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Gary Shilling – How to Make Money in Deflationary Markets

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If you followed Gary Shilling’s advice for the last 30 years, you would be very wealthy.

Shilling runs the New Jersey-based economic consulting firm the bears his name, A. Gary Shilling & Company, and he is the author of The Age of Deleveraging: Investment Strategies for a Decade of Slow Growth and Deflation, published in 2010. He spoke last week at the Boston Security Analyst Society asset allocation conference in Boston.

Since 1981, Shilling has consistently advocated owning long-dated Treasury securities. In his talk, he reiterated that advice as one piece of his three-part asset-allocation strategy for the coming year.

In 1981, Shilling said we were “in for the bond rally of a lifetime.” Since then, a strategy of rolling a 30-year zero-coupon bond outperformed the S&P 500 by 6.3 times.

Shilling’s thesis was centered on the macro-economic theme that has underpinned his recommendations for the last 15 years: deflation. Shilling’s previous book, Deflation: How to Survive and Thrive in the Coming Wave of Deflation, was published in 1998.

Let’s look at what Shilling said is going on in the world and what he said it means for portfolios.

Bond -Stock Trading course: Learn about Bond -Stock Trading
Bond trading definition
Bond trading is one way of making profit from fluctuations in the value of corporate or government bonds.
Many view it as an essential part of a diversified trading portfolio, alongside stocks and cash.
A bond is a financial instrument that works by allowing individuals to loan cash to institutions such as governments or companies.
The institution will pay a defined interest rate on the investment for the duration of the bond, and then give the original sum back at the end of the loan’s term.
A stock trader or equity trader or share trader is a person or company involved in trading equity securities.
Stock traders may be an agent, hedger, arbitrageur, speculator, stockbroker.
Such equity trading in large publicly traded companies may be through a stock exchange.
Stock shares in smaller public companies may be bought and sold in over-the-counter (OTC) markets.
Stock traders can trade on their own account, called proprietary trading, or through an agent authorized to buy and sell on the owner’s behalf.
Trading through an agent is usually through a stockbroker. Agents are paid a commission for performing the trade.
Major stock exchanges have market makers who help limit price variation (volatility) by buying and selling a particular company’s shares on their own behalf and also on behalf of other clients.