"HARRY DENT: The US Has Gone Over The 'Demographic Cliff' And Markets Will Crash This Summer
Matthew Boesler | Jan. 8, 2013, 5:06 PM
Harry Dent is not one to shy away from predictions. Just take a quick look at some of the man's bibliography: he wrote The Great Boom Ahead in 1993 and followed it up with The Great Jobs Ahead in 1995. In 2009, he authored The Great Depression Ahead, and in 2011, The Great Crash Ahead.
Now, Dent, the economic forecaster perhaps best known for the use of demographics in his analysis, is predicting a big market crash this summer.
Dent told CNBC this afternoon:
We think markets are going to go up for a while. I think Maria [Bartiromo] is right – the market wants to go up.
We'll see one more correction into this second fiscal cliff. I think we'll see another rally into March, April, May, or something. By the summer, we get another crash.
I think it's going to be a choppy rally – up, down, up, down, with an upward bias. It's the second half that we think a crash starts – that, just like the last crash, lasts about a year and a half or so, goes into late 2014, early 2015.
We get a slight new high in the Dow this year, and then we get a slight new low in the next crash. That's been the pattern. Higher highs in each bubble, slightly lower lows in each crash.
Again, this should not be something that people go, "Oh my gosh, how could this happen?" It's been happening since 1995. Bubble, crash, bubble, crash, bubble, crash.
Here is what Dent told CNBC regarding why he expects this crash in the second half of 2013:
How many crashes have we seen in the last ten years or so? 2000, 2002 – bubble, crash. 2007 – bubble, crash. We're getting a bubble and crash every four or five years.
This is what we have when you go over a demographic cliff. Remember Japan – Japan went over the demographic cliff. Peak in baby boom spending, peak real estate boom.
They had a bust. Guess what? 22 years later, real estate is still down over 60 percent, still drifting down. Stocks are down nearly 80 percent, not that far off their lows. They keep bubbling up and then going down to new lows.
This is the new normal, given that baby boomers are aging and the next generation is not only not in the workforce yet, largely, but they're not as large when they do [enter]. So, we're never going to see real estate prices at these levels again, and we're not going to see stocks at the level we saw in 2007 for a long time.
So, to me, this is not unusual at all.
Dent told CNBC regarding the United States, "We call this the economy in a coma.""
I made money by shorting Lehman brothers (LEH) and I correctly predicted a decline in home values. I told others in my family that the subprime mess was NOT contained. And I will tell you this.. The market is about to rally more than you think. We will hit new highs this year. Inflation will pick up significantly and worries over the fed raising interest rates sooner then later will emerge. But the market will actually rally with the first increases in rates because the fear of inflation will start to subdue. The era of ever rising stock prices has begun. Interest rates will come not much longer after.
Unfortunately some of what you said may indeed happen especially if we can solve the debt cliff fast or if the debt cliff is just like the fiscal cliff, it is no big deal to most investors since they had become immune to any bad news so far and the VIX was at its lowest since...... Now all these big hedge funds who did not do well in 2012 (many of them were shorting the market) had to make more money for themselves and for their clients in 2013, otherwise their funds will go broke. So what can they do? They had started moving all these "new" money from low performing funds such as bond funds to equity funds especially those that will pay high dividends. What will better than REITs and BDCs. I had never seen so many articles recommending high dividend stocks including PSEC and so many financial advisers started promoting them recently. All these baby boomers had just become desperate because of these low yields created by our FED, they cannot even receive a decent return from their retirement money, what choices do they have? So the yield chasing started. I have not seen so many new investors who did not even know what BDCs ore REITs stand for and yet they heard that PSEC and AGBC have yields of 11%+, so BUY BUY BUY, everybody is buying and all of a sudden all these high dividend stocks, CEFs went through the roof. The market is HOT! Some investment experts started forecasting a 16% return for stocks in 2013, even better than in 2012, many said stocks are still "CHEAP" and now may be the best time to buy. Strangely, not too many of them had predicted the last market crash. I saw so many sharks swimming in the market now, sooner or later the smaller sharks will get eaten by the mid-sized ones which will be eaten by the big sharks. Does it mean all these new investors will be ripe for shark food? If enough new investors or new money come into buying PSEC, then it is more than likely it will reach $15 a share soon. Or will it since PSEC is a stock that a lot of people love to short?
Short interest on PSEC had jumped from 6,173,186 on 12/14/12 to 7,071,929 on 12/31/12. Will be interested to see the short volume for January. Probably higher since it is still a long way from the next ex-div date.
Raising rates are not good for stocks.They were raising rates before the last crash.In the begining stocks raised.We are in a period where stocks have raised,prices have raised and workers wages have not kept pace.If they raise rates know this country will be in trouble because of the debt.
Sentiment: Strong Buy
as long as human life exists there will be commerce. it's a global economy now instead of just an american economy. air travel, high speed rail, alternative enegy, high tech machinery(robots) etc. etc. will be the new norm. with the next generation not as numerous as the boomers there will be a decreased demand in factory workers so there's a balance. all this rabble rousing about cutting spending is only political hot air. government spending on research and infrastructure will ensure a bright, prosperous and growth oriented economy for our grandchildren and beyond. there are a whole flock of chicken littles spouting off their doomsday predictions but it's all just false fear. strict government regulation is needed more today than ever because of the huge number of crooks and shiesters preying on the world economies. i site bernie as an example here, who was, and still is a great inspiration to other would be criminals. this new economy is the world giving birth. ask any woman about the intense pain of childbirth and then the grandly immense joy when that new life is realized. president obama is doing a commendable job leading us through the labor pains here but more than that, the united states electorate prooved last november that we are no longer falling for these chicken little doomsday scenarios. as much. we are growing weary of the constant rhetorical lies perpetuated by these far right wingnut fearmongers. the smoke is starting to clear and we should be cautiously optimistic about our chances.