Shilling on inflation expectations, technology, productivity and the 35-year bond bull

Financial analysts who are diligent in their measurements, and independent (as opposed to those who are mandated to perpetually flog financial products), are able to recognize and anticipate financial trends, risks and opportunities. Mean reversion is the immutable law. The hard part is that turns take time, and people generally have short attention spans and limited patience. The financial industry and media make a fortune preying on this deficit of human nature. The urge for activity is great, even though risk is a good game played slow.

Gary Shilling is one of the very few economists/analysts that I read (he publishes a monthly subscription letter called Insight here). Like the rest of us, Shilling cannot see the future, but I find his work detailed and useful. For those who don’t have a subscription, this latest interview is longer than most, and covers many worthwhile points.

In 1981, Shilling proclaimed that the bond market was on the precipice of “the bond rally of a lifetime.” That was a long time ago. Back then, Ronald Reagan was in the early innings of his first term. Paul Volcker was only two years into his war against rampant inflation. The 30-year Treasury bond yield was an unbelievable 15.2%. Today, it’s 3%. Since Shilling’s “rally of a lifetime” call, the long bond has outperformed the S&P 500 by 5.5 times.  Here is a direct video link.

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