Harry Dent: Stock Market Crash Coming in Early 2022; 'Economy Is Dead'

Q&A November 21, 2021 at 05:49 PM

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First, the terrible news: "The biggest stock market crash of our lifetime will hit in 2022," Harry Dent Jr., aka "The Contrarian's Contrarian," tells ThinkAdvisor in an interview.

Further, "crypto is going to drop even more than stocks," he predicts.

Now, the good news: "You'll see the biggest [stock] crash work to your advantage in just one year," says Dent.

But hold on. He's got more bad news: "We'll have the biggest recession, or a depression, of our lives" next year and "the economy isn't going to get strong again until 2024," Dent forecasts.

Additional stimulus won't help. Enough is more than enough, he insists in the interview:

"You can't give that drug addict another shot to get him back up. He's been addicted to free money now for 12 years. Time for rehab!"

Dent correctly called Japan's 1989 bubble bust and recession, the dot-com crash and the populist surge that made Donald Trump president, although detractors take his forecasts with a few grains of salt.

"Stocks are on their last legs," he declares, predicting that the market will plummet 80%.

Indeed, in the first two to three months of 2022, it will drop more than 50%, Dent, a Harvard Business School MBA, foresees.

The essential problem, he says, is that "the market bubble is expanding; the economy is slowing rapidly."

And "you can't wake this thing [economy] up with another cup of coffee. It's just going to go to sleep and pass out."

He cites GDP growth decreasing from 6.7% in the second quarter to 2% in the third as solid evidence of a recession en route.

"The economy is dropping like a rock," he insists.

Dent's HSD Publishing, an independent research firm, generates monthly newsletters that he and Rodney Johnson, HSD president, each write.

Dent also publishes his and Johnson's insights in a free daily newsletter.

In the interview, Dent contends that 21% of companies are "barely limping along" and are doomed to fail in the recession he sees coming soon.

However, later in the conversation, the author of "What to Do When the Bubble Pops" (G&D Media-2020) offers upbeat, specific advice on bonds.

ThinkAdvisor interviewed Dent on Nov. 16. He was speaking by phone from his base in San Juan, Puerto Rico.

"The economy is dead," he proclaimed. "It's been overstimulated. We can't squeeze any more growth and juice out of this orange."

Here are excerpts from our conversation:

THINKADVISOR: What's your forecast for the stock market?

HARRY DENT JR.: In two to three months, the market will go down to 2,000-2,200 from what it is now. That's when investors finally wake up and say, "This ain't working anymore: Darn, I always wondered how we could grow [the economy] by printing money out of thin air." People know this is stupid.

What should investors be thinking about, then?

The biggest stock market crash of our lifetime will be in 2022. You've got to protect your money to take advantage of the sale that's coming when stocks go down 80%, or else you won't have money to buy.

What's your forecast for the economy?

We'll be in a recession by the first quarter of 2022. The economy isn't going to get strong again until 2024.

Between now and then we'll have the biggest recession, or a depression, of our lives. It won't last as long as the Great Depression in the 1930s because we already started the process in 2008.

About the crash that you foresee, how do you see things rolling out?

Most people aren't sitting in cash. They've got it in stocks and bonds and real estate. When that money disappears, that's when you get deflation, and that's when the bargains come up and you're buying everything on sale.

When should investors sell, then?

Stocks are on their last legs. They'll go a little higher in December. So I wouldn't sell now. But somewhere between mid- and late-December, we're done.

I think the sign will be that they keep going up in December, but January starts off on the weaker side.

At least be out of stocks by Christmas. If the market doesn't start to weaken by the first quarter of next year, then you shouldn't listen to me.

What, if anything, do you expect to be different about this big downturn?

When the stock crash hits, it's likely to drop [further] from the highest point to the lowest point [compared to] any [crash] in history, including 1930-1932.

It's been put off for so long that when it finally goes, it's going to be harder and faster than usual.

It will [also] be the biggest first two- to three-month crash, bigger than the first 1929 crash or the first 2000 crash. Those were off the charts.

What opportunity will this bust offer investors?

You can see the biggest crash work to your advantage in just one year. It will take two to three years before it goes all out, but most of it will happen in a year.

You told me in an interview this past July that the market bubble could blow at the end of that month, if not September. Why hasn't it?

Because bubbles go until they blow. You can blow up a balloon only so far, and then it pops. The government will keep this bubble going no matter how ridiculous it is.

The market bubble is expanding; the economy is slowing. That's the problem.

I've been saying that, when this bubble does burst, [the market] will be down at least 45% in the first two to three months. Now my indicators are saying it's going to be over 50%.

