Harry S. Dent | Tuesday, November 13, 2012 >>
In my media interviews in recent years, and even more so in recent months, interviewers seem aghast at our predictions that the Dow Jones Average could go as low as 3,300 in the next decade… and that it’s likely to go at least as low as 5,600 to 6,000 in the next few years.
Often, I’ll hear something like, “Harry, do you REALLY think there’s any chance the Dow Jones Average will get that low?”
And my answer is: “What are you smoking?!?”
Can these people not see what’s right in front of them?
We have seen one bubble after the next since the last boom started in 1983… each one driven and exaggerated by the rising spending cycle of the massive Baby Boomer generation.
The first bubble peaked in late 1987 and then crashed 40% in two weeks! We didn’t even see such a sharp short-term crash, or such extreme volatility, in the last great crash from late 1929 to mid-1932.
The tech-stock driven-bubble from 1995 to early 2000 was followed by a 78% crash in tech stocks and a major crash in overall stocks into late 2002.
The emerging world, real estate and commodity bubbles inflated into late 2007, with real estate peaking first in early 2006 and commodities just behind that in mid-2008. When the bubble burst, stocks crashed 55% in the U.S. and 70% in China. Oil collapsed over 80% and almost all markets dove around the world.
Now we have the Fed-driven bubble. In its attempt to save the Titanic, the Fed has pumped massive amounts of stimulus into the economy. Stocks are back near the highs of late 2007 and they’ll likely make slight new highs by the end of the year or early next year.
But is a Dow Jones Average of 3,300 too bearish? Of course not.
We’ve seen one major bubble after the next go to new highs and then crash to new lows. Why would anyone expect anything else in this bubble-boom-and-bust era?
We are not the ones out of touch with reality… the media, politicians and economists are!
This present, artificially-generated bubble (which is even worse and more vulnerable than all before it) looks very likely to burst between early 2013 and early 2015.
If this bubble burst leads to a new low, like all its predecessors, then it’s likely the Dow Jones Average will sink to 6,000 or lower. And the ultimate low, when demographic trends bottom between 2020 and 2022, is likely to be lower still… between 3,300 and 3,800.
This is the New Reality
Everyone wants to wave a magic wand to wish away the crash of 2008, the closest we have come to a major banking meltdown since the early 1930s. They want to continue as if nothing untoward happened.
But this simply cannot happen.
NOT with the largest generation in history moving from a spending and borrowing cycle to a savings and downsizing cycle.
NOT with the greatest private and government debt bubble in history unraveling as it has every time in history.
The more we try to use artificial stimulus to cover over this new reality, the more the bubble comes back and the more it bursts when reality sinks in again.
Japan has already tried to ease the pain of its debt, economic, real estate and stock bubble with endless injections of money into the economy. The price it pays is endless stagnation, little-needed debt write-downs for consumers and businesses, low innovation, rising government debt (to extreme levels) and a continued aging population.
And all the Fed is doing, in its attempts to save us, is to lead us down that same path.
If we don’t face this debt crisis now… if we don’t restructure debts that have little relationship to real estate prices or the economy now… if we don’t restructure our entitlements in line with our much longer lifespans… if we don’t we invest in infrastructures that can make our aging population and the next generation more productive in the future… if we don’t do all of this now then we will follow in Japan’s footsteps.
Our kids and grandkids deserve better than our cowardice. To ease today’s pain we’re putting the future burden on them, just as Japan has already done to its younger generation.
So break the mold. Protect yourself from the next crash by conserving your assets and gains from the last decades. Do this before this next bubble bursts.
Then, push for policies that force our government to rein in our endless budget deficits and our runaway entitlements. If we don’t, politicians will simply continue to lead us to destruction.
Ahead of the Curve with Adam O’Dell
Infrastructure: Emerging Markets Versus the World
Harry mentioned investing in infrastructure and that got me thinking.