Harry Dent: ‘Once-in-a-Lifetime’ Crash Coming in Next 3 Years

The ‘Contrarian's Contrarian’ tells ThinkAdvisor why the economy is headed for demographic-fueled disaster and shares his dark predictions for the Trump presidency

The top of the market could come as soon as this summer, Dent warns. The top of the market could come as soon as this summer, Dent warns.

As a perma-bull in the late-1980s, Harry Dent Jr. forecast a rosy, robust 20-year future for the economy and stock market. Today, the so-called “Contrarian’s Contrarian” is just as sure that the economy, stock market and real estate will go to hell in a handbasket within three years, he told ThinkAdvisor, in an interview.

It’s the bubble, stupid, Dent, 64, says. And financial advisors must help clients avoid what he calls a “once-in-a-lifetime reset” similar to the Great Depression that he sees en route.

Dent predicted the 1989 economic collapse of Japan, the 2000 dot-com bust and the 2006-2007 housing bust.

But detractors, citing a few major misses, say that his crystal ball is too cloudy to be relied on. Mainly, they charge that the method on which he bases predictions — demographic trends including consumer spending patterns and workforce growth — is simplistic. In the interview, Dent emphasized that he now also puts a “geopolitical cycle” into the mix.

Now, his principal argument for anticipating a calamity is that the large cohort of baby boomers — aging, downsizing their spending and soon dying in great numbers — will have a huge and disastrous impact on the economy and markets.

Moreover, the next younger generation who will replace the boomers — millennials — is far smaller in size. According to Dent’s reckoning, boomers were born from 1934 to 1961, a nine- year longer period than economists’ typical calculation of 1946 to 1964. (When using the typical age grouping, millennials are a larger generation, according to Pew Research.)

All of the demographic change, he stresses, makes President Donald Trump’s promise of achieving 3% to 4% economic growth impossible.

For nearly 30 years, the Harvard MBA has published newsletters and investing strategy systems, based on his “Dent Research,” costing from zero dollars to $2,000 for a current premium trading service. He has also authored numerous books skewed to either a great boom or a great crash to come. His most recent bestseller is “The Sale of a Lifetime: How the Great Bubble Burst of 2017 Can Make You Rich” (Delray 2016). His critics say he is far better at creating buzz for his books than forecasting the future.

He started out at Bain & Co., consulting to both big firms and startups. From about 1995 to the early 2000s, he enjoyed a speaking career, sponsored by the AIM and Van Kampen (now owned by Invesco) fund companies. Dent’s talks to financial advisors and other investment professionals focused on the big boom he saw coming that featured the Dow’s reaching 10,000 by year 2000. Prosperity would continue till 2007, at which time the economy would peak and slow down, he forecast.

In our phone interview, Dent explained what makes him “a cycles guy” and what prompted this comment about President Trump in a recent article he wrote:  “…if you follow him down his rabbit hole, you’ll find yourself in the middle of a snowstorm with nothing but your sunglasses on.” Here are excerpts from our conversation:

THINKADVISOR: What’s your forecast for the economy and markets?

HARRY DENT JR.: If we don’t see a major financial crisis in the next three years, I’ll give up and become a limo driver on the Gold Coast of Australia!

Why are you so sure there’ll be a meltdown?

We’re bubbling up. My goal is to get people to avoid the next few years. If you get out of the market early and miss the last 10% or 20% into late July or a little longer, it won’t matter compared to how fast this bubble collapses and goes down. Every day, the risk goes up for investors.

What’s different about the bubble that you perceive?

Most bubbles have had strong fundamentals behind them. This bubble — since early 2009 — has been 100% [generated by] artificial stimulus.

When will it burst?

The hardest thing to predict is what grain of sand will cause the avalanche. We’re guessing that the top occurs between mid-June and late August, and then it will collapse. A bubble looks exactly like the Masters and Johnson male orgasm chart that they documented scientifically. It blows off an orgasm and then collapses — goes right down. We’ve had three [recent] bubbles: 2000, 2007 — and now this one. It’s going to cause a substantially larger crash than we saw in 2008-2009 — like one giant, longer-term female multiple orgasm.

