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.
