With its "zombie" public companies and small-business failures, the U.S. economy is "dead," and a second stimulus won't revive it, Harry S. Dent Jr. argues in an interview with ThinkAdvisor.
"The Contrarian's Contrarian," as Dent is known, forecasts that the pandemic-afflicted U.S. economy, amid an enormous Federal Reserve-created bubble, won't bottom out until 2023.
"The crisis ahead of us is a big detox of the biggest financial drug stimulus in history," he warns.
The stock market will bottom late in 2022 or early 2023, he predicts. It will be "the lowest stock market of our lifetime."
Dent, 67, accurately called Japan's 1989 economic collapse, the dot-com bust and the populist wave that delivered the presidency to Donald Trump. He uses propriety research and bases predictions mainly on demographics and trends.
As head of HSD Publishing, the Harvard Business School MBA puts out the monthly HS Dent Forecast and Rodney Johnson Report, along with free daily insight "e-letters." (www.harrydent.com)
Detractors say Dent is mostly an ace marketer whose forecasts have often been wrong.
In the interview, he discusses his grim outlook for the market, discerned mainly from a "megaphone pattern" he sees, and provides an analysis of the "dumb money" and "smart money" going into and out of it.
Dent has written a number of bestsellers. His most recent title is "Spending Waves" (2019).
ThinkAdvisor interviewed the controversial prognosticator Tuesday. He was speaking by phone from San Juan, Puerto Rico, where he's based year-round. Along with the dire predictions, Dent offered advice to investors who prefer to stay in stocks "this late in the bubble," including an idea for "cheap insurance" to use as a hedge.
Here are highlights of our interview:
THINKADVISOR: What are your forecasts for the economy and stock market?
HARRY DENT: I see the economy bottoming in 2023 and the market bottoming at the end of 2022 or early 2023.
In my interview with you published on May 4, you said the country was in a depression. Have you proven yourself right?
When COVID hit, we had a short-term depression. It took GDP down [9.5% in Q2, equivalent of 32.9% annual rate of decline]. That's a depression, not a recession. We've seen a V-shaped recovery for 80% of the non-travel, non-entertainment sectors — [that is], the non-heavily-affected-by-COVID sectors. People are acting now that we're going to recover everywhere else too. Well, no!
Why not?
About 19% of publicly traded companies are zombies: They're operating but can't pay the principal and interest on their debt service. We have this zombie economy that's just going to keep stumbling along; small businesses can't float bonds [and are failing]. We'll just keep having more business failures into early next year. The vaccine[s] won't come out on a broad enough scale to be effective until the second or third quarter. By the time the [government] comes up with the second stimulus plan and the Fed reacts next year, it will be almost too late. The economy is already dead.
Please elaborate on your forecast for the stock market.
You-know-what hits the fan around December 2022. The cycles I look at point to our seeing the lowest stock market of our lifetime then, give or take. If you buy stocks at that time, you'll never see those lows again. My indicators are really good as long as the central banks aren't monkeying with the economy so dramatically [as they have been]. In late 2008, early 2009, they turned on the endless money spigot. But we can't keep having artificial stimulus.
On what do you chiefly base your market forecast?
I'm seeing a megaphone pattern. The trend line is going up with each new high, but the trend line on the bottom is going down. The lower lows started in early 2018. The bottoms keep going lower. Right now, we're getting a throw-over rally where it tries to break through but fails. Ever since the January 2018 bubble high, we've had corrections that have taken us to new lows; then the market takes us to new highs with stimulus — and then we get a new low.
What does your megaphone pattern predict?
The market can't keep going up. We're getting real close to a peak. The next new low is 42% down on the S&P; the Nasdaq could be down 50%.
