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May 31, 2003

Shown the Door by Merrill

By Kathryn M. Welling

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  • Shown the Door by Merrill

Economist and investment strategist A. Gary Shilling's

eponymous firm is based just west of Wall Street, in leafy Springfield, N.J. Not far away, but manifestly far enough for Gary to maintain the fierce independence and creativity of thought that have distinguished a long career built on introducing fresh insights and perspectives -most often spiced with healthy dashes of humor-to not-always-the-most-flexible institutional and corporate types.

Which means I was an easy audience. -KMW

Congratulations, Gary-25 years is quite a milestone for an economic research firm. Particularly one led by a fellow who frequently makes a point of going against Wall Street's grain-

I don't deny being willing to look at things in unconventional ways. Maybe it has something to do with the fact that I was a physics major as an undergraduate, which makes you a math major as well-whether you want to be or not.

That definitely means you were certifiable, but whether it permanently skewed your perspective, I don't know.

Me, either. But I do know that the markets discount the consensus view. Therefore, the only way you're going to add value is to find something that's new, very strange and exotic. Now, there's a fine line between taking a contrary position for the sake of notoriety and genuinely seeing something that the herd doesn't. But where we see something we think has a good chance of happening that is not in the consensus, we try to jump on it with all fours. Of course, one of the drawbacks is that you are usually talking about things far out on the horizon, so that by the time they happen, the media- and even some clients - have pretty much forgotten you have ever forecast it.

For instance, you've been writing for quite a while about some of the themes, like "20 Follies" that created a stir when Peter Bernstein gave a speech about similar lessons of the mania in January.

Exactly. Some I even put in my Forbes columns.

But you've got to be used to the fickle finger of Wall Street. How many times were you fired by Merrill Lynch?

Twice, and by the same fellow-not that I was trying! But Merrill ended up acquiring the firm I had gone to!

Proving, if nothing else, that you don't have perfect foresight! But aren't you risking being right but irrelevant when you get out too far ahead of the herd? Especially since a lot of investors think tomorrow is long-term?

Well, we try to alert institutional clients to what we think may happen. Not with the idea that they're going to take action immediately, but so, if they start to see signs, they'll be able to move faster than the crowd.

Deflation and a painful recession have been hallmarks of your outlook at least since your book ["Deflation: Why it's coming, whether it's good or bad, and how it will affect your investments, business and personal affairs"], came out in 1998. Yet most folks still blame 9/11 for last year's relatively mild downturn-