end I don’t I think we probably will get an inversion and the two versus fan for me The proof is in the pudding in terms of the feds ability to react quickly Everyone talks about Jerome Powell doing a huge 180 degree pivot Like you’ve never been seen and they’ve said that that’s ruining the feds credibility You could say on some level that the Fed Jerome Powell is saying look You know weird less we active than former fed people. I did the 180 because the data want the 180 Well, I wouldn’t call it a 180 because they haven’t gone from tightening to eat They went from tightening to pause. I call that a ninety good ninety. Okay? Yeah the other thing to note though Is that is that the Fed when the Fed gets in to the point in a cycle where they worried about the economy? Overheating and they’ve had this obsession with the Phillips curve thinking the low employment is going to generate inflation And I think that’s because they had too many Academic economists there and Powell is not luckily but in any event When you have this situation where where the Fed the Fed finally decides that they are going to cut rates Then you have to have to look at what’s going to happen to the yield curve and you know, I think the Fed right now is is They’re really worried. But the what the facts is when you get into lateness cycle and they worry about an overheating economy They raise rates They never want to precipitate a recession But my count in 12 of 13 tries in the post-world War two period they got a recession the only soft landing was in the mid 90s and I defined a soft landings when the Fed raises rates and Then they lower Manoel recession if they raise them and pause Until they either either go up or down you don’t know what it was a soft landing or simply in the intermediate pause But they’ve had only one soft landing now that’s using interest rates and the Fed has use interest rates as their policy variable for over a century now They have also to deal with selling off this huge portfolio built up the mnemonic amazing They’ve never had that to do right before So you put those together and say what are the odds that they’re going to pull off a soft landing? given their track record with race alone, and now the added problem of dealing with this excess portfolio talk to me about the Future here there because basically we already got part of it in terms of what you said about The fact that it’s going to be somewhat garden-variety recession as compared to these other recessions, though You have had some caveats on that my question on that regard is what’s gonna happen in the markets? over the 6 to 18 month time frame say in Treasuries not necessarily equities, but How would you play that? Given not just what’s happening now But the broad sweep of what you were saying about the zero coupon bonds and rates coming down Well, I’m on record as saying that that the 10-year yield will probably go to 1% now It’s it’s just just about 2% right now And I I think that will go to 1% and this in the context of a recession and lower inflation. If not, deflation and the 30-year yield will will go to 2% actually if that happens if that happens on a on a 30-year coupon bond You make about 20% of your money. It’s it’s a very good investment Well, I think we would we would get that decline and that’s sort of my terminal rate That’s what I’ve been saying for many many years I think he’d get down to 2% on the on the 30-year bond and 10% on the 10-year and that’s that’s probably yet And so what I what I dub in 1981 the bond were I said? We’re entering the bond rally of a lifetime. And that’s when again when the yield on the 30-year bond was fourteen point six percent I think that would be over. And after that where the own Treasuries are not depends on Inflation, I mean if let’s say you had a two percent yield and you had one percent deflation chronic deflation That would be three percent real yield That would be very good by historic standards historically the the real yield is about two and a half percent But obviously if you have any inflation two percent yield that wouldn’t be attractive on a real on a real basis on inflation adjusted basis You could say almost to the upside of the trade that you’re talking about is what’s happening in Europe? And what’s happening in Japan in terms of all the negative yielding assets Germany in particular. I think everyone is just They’re floored by the rates that we’re seeing. Okay now yield on 10-year bonds. Yeah It’s a of course a their instant to tional reasons for that, you know some institutions Insurance companies pension funds they’re pretty much required to own sovereigns government government bonds in this case ones in Germany and also people are saying well You know if I own eight, I may have a minus four percent yield on a ten-year German bund Botta field goes to minus six. I’ll make money, right? Or as your so can make money if if rates decline if they don’t have the appositive well they have to do is decline and comparing that to Actually having to pay to put money in banks, you know, it’s a it’s a different logic But it’s still as still as still as reasonable. It’s it’s a crazy world I mean, but you know for the u.s. You’re talking it’s not as crazy. However There are some risk very early on in the conversation. We talked about some of those policy risks in particular we were talking about China talk to me a little bit about where you think the downside risk is in terms of what’s happening from a geopolitical perspective You know China has basically grown through exports and where did those exports go? they went to Europe and North America that was globalization and and I think that’s the most important phenomenon on the global economic stage in the last thirty years basically transfer of Western technology to China and other low-cost Asian countries and that shifted that manufacturing jobs there and of course destroyed a lot of people’s incomes and then the the exports goods are Shipped back to North America and Europe, you know, that game is pretty much over You simply don’t have the growth in North America in Europe you had earlier and if you don’t have strong growth overall You’re not spending more and everything including including imports China’s exports are our imports And also, of course you have now a situation where China when we allow them into the World Trade Center in 2001 They promised that they would play by the rules It’d be a market economy and so on and so forth and they have not and I don’t think there’s much question of that They favor their government Enterprises. They’re the ones that get all the capital not they’re their