- Gary Shilling, an American economist and the president of A. Gary Shilling & Co., told investors in a Bloomberg op-ed article on Thursday not to be fooled by the recent rebound in stock prices.
- Shilling drew parallels between the current market downturn, the 1929 market crash, and the Great Depression in the 1930s to sound the alarm on "the most disruptive financial and social event since World War II."
- "Bear markets that accompany recessions last about 11 months, far longer than the recent slump," Shilling said.
- Shilling said he thought stocks could fall as much as 40% in 2021.
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The veteran economist Gary Shilling wrote in a Bloomberg op-ed article on Thursday that the market climate was starting to look a lot like the Great Depression.
"Don't be fooled by the recent rebound in stocks; the investment scene is beginning to resemble the 1929 market crash and the early 1930s Great Depression," Shilling wrote.
Despite Thursday's decline in major US equity indexes, April was still the Dow Jones industrial average's and the S&P 500's best month since 1987 as stock prices surged from late-March lows.
In his sobering column, Shilling said that the Dow's 48% plunge from September 3 to November 13, 1929, "seemed like a reasonable correction" at the time.
"The economy was fully employed and growing rapidly and most looked forward to more expansion and higher stock prices," he wrote.
Before then, Shilling wrote, the Dow had seen another 48% fall, from January 19, 1906, to January 7, 1907, during the financial crisis spurred by the Panic of 1907, which led to the creation of the Federal Reserve System.
The economist said although there was "widespread interest in equities" in the '20s, according to the Federal Deposit Insurance Corporation, only 10% of Americans owned any. The buyers who stepped in pushed stocks up 48% until April 17, 1930, but the bullish times didn't end well, as the Dow ended up losing 89% from its September 1929 high to July 1932.
Shilling said he feared that the current market would see the same fate.
The economist wrote that while many expect a sharp, V-shaped economic rebound starting in the second half of 2020, he was more skeptical. "Bear markets that accompany recessions last about 11 months, far longer than the recent slump," he said.
He said that the trend looked like a bear-market rally, similar to the one in 1929 and 1930, and that he expected another 30% to 40% drop in stocks as the global recession deepens into 2021.
Predicting that the total decline in stock wealth would knock 2.8% off consumer spending, Shilling said that the pandemic is "likely to be the most disruptive financial and social event since World War II with equally long-lasting consequences."
"Many will no doubt restrain spending in future years to rebuild savings, especially since the crisis caught them at a time of high debts and short financial reserves," he added.