Famous economist warns that stock market may crash 30% due to imminent recession in the USA

Discussion in 'Must-Read Interviews, Articles & News Items' started by Vidhi Khanna, Nov 19, 2023.

  1. Vidhi Khanna

    Vidhi Khanna Active Member Staff Member

    Mar 19, 2015
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    Gary Shilling, the president of A. Gary Shilling & Co, has predicted a doomsday scenario for the stock markets.

    Shilling was Merrill Lynch's first chief economist till 1978. He started his own economic-consulting and investment-advisory firm in that year.

    In "The Julia La Roche Show" interview, he warned that the stock markets could crash and plunge 30%.

    He predicted an imminent recession, citing key indicators such as the inverted yield curve and actions of the Federal Reserve, which is determined to curb inflation even at the risk of triggering a recession. He said the Fed is expected to be slower in cutting rates in the event of a recession, emphasizing their focus on ensuring inflation is under control and considering the labor market's slower response to economic changes.

    "You'd have a further decline of about 30% from here to get that 40% overall decline, peak to trough," he said, attributing it to the faltering US economy.

    "We probably do have a recession coming shortly if we're not already in it," Shilling said, pointing to the inverted yield curve, weakness in leading economic indicators, and the Fed's commitment to crushing inflation.

    "When you look at that combination of things, it's pretty hard to escape a recession," he added.

    The S&P 500 is presently at 4514 and is up 564 points equal to 14.28%.


    He explained the correlation between Treasury bond yields and inflation, indicating that excess supply leads to lower inflation and, thus, lower interest rates. He believes the peak of interest rates has been reached and expects a rally in Treasuries.

    Shilling is skeptical about the potential of commercial real estate and sees it as a current bubble. He stated that the "biggest bubble on his radar" was commercial real estate such as office buildings, hotels, and shopping malls which are suffering due to reduced rentals and increasing interest rates. These defaults will have a cascading effect, he warned.

    His investment approach is to be long treasuries, the US dollar, and short positions in stocks and commodities like copper.