Gary Shilling: 6 Signs the Economy Is Weaker Than Investors Think
1. Stock investors haven’t reached the ‘puke point.’
“There has been a constant hope by many investors, bulls certainly, that this was only temporary, that this isn’t a really deep bear market even though it’s been down over 20%, which is sort of the informal definition of a bear market, and that there isn’t a recession,” Shilling said.
The market needs to reach the “puke point,” where investors want to regurgitate their last equity and never buy another one, he said. “That’s what happens at serious market bottoms and I just don’t think we’re there by any stretch of the imagination.”
Shilling believes the S&P 500 is about halfway to his predicted 40% peak-to-trough decline in this market. The long-term average S&P 500 stock price relative to inflation-adjusted earnings over the previous 10 years — going back more than a century — suggests an even steeper decline, he noted.
Investors haven’t really accepted the idea that the Fed is serious about killing inflation, that its actions will further damage the stock market and there will be a recession, Shilling said, noting that whenever shareholders get enthusiastic the Fed comes in and dashes their hopes that rate hikes will end soon.
“We’re a long way from the bottom on this,” he said.
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