Private companies which are starved. They they steal our Technology are required to be transferred as a price of doing business in China and so on So China is really at a crossroads here where and also their growth is slowing their growth as you know We’re running double digits back before the Great Recession. Now they say it’s it’s a it’s a six and a half percent What they they always overestimate there was very interesting study by the Brookings Institution and they showed that China Since the Great Recession that they have inflated their real GDP numbers by twelve percent Cumulative Lee now if it’s if it’s a constant inflation, you don’t care if it’s a scale factor what I I think they have they are more inclined to inflate the numbers now when they’re weak than they were earlier because the Statisticians want to make the guys in at the top and Beijing happy that’s better than going to jail. So Their growth is definitely slowing. Another thing with China there one child per couple policy Means that for the next 30 or 40 years regardless of what happens to births now Their labor force is declining their growth is very much limited unless they have huge productivity growth and they pretty well breached the limits of productivity growth by importing Western technology And again Trump is pretty much saying we’re not going to we’re not going to go down that road route anymore So so China is is is I think I think the days of China are pretty pretty well over Doesn’t mean they’re gonna disappear that the second largest economy but that’s because they got a lot of people there their GDP per capita is One-eighth of what it is in the US right there. The second world’s economy not because of a High living standard because they just got so many people Well, you know one thing that struck me in what you just said is the part where you talked about destroyed many people’s income that is the crux of the matter in terms of the the Between the United States and China and and you know what people call the populist backlash. Oh, yeah how’s that gonna play out in terms of this slowing that we were already seen on China, but also Geopolitical tension from that destruction. Yeah. Well, it’s still very much alive And I think that’s what got Trump elected that led to brexit that led to you know this crazy left-right government in Italy and and the yellow vests in France I mean all these things are pretty much the same idea that that you know There’s been no growth in purchasing power For the average worker in the g7 countries In over a decade and they’re they’re mad as hell they really and as I say that’s led to this Populism isolette what they’re saying is the political forces in the middle of not done the job. We’re going to throw them out We’ll try we’ll try anything else I don’t think that’s going to go away. And if I’m right we’re in recession It will probably in intensify and that’ll make it very interesting the 2020 election Because of course when times are bad any incumbent is at risk don’t matter who they are. But at the same time if trump’s able to basically say well I can oh it’s it’s those foreigners and that’s that’s whom he’s blamed and it’s easy to say it’s imports and immigrants as opposed to say it’s globalization globalization is a little harder for most people to understand but I Don’t think this thing is gonna go away anything anytime soon So I guess we can wrap up with some comments on the positive side. I mean when you Look at the view holistically. I mean we you’ve painted a picture of a great Rally in terms of inflation coming down people benefiting in terms of bonds, but that’s coming to an end Perhaps with the 10-year at 1% Where do you see the opportunities going forward? Over the next three the next five years. I I think we’d probably be a a more Normal, I mean everybody says we’re we’re gonna get to that great normal and you know that great normal area there’s no such thing as equilibrium equilibrium is simply a a Momentary point through which you pass on the way to one extreme or the other I mean the idea you just settle into this guy the Fed always talks about this and everybody that never exists You look at the number and we’ve got data to show that but but where do you say where you end up there? Well, I think you you you will end up with much lower inflation you will end up with Blondes, you know probably no longer a big rally, but but maybe returning decent Inflation is just returns stocks I I don’t think you can have a very positive outlook for for the kind of appreciation people were thought they deserved Right the double digit just isn’t there in in my view if you look at if you look at this cyclically adjusted Price earnings ratio put together by my friend Bob Shiller Yale Nobel Prize winner is you know what it really says is that stocks now are about 40 percent above the long-term norm and and since the early nineties they have been above that norm all except for about one year the Great Recession and so they’ll spend a lot of time below that in other words you you you will have a slower nominal growth in the economy and slower and a decline in Pease Now that doesn’t mean that really economy is not going to do Well, I think that we’re going to have a strong productivity growth productivity growth comes from new technology But the thing about new technologies it takes it takes time to get big enough to matter If you look for example historically and I’m a great Student of this in history the Industrial Revolution. It started in England and New England in the late 1700s But it didn’t get big enough to move the productivity needle in the u.s. Until after the Civil War It started from zero growing very rapidly But from a small Bates the same thing with railroads railroads started in England late 1700s is only in the second half of 19th century they got that way the analogy I think today is that things like robotics like Self-driving vehicles like like really the rollout of computers everything you can do on a smart I think these things are more in their emphasis more biotechnology, and I think that we probably are going to see Tremendous productivity growth in the future. So the basis of real Strong real growth is there even though we won’t have the demographics? Well, you won’t have it because the retiring posts are our babies, but I think I think good very well See real GDP grow two and a half three percent in a very low inflation environment So I think it could be a pretty ripe ripe future there. I Want to leave it with that bright note, Gary It is very good to have talked to you and I really appreciate your taking the time. My pleasure

