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Saturday, July 25, 2009

Gary Shilling Predicts S&P500 - He Remains a Bear

In the August 3 issue of Forbes Magazine, that I got in the mail a few days ago, A. Gary Shilling (Books by A. Gary Shilling) gave his latest predictions for the market. He thinks it will fall 32% to 600 from where it is "now." Shilling wrote:
  • the market gained 31% from its March 9 low
  • the stock market is "exhausted"
  • "I continue to forecast $40 per share in S&P500 operating earnings in 2009. Put a generous P/E of 15 on that and you get an S&P500 of 600, 32% below where it is now."
The low is 666 intraday and 676 on a closing basis. Thus, the market was between 872 and 886 when he made his prediction for the S&P500 falling to 600 or lower sometime in 2009.
  • 131% x 666 = 872
  • 131% x 676 = 886
The market closed Friday July 24, 2009 at 979.26, about 100 points and 12.2% higher than when Shilling said the market was "exhausted." The dashed red line on the chart below shows Shilling said the market was "exhausted" just as the biggest pull back since its March 9 low ended and the market soared to a new bull market high.

Click chart courtesy of for full size image.

Shilling also wrote:
  • "False signs of a recovery are common in recessions"
  • "It will get worse before it gets better."
  • "Expect another big stimulus package within a few months, but it may not help much until next year."
In sharp contrast to ECRI, Shilling expects the recession to end in 2010:
Shilling concludes with "Overseas, things will be worse. Both developed and emerging countries have relied on the American consumer for decades. They party's over. Expect the prices of commodities, including oil, to fall. Investors will head back into safe havens like Treasury bonds and the US Dollar."


  1. Is it possible that he is right, but his timing is off due to the exceptional stimulus? Lindstrom Subscriber

  2. Anything is possible. I have a friend who thought Yahoo stock was over valued in 1998 and kept losing shirts faster than he could buy them trying to short the stock. Eventually he was right, but his money was long gone.


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