Is there ever a soft landing for a bubble?

Not that I’ve seen in history.

On what do you base your theory of a new big crash?

I’ve got four simple indicators that make a difference for the economy: demographics, the geopolitical, an innovation cycle for productivity and a boom-bust cycle for predicting crashes or recessions within booms or busts. For the early 2020s, all four of these are pointing down at the same time.

But why would we have another global financial crisis?

We didn’t deal with the real problem. We didn’t deleverage debt. We added more debt, especially in the emerging world, which is less stable.

Why will the meltdown be even worse this time?

This is a once-in-a-lifetime reset that we’ll see happening in the next three years. It will be like in 1929-1932, when all the bubbles in real estate, commodities and stocks largely reset. If you can help people avoid that reset, it’s going to make a substantial difference in their wealth and well-being in the future.

But hasn’t the election of President Trump helped the market?

The Trump rally has nothing going for it except hope that he’s going to wave a magic wand and create 3% to 4% growth again in the U.S. That’s irrational.

Do you take China into account as part of your theory?

Yes. When this thing blows, it’s going to blow hard. There’s no chance in hell that China will have a soft landing when its stock market crashes. It will send a tsunami around the world in real estate prices where Chinese buy, like California, the U.K., Toronto, Australia [etc.]. There are a lot of real estate bubbles around the world.

What’s the biggest threat to the market this year?

The ultimate, biggest threat is the collapse of China because it’s the biggest bubble. China is a train wreck. There isn’t a central bank in the world that has a strategy that can offset that earthquake.

What investment strategy do you recommend people use right now?

Long-term trends are simple; short-term trends are complicated. So, in the short term, either get into safe investments, which means Triple A corporate bonds, 30-year Treasury bonds, cash or the U.S. dollar because things are likely to get much more volatile. The [alternative] is to use a system for playing those short-term trends. We have a simple model that’s looking at the short term. [It’s watching] the little traders, knowing whether they’re going to panic and buy or sell. [It] identifies when there’s a high chance that a stock is going to accelerate and make a big move in three-month time frames.

What about traditional buy-and-hold?

Buy-and-hold has been dead since 2000. If you buy and hold, you’re going to get crucified worse than you did in 2008-2009. Buy-and-hold is the riskiest because people tend to make money most of the time — so you’ll make higher returns; but when you’re wrong, you’ll have higher losses. People don’t know how to play volatility.

You sound very bearish. In contrast, some years back you were just as bullish. You seem to go to extremes.

I used to be a perma-bull. As soon as we got our first demographic indicators in 1988-1989, I was the most bullish guy. I said this is going to be the greatest boom in history and would last all the way till at least 2007. People thought I was nuts. But even then I said it would end after 2007, and things were going to change.

What about your being bearish right now?

I’m not bearish. But we’ve had the greatest boom and bubble in history, and every boom and bubble is followed by a burst. I’m a cycles guy. I’m interested in the rising tide and the falling tide. But I’m a fundamentals guy at heart. I do technical analysis only to refine my forecasts because in the short term, technicals are everything; and in the long term, fundamentals are everything.

Your detractors say that your strategy based on demographic trends is simplistic and that your forecasts have been wrong several times.

I called major events, even the bottom — down to the week — in early October of 2000. In 1989, I predicted the late-2007 top. But I didn’t understand the impact of a worsening geopolitical cycle. Now I [use] a geopolitical cycle, too, which [I see] is going to bottom in about three years. That says terrorism isn’t over yet.

Why do you focus so on demographics?

The only way to see the future is to look at the people that are creating the future. [For example], it’s demographically impossible to create 4% economic growth again. I don’t care if President Trump cuts taxes to zero and takes away all regulation. He says he’ll have the economy growing at 3% or 4%. There’s no way to create that growth again. People believe: “Well, Trump may seem a little crazy; but he’s going to cut taxes and regulation, and that’s good for business.” When investors and businesses realize that he can’t get that growth, he’s going to look like an idiot.

