I find myself arguing with analysts who say the markets look good right now and a market crash out of sight.
Analysts from CNBC, Fox Business (or any other show) seem stunned by our forecast that the Dow could drop to 6,000 in the next few years.
Usually these analysts laugh and shake their heads, obviously thinking “this guy’s completely nuts.” The host tries to discredit me, talking over me so I can’t get a word in edgewise.
Then they ask: “Harry! How can you say that when…? Why would we have a stock or economic downturn when…?”
And every time, I shake my head, in pity and frustration, at their inability to see what’s right in front of them.
Market Crash Signs
Markets turn down precisely when things look better than ever and no one is left to think there could be a market crash.
“What do present economic conditions have to do with the stock market and future trends? If it were THAT easy, anyone could predict trends into the future.” How did Japan look in late 1989 before its great crash? How did the U.S. look in August of 1929, or in January of 2000? Just hunky-dory!
The fact is that almost everyone suffers from this misconception because of one mistake. They fall into the “human model of forecasting” trap. That is, they just project recent and current trends in a straight line into the future, like so:
Think about it…
What economy or stock market has not looked good just before it topped and crashed?
When things are falling, most people see them falling further.
When the trends flatten out before they turn up again, most people see things continuing sideways from the bottom.
When they accelerate again, most people see them accelerating forever.
But when the trend finally slows and changes direction, as it always does, people and analysts declare: “Oh, there’ll be a soft landing. We won’t go up more, but we won’t decline either… we’ll just stay here in la-la land.”
That’s when you know things are likely to collapse and turn radically downward again!
To make it worse, the more you bubble the more you burst, a fact that’s true for tech stocks or real estate, gold or commodities, you name it.
The painful reality is that bubbles always burst once they go exponential.
History is crystal clear on this. I know because I study history foremost. And I have studied every major bubble in modern history!
So I can tell you, without a shadow of doubt, bubbles ALWAYS burst just when people start saying: “We’re in a new, never-ending bull market.” Then, when disappointment inevitably hits, they say: “That’s OK… it’ll be a soft landing.”
For example, tech stocks peaked at 5,050 on the Nasdaq in early 2000. The soft landing forecasts for that one hit the trash bin quickly when the Nasdaq hit 1,100 by late 2002.
This dangerous human model of forecasting views our markets as either in the “new sustainable bull market” or “soft landing” phase. And that can mean only one thing: we have more downside than upside in the years ahead.
Instead of falling victim to this mindset, trust your own common sense instincts.
Distrust the opinions of analysts and journalist that rely on a flawed human model of forecasting.
Humans may be the most intelligent species on earth, but we’re only human. We may be able to think past the next two bananas but we’re also particularly bad at forecasting because of our tendency to think in a linear way when the real world is clearly cyclical.
Here at Dent Research we focus on looking beyond the curve. We use longer-term leading indicators, like demographics, to help us do this. We also look at thinking that’s contrary to the news and popular opinion. We strive to be contrarian ourselves at times when the experts and popular opinion line up together on the bullish or bearish side.
We’re here to help you survive and prosper in the most volatile markets since the 1930s.
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