Montreal, Canada

- The objective of forecasting is to identify the significant but undiscounted aspects of the outlook. This is where the true opportunities for investors lie and where business can get the jump on competitors. A rehash of the consensus view, which is fully discounted in security markets and business plans, is nearly useless.

        - Gary Shilling

Deflation is still in town and investors should brace for more trouble in 2010.

That's the advice from Gary Shilling in an interview on Bloomberg television at 7.14 EST this morning.

While the majority of Bloomberg's guests don't get my immediate attention, Shilling does. I head back to the kitchen, fill my coffee cup and head back to the living room for a hard listen.

Gary Shilling (agaryshilling.com) is probably one of the most influential economists in the United States. What sets him apart from other mainstream economists is his ability to "think outside the box."

Most economists are robots, fail to think outside of conventional wisdom and offer virtually no value to the investment marketplace. If you need a good night's sleep, forget Nytol; I suggest listening to an economist.

But Shilling adds value.

Shilling warns that "excess global capacity" remains a serious drag on long-term economic growth. He points out that a fractured American consumer will keep economic growth subdued over the next several years, averaging about 2% per annum. Too much supply is the main threat to a sustained recovery as we head into 2010. Outside of China, most countries are not ramping up production and face a mountain of excess capacity or a generous supply of capacity utilization.

Deflation, not inflation, is the immediate threat according to Shilling.

The only inflation now remains in financial assets since the March intermittent lows. But since asset prices peaking in October 2007 deflation has ruled the marketplace with stocks still down about a third, residential housing down more than 30% and commodities off by about 40%. It'll take another 50-60% from these levels to get consumer balance sheets and portfolios back to where they were in mid-2007. And the chances of that happening are next to nil.