Please elaborate on the influence of demographics.

People spend money in very predictable life cycles. This is baked in the cake. It’s about raising kids, getting them educated [and so forth in prime of life]. Older people downsize everything and spend less. They’re deflationary. The baby boomers are now done. Young people are inflationary; but there are fewer and fewer of them moving into peak spending. We don’t have the next young generation to offset the retiring and aging last generation — and that’s a very big deal. The millennial generation is nowhere near the size of the baby boom generation. We’ve never seen this before — a smaller generation following a larger one. It’s a first in modern history.

And that impacts the workforce.

Right. It isn’t growing; in fact, it’s shrinking a bit. Then it’s going to grow at near zero for as far as the eye can see. On top of that, our [labor] productivity [growth rate] has dropped from about 3% down to 0.005%.

How will aging baby boomers and their death affect the real estate market?

This is a super-big deal for real estate. Because the baby boomers are decelerating, retiring and dying, there’ll be more real estate sellers than buyers. Real estate investors are going to get crucified from 2018 to 2022 or 2023. Aging people don’t buy more real estate except for vacation houses here and there.

So these demographic trends do not bode well for real estate?

They’re the kiss of death. Real estate will never be the same in most developed countries. The net demand for U.S. real estate — when you include the dying baby boomers as sellers and subtract it from the peak buyers — goes down till 2039. You may be able to buy cheaper, but [prices] won’t turn around and go back because of the [baby boomer] death factor. People who buy in this net real estate crash and think prices are going to double or triple will have a rude awakening. The spending wave, in general, goes down until 2022 and turns up again, but real estate keeps going down.

Is there any positive short-term impact from aging baby boomers?

If you invest in or work for a nursing home company, you won’t have to worry. This year is the beginning of the surge of baby boomers entering nursing homes. It’s the last thing they’ll spend peak money on. This will grow for about 30 years, during which there’ll never be enough nursing homes.

Anything else?

Aging boomers will positively affect other health care sectors — including funeral homes. But they will negatively affect the big sectors, like housing, cars, furniture, food, apparel. All these will slow down, and nursing homes and concierge doctors will not offset that downslide because people don’t borrow for [health care].

Your Dent Tactical ETF closed within three years of its 2009 opening. Also closed was a mutual fund, AIM Dent Demographic Trends, that you and AIM launched some years back. What’s the story?

The AIM marketing people were recommending that [I do a fund] in 1995, but the board didn’t approve it till mid-1999. So we had less than one good year before the market blew up. In my newsletter of February 2000, I said that tech, internet and growth stocks were going to burst and to get the hell out. But AIM said, “We have to confirm your signals with our short-term signals.” Financial advisors were calling saying, “Why are you still long on these stocks when Harry is saying to get out?” By the time [AIM] got out, it was too late.

How did AIM’s getting out impact you personally?

AIM threw me under the bus in a subtle way: They closed the fund. When it went down, they used that as an excuse to close it. It was a way of saying, “There’s something wrong with Dent.” But if they’d have kept it open, it would have been a big fund again today.

You wrote on May 31 of this year that President Trump “has the impulse control of a grease fire.” Sounds like you lack confidence in him.

 Well, he doesn’t have the experience, judgement or personality to be presidential and a leader. Worse, he has the wrong policies at this time in the economy.

Like what?

He thinks he’s going to be Ronald Reagan with supply-side policies. But we don’t have a supply crisis; we have excess supply around the world. We have a demand crisis with too much expansion. We don’t need to cut taxes so businesses can use those profits and expand their plants because they don’t need to.

What do you predict, then, for the Trump presidency?

I give this guy another three to four months. There are three scenarios: He leaves voluntarily because he’s frustrated. No. 2, he could be shot. Controversial presidents, especially the ones that shake up things like Kennedy and Lincoln, get shot. And the third is that he could get impeached. I think he leaves office voluntarily out of a combination of frustration and growing threats of impeachment.

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