The disappointing March jobs report is just the beginning of a decline in U.S. consumer spending that will tip the country back into recession, clobbering stocks and reviving the bond market, says investor A. Gary Shilling.

He sees not a short-term correction but a huge 43 percent decline for the S&P 500, and he predicts that 30-year bond yields will fall to 2.5 percent, while the 10-year Treasury could hit 1.5 percent.

“You’ve got the foreign earnings that don't look good because of recession unfolding in Europe, a stronger dollar, so they are translation losses. A hard landing in China. In the U.S., we could see a moderate recession led by consumer retrenchment,” Shilling told Bloomberg Television in an interview.

Editor's Note: Obama’s Economic ‘Fix’ is In . . .

He predicts that S&P 500 operating earnings will come in at $80 per share, down from analysts’ estimates of more than $100 now. In a column, he goes on to state that the P/E ratio for the index could fall to 10 and that the index itself could fall to 800, from about 1,400, leading to a “massive bear market.”

In preparation, Shilling says he is long on U.S. debt, short stocks, short commodities and long the U.S. dollar.

The United States might look relatively good compared to the rest of the world (“the best horse in the glue factory,” Shilling says), but it is dependent on a consumer recovery that is increasingly hard to imagine, he contends.

The Labor Department last week said that the U.S. economy added just 120,000 new jobs in March after several months above the 200,000-job monthly pace.

The country is now in the longest stretch of high unemployment since the Great Depression, according to the Congressional Budget Office. A total of 12.7 million Americans are jobless, 40 percent of them over the long term.

Throw in consumer and student debt and the pressure to save for retirement, plus depressed home prices, and there’s just no gas in the engine for a recovery, Shilling argues.

“Incomes have simply not kept up. Of course, the real key behind that is employment. It looked earlier like jobs were picking up and that was going to provide the income and people would spend it, so on, so forth,” Shilling says. “But the employment report that we got last week throws cold water on that.”

It won’t take much more bad news to really slow things down, he warns. “If consumers retrench, there isn’t really anything else in the U.S. economy that can hold things up," Shilling says.

He says that even cash is better than stocks at this juncture. “Cash, although it does not pay anything, is an alternative. My 30-year favorite long Treasury bonds, I we're headed for 2.5 percent there,” Shilling says. "I think 1.5 is possible on the 10-year.”

A strong rebound in the bond market might give the Federal Reserve some breathing room. Some members of the Fed’s rate-setting committee have been warning that rates would have to rise sooner and faster than the market might expect.

Not Janet Yellen. The vice-chair of the central bank this week said that the late 2014 target for virtually zero interest rate is appropriate and hinted that a new round of monetary easing was possible.

"I consider a highly accommodative policy stance to be appropriate in present circumstances. But considerable uncertainty surrounds the outlook, and I remain prepared to adjust my policy views in response to incoming information," Yellen said a speech at New York University, cited by Reuters.

"In particular, further easing actions could be warranted if the recovery proceeds at a slower-than-expected pace, while a significant acceleration in the pace of recovery could call for an earlier beginning to the process of policy firming."

Editor's Note: Obama’s Economic ‘Fix’ is In . . .