What's one of the chief signs of recession on the way that you see?

GDP growth dropping in the third quarter to 2% — when interest rates are lower than ever — from 6.7% in the second.

You can't wake this damn thing [economy] up one more time because it's dead.

What's your greatest concern about the economy?

This is the fastest fading recovery in history, which is a bad sign. After the greatest money printing in history, just months later the economy is slowing down rapidly, which means it's worn out.

You can't wake this thing up with another cup of coffee. It's had 20 cups already. It's just going to go to sleep and pass out.

The economy has been overstimulated. This is looking like the Great Depression of the early 1930s. We can't squeeze any more growth and juice out of this orange.

Can't demographics be of help?

We're at the bottom now of the natural demographic slowdown from Generation X. And we lost the baby boomer spending strength, the strongest spending surge of any generation, when it peaked in 2007.

So we're out of fundamental growth. The millennials will take us up again starting around 2024.

What's the biggest threat to the market?

Slowing growth. The economy is already dropping like a rock. I think [GDP growth is] going to be zero by early next year. At that point you're checkmated.

The slowdown [in GDP] after the most massive stimulus ever is a sign that it's finally happened: You can't push this thing any farther.

You can't keep something going just by printing money and artificial stimulus because it takes more and more to get less and less.

But why is the economy quickly slowing?

For no reason other than it's worn out. You can't give that drug addict another shot [of stimulus] to get him back up. He's on the pavement and has to go into rehab. He's been addicted to free money now for 12 years. Time for rehab!

This is the longest time in modern history, since the Industrial Revolution, that we've gone without a recession to help purge the economy and make it more efficient by getting rid of failing companies because the government won't let it slow down.

The economy wants to go to sleep and refresh itself. It wanted to do that in 2009, but the government didn't let it finish the process.

It says [in effect], "We're going to outlaw recession, downturns and debt deleveraging." Well, I'm sorry. The economy disagrees with you.

You've talked to me before about zombie companies. What's your latest reading?

The economy has to deleverage debt in zombie companies every decade, or it can't grow further.

Twenty-one percent of companies are zombie companies [right now]. They can't pay their debt service. They're barely limping along.

When we finally go into recession, these companies have got to fail. That's when they're in trouble, and that's when you lose money — and companies.

We're finally seeing the stimulus reach its limit. It takes exponentially more to give less and less. So you darn-near get nothing. And that's what we're showing.

What's your forecast for interest rates?

They're going up. Just about every recession we've had in my lifetime has been triggered by rising long-term interest rates, though short-term rates are part of it.

When long-term rates start going up enough, it triggers a downturn in the stock market.

What's your advice about bonds?

This is the deflation downturn. Rates are falling but only on the low-risk … bonds. You have to be in the safest, longest-term bonds. Buy the highest quality long-term bonds: the 10- and 30-year Treasury bonds and Triple A corporate bonds, maybe Double A.

You've made a safe haven investment with the 30-year Treasury, which is my single favorite — or the TLT, which is a 20-plus year Treasury bond ETF. That's a safe haven too.

With the 30-year Treasury, I predict you could make 30% to 50%.

Is crypto a bright spot for the future?

Crypto is the new big thing, like the dot-coms were in the first tech bubble. Crypto is the future, the digitization of all financial assets, transactions and money.

Crypto is the internet of money. It comes on as the next wave for the following 20 years, but it's a baby in its infancy and overvalued, just like the dot-coms were for a few years.

You've got to get out of crypto even faster than stocks. Crypto is going to drop even more than stocks.

Where does Bitcoin come in?

Bitcoin is the most overvalued of all crypto "coins," and it has no function. Bitcoin's only possible purpose is to become a standard for currencies.

It's positioned to be a standard, like gold was for money for hundreds, even thousands, of years. But Bitcoin has to be valuable enough. If it isn't the standard, it has no function.

Ethereum has some function; it actually does produce blockchain applications. So does Cardano. Ripple is the best for cheap transactions.

I'd be looking to buy those … when they're low.

Is gold a safe haven now?

No. Gold is a hedge against inflation. Gold will not do well when the recession hits. Gold will go down. Gold has been going up because we've had rising inflation.

But gold is already underperforming, with inflation rising. Gold may have a little more potential in it.

Gold is not going to outperform in the next boom as well as crypto will. Gold can't compete with the greatest growth stocks.

But if you have a balanced portfolio and want to have some commodities and metals in it, gold would be something I would buy — 5% or 10% — for that diversification. It would go up handsomely.

But it's not going to go up as much as the hottest tech stocks will in the next boom.