Harry Dent: Market Crash Has Begun; 'Fireworks' to Blow by June

Q&A March 11, 2022 at 02:38 PM

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Here's advice for financial advisors from "The Contrarian's Contrarian," Harry Dent Jr.:

In the unprecedented market crash that he foresees to hit this year, which will send stocks plummeting as much as 90%, refrain from routinely telling clients to stay the course and rebalance.

"That won't work. The market is just going to keep going down. Richer people are going to lose the most. People will lose money, and … financial advisors are going to need bodyguards to keep their clients from shooting them," Dent tells ThinkAdvisor in an interview.

The strategist and newsletter publisher has been predicting a humongous wide-reaching global crash for some time now.

Indeed, we've been in "a first crash" for the last two months, he argues. By the end of March, the market could be down "30%-40% or more," he says.

That would mean that "the greatest bubble of all financial asset classes," including gold, has burst, insists Dent.

But wait — midyear is when "the fireworks" really kick off, igniting "the biggest crash in a lifetime," he predicts. Stocks will dive as much as 90%.

The U.S. economy has already lost its mojo, Dent maintains. He says a recession has just begun.

"It's a necessary evil," he notes, contending that recessions are a good thing — "a deep cleansing" that "clears the decks for the next boom."

Dent is nothing if not controversial when it comes to his forecasts, which are largely based on demographics.

He correctly predicted Japan's 1989 bubble bust and recession, the dotcom crash and the populist wave that brought Donald Trump his U.S. presidency.

Other of Dent's prognostications, however, haven't materialized; and his critics refuse to overlook that.

Dent, who has an MBA from Harvard Business School, owns HSD Publishing, an independent research firm that puts out monthly newsletters that he and Rodney Johnson, the firm's president, each write.

A free daily newsletter is also made available.

In the interview, Dent predicts just when the stock market will bottom, when inflation will be tamed, how the dollar and gold will fare and what advisors should be telling clients to prepare for the big slide he forecasts.

A crypto enthusiast, he predicts that "Bitcoin is probably going to become the new monetary gold standard of the world." Then he reveals his buying plans.

ThinkAdvisor held a phone interview with Dent, speaking from his base in San Juan, Puerto Rico, on March 8.

In his advice to advisors, he raised the issue of a retirement planning trend that disturbs him and indicated how FAs can effectively turn it around, if not eliminate it.

Here are highlights of our conversation:

THINKADVISOR: Will [Russian president Vladimir] Putin's war against Ukraine cause the huge market crash that you've been predicting?

HARRY DENT JR.: Putin is just a trigger. So is inflation. They're only symptoms. The cause will be the biggest bubble in history, and bubbles do only one thing: Burst.

The biggest issue is that we have the greatest stock market and financial asset bubbles in everything that people invest in, including gold.

But what effect will Russia's invasion of Ukraine have on the market?

Putin's [war] will end up revealing the weakness in the market if it ends up being a 30% to 50% crash near-term instead of a 10%-20% correction that happens fairly often.

Talk more about a near-term crash. When could that happen?

We're just two months into this first crash now. Probably by the end of March, we could be down about 30% or 40% or more.

That would say to me that the bubble has burst.

The U.S. government created this damn bubble just to keep from having a few recessions and politicians taking a little blow here and there.

When is the huge, longer-term crash coming, then?

Maybe April into June. By midyear, the fireworks ought to go off on the downside. If not, I'm just going to have to shut up.

How bad will that crash be?

It will be the biggest crash in our lifetime. Stocks will go down 89%-90%. It will be global. Stocks and financial assets — particularly real estate — won't come back next year, not in two years, not in five years — not for decades.

This is a different thing from the corrections we've had in the boom.

How will the crash impact the U.S. economy?

You'll see about half of financial assets go down: Stocks will go down the most, then risky bonds, real estate, then less risky bonds and so on.

When people lose assets, they certainly slow their spending because they get more cautious.

When you've lost that much in assets, and people who have, for example, $600,000 saved up for retirement are getting close to that age, they say, "Holy crap, I'd better cut back. Forget that boat I was thinking of buying!"

Do you see a recession coming?

It has started right about now. March and April are moving into a recession. You have to allow recessions to clean up the messes.

[The government] is killing free-market capitalism because they don't want to have a recession and clean out bad debts. They've been printing money for 13 years.

But the economy died between 2008 and now. You need to bury it and get on.

There are more zombie companies than ever because we didn't let ourselves have a damn recession. They printed more money in just [the last] two years than in the 12 years before that!

They're printing more and more to keep this bubble going. They're printing more money to keep the economy growing not at 4% or 5%, but at [only] 2% on average!

The government created the biggest financial asset bubble of all asset classes, even gold.

Most people dread recessions. Why is it good to have them?

Recessions clean out the economy very effectively and efficiently so you can clear the decks to have a new boom.

You can't have a boom without a bust. A recession is a deep cleansing. Cleansings are good. Recessions are the opposite of booms, and they are equally necessary.

This is a necessary evil. It will be painful; but if we don't go through this permanent reset of the greatest financial bubble in history and back to normal, companies will have to fail and debts will have to fail.

What then?

The millennials will inherit this endless debt and never see an economy that's growing at 3% or 4% again.

When will the stock market bottom out?

Likely in 2023, early 2024. In a bubble crash like this, we expect the S&P, the Dow and Nasdaq to be down 80%-90%.

