Brace yourself for the most devastating market crash ever in “the greatest political and economic revolution since the advent of democracy.” That’s the dire alert from colorful, controversial prognosticator Harry S. Dent Jr., in an interview with ThinkAdvisor.
Dent, who chiefly uses demographic cycles to forecast the economy and markets, correctly predicted Japan’s 1989 economic collapse, the 2000 dot-com bust and the populist wave enabling Brexit and Donald Trump’s election.
Last June, Dent told ThinkAdvisor that an economic and stock market calamity would strike within three years. He is now indeed predicting the crash to occur between late 2017 and early 2020. But with only five weeks to go this year, if stocks don’t start tumbling soon, he’ll be rethinking that forecast, the usually adamant Dent says, with concern.
His new book, “Zero Hour: Turn the Greatest Political and Financial Upheaval in Modern History to Your Advantage,” written with Andrew Pancholi (Portfolio), raises a loud alarm about the 2020s, which, based mainly on four demographic and geopolitical cycles, will bring a ghastly global crisis, or what Dent terms the dark “Economic Winter,” he predicts.
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Over three decades, Dent’s prophecies have been a mixed bag of hits and misses. Cautioning about a bubble that, he says, has been building for years, Dent, 65, now touts three “safe havens” in which to invest.
In the interview, he also discusses market sectors he expects to outperform in the terrible ’20s.
The Harvard MBA and founder of Dent Research publishes newsletters and investing strategy systems and has written a number of books that have either hyped a big boom ahead or warned of disaster on the brink. These works have included “The Sale of a Lifetime” (2017) and “The Demographic Cliff” (2015).
With Bain & Co. at the start of his career, Dent consulted to a range of Fortune 100 companies as well as startups.
ThinkAdvisor recently interviewed the so-called “Contrarian’s Contrarian,” who talked about, among other issues, the tax cut, why he expects investors to be fuming at their FAs and why the sunspot cycle (you read that correctly) is a valid predictor of market crashes. Here are excerpts from our conversation:
THINKADVISOR: In your new book, you say that a devastating crash will occur between late 2017 and early 2020. There are only five weeks left to 2017. Are you sticking with that time frame?
HARRY DENT JR.: We may be starting a topping process. I’m seeing signs of that, but it hasn’t yet been proven. We ought to see the market start to go down by early next year. If it doesn’t, I’m going back to the drawing board. If the market doesn’t start crashing by late January or early February, then we aren’t topping here. But we’re saying there’s going to be a crash. It’s just a matter of when [exactly].
Is that prediction despite, or because of, the bull market’s longevity?
So far, the market has gone up in bad news, threat of war; Trump’s saying the stupidest things known to humankind and [is under threat of] getting damn near impeached. The market still goes up because money has nowhere else to go. So stocks are the only game in town. They’re going to go till they blow, and it looks like they’re getting close to blowing.
At this point, what are you certain of?
The one thing I do know is that the market will make a major change in direction. It’s going to try to hide it as much as possible because it wants to screw everybody. The big traders — the sharks — make money, but all the minnows get eaten. That’s what the market wants. It wants people to be trapped in the bubble. Bubbles are very tricky to play. Now is a good time to get out. The upside is limited.
Why will a crash occur?
Simply because [the U.S. government] has kept putting off this crisis. And, of course, the more you allow bubbles to build up, the more excesses you have.
Instead of dealing with the global financial crisis of 2008, the government just printed a bunch of money and tried to blow their way out of it. Central banks should be able to create money in line with the growth of the economy, period. Central banks only make bubbles worse, which means crises and depressions and the deleveraging that follows.
Just how bad will the next crisis be?
With the last one, we didn’t have a Great Depression, which is what our models are calling for. So we’re just going to get hit harder this time. Stocks won’t go down 50%; they’ll be down 70%-80%. Unemployment won’t be at 9% or 10%; it will be 15%.
How much are you considering the rally that began with Trump’s election?
This has been the biggest fake rally in history! Companies are buying back their own stupid-ass stock even if earnings aren’t growing. That’s ridiculous. Governments are buying their own bonds so they can keep stimulating. Trump says that everything is great, and we’re going to get a tax cut. Bull—-!
But the economy is buzzing along, isn’t it?
Every economy that ever peaked looked perfect at the top. The U.S. looked great in late 1929 before the Great Depression and the greatest crash in history. You have to look at the things that will projectably change: Demographics are projectable.
What are the demographics indicating to you now?
I’m mostly looking at the downward convergence of the four fundamental cycles: the generational spending wave, the geopolitical cycle, the 45-year innovation cycle and the boom/bust cycle. These directly affect spending, productivity, stock valuations and other aspects of the economy. They’re things that I can project and track.
So what do you see?
We don’t have demographic growth, even with stimulus and giving everybody a free lunch. And then there are the struggles in Europe: Italy is getting ready to blow. China is going to blow; and when China blows, there’ll be nothing that Europe, the U.S. and the central banks can do to offset it.
But what about Trump’s proposed tax cut?
It’s not going to create 4% [GDP] growth. Business might feel good for a couple of quarters, but there isn’t anything to build on. You can give companies a trillion dollars, but what are they going to do with it? Just buy back stock and pay dividends to their shareholders. They don’t need to expand. We’ve got excess supply here and around the world. We don’t need businesses to invest in a lot of new capacity. We already did that in the boom.
But what about generating more jobs?
There’s no work force to hire. Growth is basically zero. It will be twice as negative in years to come. We’re at full employment. We’re not going to get 4% growth because we cut taxes! This will not happen. Productivity has dropped to half a percent. And it’s going to keep dropping because baby boomers ain’t gettin’ any younger.