Tags: Shilling | Energy | Stocks | Bonds

Gary Shilling: Energy Stocks, Bonds Are Your Best Bet

Wednesday, 07 Mar 2012 08:18 AM

Economist Gary Shilling still likes bonds, which he says served him well last year, and energy stocks.

"I assure you they’re only suitable for little old ladies and orphans, but I still like 30-year Treasurys, because I think we’re going from 3 percent to 2.5 percent," Shilling told MoneyShow.com.

"That’s a low yield that we got to after the Lehman disaster in 2008."

Editor's Note:The IRS’ Worst Nightmare — How to Pay Zero Taxes

"I think it’s a reasonable target because we’re in a world where Treasurys are the safe haven. I think we’re going to be in a global recession this year, and deflation is looming."

Shilling says he's liked 30-year Treasurys since they were 15.25 percent in 1981. "I said then we’re entering the bond rally of a lifetime," he says. "Since then, long-term Treasurys and zero-coupon have outperformed the S&P 500 on a total-return basis by 9.3 times—9.3 times."

Going from 3 percent to 2.5 percent doesn’t sound like much, Shilling observes, but that will make it 10 percent on a coupon bond and 12 percent on a zero-coupon 30-year Treasury.

On the long side, Shilling says he likes income-producing securities, investment-grade corporate bonds, municipals, master limited partnerships, utilities, some of the consumer staples, the pharmaceuticals — things that pay high, sustainable, and increasing dividends.

The other investment arena Shilling likes is North American energy.

"I think as a country, we’ve decided that we want independence, or at least less dependence on unreliable energy from Venezuela, the Middle East, and so on," he says. "So it’s a whole range of conventional energy."

"It could be the tar sands and oil sands in Alberta. It can be offshore drilling. I think nuclear is coming back."

Shilling says he’s not in favor of the renewable energy because it takes so much government subsidy. “The government is under fire, obviously, to cut budget deficits right now,” says Shilling. “So, I don’t think renewables are attractive.”

Renewable energy production will more than double by 2035 even without federal tax credits, says the Energy Information Agency (EIA) in its "Annual Energy Outlook 2012,” according to www.renewableenergy.com.

Editor's Note:The IRS’ Worst Nightmare — How to Pay Zero Taxes

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