90 thoughts on “? Why We are Already in a Recession (w/ Gary Shilling) | Real Vision Classics”

  1. Real Vision Classics are the best videos from our premium subscription service released free, often a few months after the original air date. The original air date is in the top left corner as the video starts. Film date is located in the description.

  2. STOP talking about recession! That’s all you’ve been posting for a week. There’s NO recession, except for the intelligence of anyone who eats your BS propaganda. Enough!

  3. Neither of these guys has any understanding of US monetary history since the 1970s. I have a book written by Shilling in 1998 that claims a long period of falling commodity prices were about to occur. It was published months before the long-term bottom in commodities prices. Now that I've seen this video, I realize he had already been clueless for 20 yrs before that.

  4. I want to.like this guy……BUT "run of the mill" Recession? Nothing overwhelming?!!! US debt $22.5 TRILLION + missing $21 Trillion , and Global Debt over $350 TRILLION !!!! and he doesnt see anything major. ACTUAL NEGATIVE INTEREST RATES against inflation???? Think it's time for him to retire

  5. Since every recession gets exponentially larger, I suppose by "run of the mill recession" he means this one should be a doozie.

  6. Why is the media pushing this recession narrative all of a sudden? They’re trying to stop trump from winning in 20. Nobody can predict the markets. Stop with this propaganda

  7. Surely when SO was started they knew the oil industry had massively wide reaching economic effects….why wouldn't a government want to foresee those effects by having economists as close to the core business as possible?


  9. Doesn't see any bubbles this time…even though the same monetary policy that created the last two bubbles was repeated again but worse. LOL.

  10. Economic complexity the master of distraction for the last 30 years the lemon juice is running dry on everything from realestate to bonds and everything in-between.

  11. 23:22 "The people at the bureau of labor and statistics do their absolute best and they are thorough professionals, they can't be fired…"

    Has this guy ever seen how a government office works? Thomas Sowell was a Marxist until he worked for a summer at the department of labor and statistics. I don't believe for a second that government statisticians are either unbiased or competent.

  12. Views are great for a decade or two ago. When it comes to China or new tech, he is way behind which is understandable considering his age.

  13. This whole channel is based around a recession happening when recessions always happen. Even a broke clock is right twice a day.

  14. How can we be entering yet another recession when we never exited the "Great Recession." Something else is coming. What bothers me is this: Don't economists know what kind of economy we have? Something is not right here.

