If 2010 is going to be ugly, here are some places to invest your cash.
Each January, Gary Shilling, a US economist often characterised as a "permabear," issues his predictions for the coming year and suggests related investment ideas. In 2007, Shilling predicted US house prices would collapse and that share prices would fall below 2002 levels. Wow -- I wish I'd read his forecast before all that happened.
In short: Shilling's outlook for this coming year isn't rosy. He predicts a slow economic recovery, and as a result, his recommendations are very defensive. Even with a dour outlook, he does recommend a few areas to buy in 2010.
Three of these recommendations are non stock market investment vehicles, including the US dollar, which he believes will return to safe-haven status if the world economy stumbles.
Let's take a look at the three equity-focused areas -- picking some UK shares Shilling might approve of. These companies might give you some security should 2010 unfold as poorly as he forecasts.
1. Income-producing securities
One way to hedge against the market declines that Shilling predicts is through conservative shares with high dividends, including utilities and health and consumer-products companies. The following interesting companies might fit the bill:
| Name | Industry | Dividend Yield |
|---|
| BP (LSE: BP) | Energy/Utilities | 6.1% |
| Vodafone (LSE: VOD) | Telecoms/Utilities | 6.1% |
| National Grid (LSE: NG) | Utilities | 6.5% |
| GlaxoSmithKline (LSE: GSK) | Health | 5.3% |
| Unilever (LSE: ULVR) | Consumer | 3.9% |
2. Consumer staples and foods
Consumers need some things -- like toothpaste, shampoo, and dinner -- no matter how bad the economy gets. Producers and low-cost retailers of these goods, like Tesco (LSE: TSCO), Morrisons (LSE: MRW), and Reckitt Benckiser (LSE: RB), should perform well even if 2010 is ugly.
3. Small luxuries
It's the "lipstick index" theory. When times get tough, people still like to buy things that make them feel good, but they choose cheaper items. So while you might pass on that suit from Savile Row you'll still reward yourself with stylish leather shoes from Burberry (LSE: BRBY).
Shilling's got a good track record -- but just because he says 2010 is going to be ugly doesn't mean that it will be. Many smart economists and investors who predicted a bad 2009 were proven very wrong. Still, it doesn't hurt to get a little defensive.
More on the economy and the markets:
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> A version of this article, written by Tom Winner, was originally published on Fool.com. It has been updated by Bruce Jackson, who has an interest in GlaxoSmithKline.