It should take about two years, maybe more, when it's time to buy. But we won't come out of it as strong as we did in past major downturns because the millennial generation isn't that strong.

It's not as powerful a wave as the baby boomers, and it won't last as long.

When the boomers hit the economy in the early 1980s, it was like a pig moving through a python, as they called it. It stretched everything.

The millennials will generate another boom, but it will be hampered if we don't clear out all these zombie companies and bad debts and have a deep cleansing.

When will worrisome high inflation go down?

Inflation will disappear at the speed of light as soon as we have a downturn. When we're going up in a stretched economy and they keep throwing [stimulus] money at it, of course inflation will [rise].

But this inflation isn't natural. Instead of 5%-8%, it should be zero to 1% or 2%.

Stimulating more and more causes inflation, which then affects the value of stocks, slows the economy and makes consumers feel like, "Oh my gosh, things are getting more expensive. We're falling behind!"

In the current scenario, what should financial advisors be telling their clients?

Advisors are trained to say, "The economy goes up and down, and there are corrections. So just sit through them and rebalance."

In a boom like from 1983-2007, that's good advice. But that doesn't work in a crash when stocks go down 89%-90% instead of 20%-40% in a correction.

So advisors won't be saying the right thing, and the markets are just going to keep going down.

People will lose money, and stockbrokers and financial advisors are going to need bodyguards to keep their clients from shooting them.

Richer people are the ones who will lose the most. The richest people will take such big losses because they have the most to lose in financial assets.

So what should advisors recommend to clients instead of: Just hang in there?

Because things are so bubbly, there's only one thing to do: Get increasingly into safer and safer assets. The safest assets are highly rated corporate bonds — AA, Triple A — and Treasury bonds of the U.S. government. We're the best house in a bad neighborhood.

What's the strategy in buying bonds?

You're not putting your money in for the yields. You're preserving your money. While all other assets go down, bonds actually appreciate. You can make money on the safest bonds.

In the 2008 downturn, the 30-year Treasury went up about 40%; it will probably go up 50% or more with this downturn.

Advisors want clients to have a balanced portfolio. What's your idea of one?

My balanced portfolio is 50% Triple-A corporates and 50% Treasury bonds. Only the safest bonds have no chance of defaulting. They like inflation.

The Federal Reserve says it's going to raise interest rates. What's your take on that?

They keep saying it; but they don't do it — or barely do it. They have to look like they're responsible. They're dragging their ass because if you've been stimulating the economy for 13 years, you know how weak it is.

All you have to do is stop stimulating or stimulate less, and the economy is going to get weaker.

How will the U.S. dollar fare?

We're going to have a crash, but the dollar won't crash. No, no, no! In the 2008 [financial crisis], the dollar went up.

So now you put your money in safe things like A-rated corporate bonds and Treasury bonds. They become your safe haven.

What about gold as the safe haven?

Gold is not the safe haven. It's an inflation hedge. Gold will go down, though not as much as other commodities or as much as stocks.

In 2008, gold went down with everything else.

Is it too late to rebalance portfolios as you suggest?

No. The S&P is down only 12%-13% off its high after the biggest boom in history and after a crash of two months now.

The crash is likely to get much deeper either just ahead of or by midyear. So it's definitely not too late to get into safer assets.

Many investors are in retirement planning mode. Are there any planning trends that trouble you?

People overloaded in bubbly assets — risky assets — particularly stocks and crypto. Most people moving toward retirement should be more and more in bonds.

That's what financial advisors used to tell you to do. Anybody moving into retirement should probably have more like 60% to 70% bonds and 30%, 40% stocks and other risk assets.

But most people probably have 60%, 80%, 90% in the stock market.

Everybody believes you can't go wrong buying stocks. And everybody believes the government won't let stocks crash very much before they step in and print more money.

It's the government that's creating this bubble!

So how should retirees proceed?

Everyday people during their retirement should be taking less risk, and almost everybody is taking more risk.

They're going to lose their retirement [savings] and will have to work in retirement. But for the first few years, they won't be able to find a job.

What do you have to say to people who are investing in crypto and believe, "I'm staying out of the fray. So I'll be OK"?

The sign of the cross to them because I compare crypto today to the dotcoms of the late 1990s. Bitcoin and Ethereum are down about 50%.

When crypto crashes the most, that's when I'd want to buy. I'd buy it at the bottom or probably earlier than the bottom.

Crypto has all these crazy companies. But Ethereum is a real platform for launching new blockchain applications.

Bitcoin is real. Bitcoin is probably going to become the new monetary gold standard of the world, a new monetary system.

I want to buy the leading cryptos, the ones that survive the crash. If I'm right and this thing bottoms in late 2023, 2024, I'd want to be buying the cryptos that would be down 95%.

What do you expect crypto to bottom at?

My forecast for Bitcoin is $4,000-$7,000. And the next stop on Bitcoin after that is probably at least half a million.

You're really bullish on crypto, aren't you?

Crypto would be my No. 1 thing. But you can't put all your money on one horse.

However, I would certainly want to have a good portion of my portfolio at the bottom of this crash in things like Bitcoin and Ethereum — whatever the surviving ones are.

What do you anticipate investor behavior to be as a result of the crash you're predicting?

When you get to the point when you can buy Bitcoin for $4,000 and stocks at 90% off, people won't have any money, or they'll be scared to death to ever invest again.

They'll probably have their money — gold coins or something — in a chest buried in the backyard.