  15. Gary Shilling is the man! Great economist with a lifetime of experience! He should be more often on RealVision! As always, excellent content!

  16. This man is very disappointing for someone of his so called experience. He seems to think that negative interest rates are normal! This has never been the case in the history of the world and no one seems to know what the end result will be apart from likely to be very bad! Can’t take him very seriously! Sorry!

  17. The FED was never able to reduce it’s balance sheet. They are going into the next recession with 4T on their books and will be forced to monetize the debt. The dollar will crash resulting in a precipitous rise in gold and silver. We will be in a state of stagcession for the next decade with high unemployment and negative to flat GDP.

  18. Gary is the man….can you just fathom what he has done?? You could have took his advice these last 30 years, parked your money in 30 year bonds and just destroyed the S&P….that is staggering…he made a gutsy call last year when everyone said they were going to break the 30 year uptrend…they are now up over 30%….MIND BOGGLING…….well that party is over….30 years are at 2% and 10's at 1.5….time to take a look at AI, and Robotics along with a little bonds when this deflation hits the fed right in the forehead

  19. That's a good interview.
    But puts a point on what Pres Calvin Coolidge once said,
    something about he never met a "one-armed" economist, for example:
    "On the other hand"

  20. HE emphasizes interest rates too much without any consideration to the UNPRESCENDENTED MONEY PRINTING DONE BY ALL CENTRAL BANKS, NEVER DONE IN HISTORY IN UNISONE,..this has never been tried before ..a PURE experiment….and he thinks we are ONLY going to have a garden style recession.WOW!! his macro outlook is questionable.

  21. Globalist propaganda! The economy is doing GREAT! They are trying to control the narrative to create a recession! They HATE Trump that bad that they are willing to crash the economy to get rid of him.

  22. Re: The GDP: In addition to what Tenebrarum states, please note that government transfer payments including Medicaid, Medicare, disability payments, and SNAP (previously called food stamps), all contribute to GDP. Nothing is “produced” by those transfer payments. They are not even funded. As a result, national debt rises every year. And that debt adds to GDP. Manufacturing's Share of GDP is
    Hugely Underestimated. Thus, in addition to Baum's excellent comments on the the cyclical nature of manufacturing, manufacturing's share of GDP as attributed by economists is simply wrong.

    Google how the NEW GDP number is calculated, what non-sense. Since December the S&P has risen 25%. A 10% rise in the market adds 1% to the GDP so a 25% rise adds 2-1/2% to the GDP. So the GDP was 3.2% and 2.5% of that was from the FED printing money and feeding the stock market. How stupid is this?

  23. 3:49 = the 30 year bonds are already at 2%. So does that mean that the recession is now 'Over', and the economy has bottomed ???

  24. This is so disappointing. No talk of the bail out and the manipulation of the economy only he knows what the Fed will do. Who would of thought that we would make no interest on our savings for 10 years. You didn't ask about the 6 times increase in gas during the 70s. You didn't ask about the baby boomer effect. You didn't ask or comment how the society overheated for Y2K ensuring a slowdown in 2000. You didn't ask about increasing immigration since Americans quit having kids. I find this whole interview pie in the sky and frankly bullshit. He warned about the housing bubble but no one said the government would spend billions to save the day. Wall Street should have gone bankrupt and the gambling should have stopped and gone back to investing. These guys are parasites on the economy, face it.

  25. Everyone knows the reason we have negative rates is because we bailed out the banks but he won't admit it. He is a filthy liar.

  26. Gary Schilling has been negative on stocks ever since 2009. If you planned your portfolio that way for the past 10 years, you’d be making treasury bonds returns, which is still better than most hedge funds.

  27. In my next life I am coming back as either a Meteorologist or as an Economist – because I don’t have to be right any more than the average baseball player’s batting average – .280 or 28% of the time

  28. Ok Gary, I’m happy you don’t see anything that big happening as big as the past recessions ? how about this national debt we are accumulating? I guess it doesn’t matter. Or maybe the pensions buying corporate bonds that corporations then turn around and buy stocks to raise the stock price ???? yep we will be fine ?? nothing to see here folks

  29. Can we have him back on when this next one hits and replay his predictions of no real issues bigger than the past ones?

