Economist Gary Shilling says 2012 will be another poor year in a deleveraging cycle that still has five-to-seven more years to run, with more problems in Europe and more difficulties for China's economy.
"Like the U.S. Great Recession, the eurozone slump combines a financial crisis and a goods and services downturn," Shilling writes in a note to investors.
"This year, we also look for a hard landing in China with real GDP growth dropping back to 5 percent to 6 percent annual rates, well below the 8 percent needed to provide jobs for new labor force entrants."
"We’re also forecasting a moderate recession in the U.S. as consumers retreat from their recent spending strength that flies in the face of declining real incomes."
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These and other forces are likely to hold U.S. real annual GDP growth in future years to 2 percent, compared to the zero growth since the fourth quarter 2007 business peak and the 3.7 percent annual growth in the 1982-2000 salad days, says Shilling.
Shilling has added two new investment themes to his 2012 forecast: A positive for producers of consumer staples and a negative for developed country stock markets.
“At the same time, we’ve had to say goodbye, sadly, to our long-time immense winner, Eurodollar futures. Earlier, the futures market did not price in the full extent of the Fed-engineered decline in short-term interest rates,” Shilling says.
Shilling says Treasury bonds, small luxuries, the dollar, and selected healthcare providers and medical office buildings remain attractive, as do rental apartments, productivity enhancers and North American energy companies.
Unattractive to Shilling are banks, consumer lenders, emerging country bonds and old tech capital equipment producers.
Economist and fund manager John Hussman says a global economic downturn is due almost immediately. "Frankly, I'll be surprised if the U.S. gets through the first quarter without a downturn," Hussman writes in a note to investors.
But not all experts have such a gloomy outlook.
David Rosenberg, chief economist and strategist at Gluskin Sheff & Associates Inc., said the U.S. economy faces more challenges in 2012 than last year, while he backed away from his prediction the nation was facing a near-certain recession.
“Certainly, we’re not in a recession right now,” Rosenberg said in an interview on Bloomberg Television’s “In the Loop” with Betty Liu.
Nonetheless, he said, “I still believe the economy is still fragile and this recovery is still quite spotty.”
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