Gary Shilling has been a long-time advocate of bonds, and he's not changing his tune as the market heads into the new year.

Stocks, up four years running, will be trying in 2013 to extend the rally that started all the way back in March 2009. But Shilling, president of economic consulting firm A. Gary Shilling & Co., says the impending recession requires investors to be cautious about equities.

"I think you play it with a 'risk-off' kind of approach," he says in an interview with The Daily Ticker. "And that means you probably look for more appreciation in long-term Treasury bonds, which have been a favorite of mine since 1981."

Shilling has been a believer in bonds for more than three decades and he's not altering that position now.

"Stocks are vulnerable," he notes. Looking ahead, he's expecting the yield on the 30-year Treasury to decline to 2% and for the yield on the 10-year note to drop to 1% from current levels.

Related: Bill Gross: Fed's "Hot Air" Will Keep Bond Bubble Afloat in 2013

Shilling isn't after yield here, so his goal is to make money from higher bond prices (bond yields move in the opposite direction of bond prices), and he's reiterating his view that a downturn is imminent.

"I've only bought Treasuries for appreciation," he says. "I couldn't care less what the yield is, as long as it's going down."

Shilling's concerned about lower corporate earnings next year, which have the potential to drag on stock prices. His worries are three-fold: A global recession will occur, hurting revenue and by extension earnings; profit margins are about as good as they can get with companies having already implemented extensive cost-cutting; a strong dollar will weigh on U.S. corporations' foreign profits and overseas operating expenses.

Shilling continues to remain bearish on the housing market because, as he sees it, the market has at least one major factor working against it.

Related: Housing Recovery Has Legs for Another 2-4 Years: Mark Zandi

"The fundamental problem with housing is still excess inventories," he says. In other words, there are too many vacant homes, whether they're being officially reported in the market or not.

"We think in total there's probably 1.9 million extra houses over and above normal working levels, and excess inventories are the mortal enemy of prices," he adds.

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