  30. If we are banking on consumer spending to not panic then we are already in a recession. This is a artificial economy where the dollar is backed by a maga hat. Any little thing could… The strategy is simple for China and a list of others pertaining to the terrifs. Wait till the outcome of 2020, we can afford a squeez but can America?

  31. Right but coupled with other risk that makes the subprime bubble look like a small gift

    Australian house China banks EU and UK already in the first legs of recession

    Slow down in housing the rust and farm belts extreme US debt tariffs across the board employment numbers hide the fact that wages and full time employment has broken down add the PMI and CPI you have a full blown recession by late fall inverted yields are flagging as volatility indicators rising

    Fed has no more leverage by cutting rates earning have weakened for several quarters

    The Uk will have to exit with I deal sending the £ into a downward spiral

    China’s banks and housing already started failing global bonds at lowest levels leaving to more fx leverage

    Looking as consumer spending at trickle levels

  32. Feh! We are wading into massive deflation, and the fed will have to massively expands their balance sheet as they will have to do ubi.

  33. I think the guest is spot on when he say you dont even know you are in one until much later. Perhaps a year after the peak when data comes in and is confirmed. Trying to time a recession is frought with danger for this reason since, we could be at the bottom of a recession right now. It is only clear in hindsight (having lived through about 6 recessions).

  34. The thing investors must contend with, is that many gurus have been calling a recession since 2012. Rarely do we have a pundit calling for a boom since it only seems to be cool and profitable to call recessions. In fact whoever called a boom for the last hundred years would have been right most years and be the overall winner. Calling recessions is a mugs game, since you never can be sure that you are in a recession until the peak is behind you. It seems everyone wants the title of "the guy who called the recession". Well, of course, a stopped watch is correct twice daily.

  35. I told a real estate agent 35 years ago that long rates had peaked and she just laughed! Nobody knew anything about the federal reserve until the team save the world cover at Time magazine? Long term capital management built this city! Always thought you were a breath of fresh air papa.

  36. Has the globe embraced negative real interest rates and America hasn't got the message? Did Powell change policy because the dollar was about to destroy the other currencies aka yuan. China wanted Powell to cut more? America backs into negative yields and sweaty donald's Tax cut creates yield bait in 30 day paper?

  37. Why are people talking about recession in 2020 or 2021? Are you going to stop investing for 2 years? Good luck with that.

  38. A lot of businesses are actually closing in my city,they say not enough people are 'shopping' there but I know something bigger is up their just not saying what,homelessness is skyrocketing here too…

  39. Gary "the Shill" Shilling's main skit is preaching doom and gloom. And then when it happens 5 years later he says see I was right. Then he repeats, 10 years passes and finally he's right again. Totally ignoring the good times.

  40. No one in America will have Freedom as long as this Targeted Individuals Mind Control torture program runs in America. Its Real. MK Ultra Ken Rhoades This will be used to totally control all Americans. 5G will be the final nail.

  41. Even a BROKEN clock is right twice a day. Shilling didn't call the REAL stock market crash of HIS LIFE TIME which hit Black Monday 1987. I saw that one and cashed out. BOOM!! MicDrop!!!

  42. Gary is quite self assured. He’s made a lot of money with his game plan. But bottom line, he noted that the FED has never been in its current position with all that toxic waste on its balance sheet. So, how can he possibly speculate on how it all works out in the recession.???

  43. The mainstream media is trying to talk us into a recession just to hurt President Trump's chances to get reelected… I don't care what side of the political aisle that you are on bu once you root against America and want people to lose jobs just because you want your party to win is disgusting! Let's put it this way… The global economy is slowing down and everyone around the world is pouring money into a safe haven called the United States! We're not heading to a recession folks…

  44. negative rates, basically giving your hard earned money to an institution that is not guarenteeing the return of yr money. Under my bed I store yr dollars for only 50 usd a year and otherwise i would consider precious metals in a vault in a safe place. I understand people have no clue about value anymore as the banks and teaching system has been talking nonsense for several decades and the media has been participating in this utter nonsense telling.

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