Lately, when I appear on CNBC or Fox Business, I find myself arguing with analysts who say that things look good right now. They seem stunned by our forecast that the Dow could drop to 6,000 in the next few years (and even go as low as 3,300 by 2020 – 2023). They are blown away by my call for gold to hit $750 by 2015 or beyond, and perhaps lower by 2023.
Usually these analysts laugh and shake their heads, obviously thinking this guy’s completely nuts. Then they ask, “Harry! How can you say that when…? Why would we have a stock or economic downturn?”
And every time I shake my head, in pity and frustration, at their inability to see what’s right in front of them. Then I retort, “What do present economic conditions have to do with the stock market and future trends? If it were THAT easy, anyone could predict the future.”
The fact that everyone thinks it IS that easy is why I find myself arguing with nutless monkeys (on the air, at conferences and even in the grocery store check-out line with average Joes).
They have 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?
Stocks look six to nine months ahead, so you have to think ahead and see trends ahead to see a top (or bottom) coming. Duh!
When things are falling, most people see them falling further. When the trends flatten out before they turn up again, they see things continuing sideways from the bottom. When they accelerate again, they see them accelerating forever.
When we are near a top, like now, people tend to see that things will get better more slowly forever. When such trends finally slow, people and analysts always declare: “oh, there will 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!
Yet Australians and Canadians learned nothing from our experience. Price-to-income ratios for real estate in Sydney, Melbourne and Vancouver were as high, or higher, than San Francisco and L.A. at the peak of the U.S. real estate bubble in late 2005/early 2006.
As real estate in those two countries began to slow, guess what their analysts and the people on the streets were saying: “we’ll see a soft landing.”
“Yes,” they would say to me, “we agree with you that prices are not likely going much higher due to valuations and demographic trends, but real estate will NEVER fall in Sydney, Melbourne or Vancouver.” What?!? Why would you think that? Because, you’re so special? Every bubble thinks it is special, from tech stocks in the late 1990s to the real estate bubble into early 2006 to the China real estate bubble currently.
People are nut-less monkeys. They never learn.
Tokyo was the largest and most densely populated city ever, and it bubbled more than any other place in the world, and then burst harder than any real estate market in modern history. They thought they were special too!
The more you bubble the more you burst. That is true for tech stocks or real estate… even gold today, which is in as clear a bubble as it was into 1980 before it last burst.
Bubbles always burst once they go exponential.
History is crystal clear on this. I know because I study history foremost. I have studied every major bubble in modern history!
And 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.”
Need more proof?
Look at the China stock market in 2007. That is a dramatic bubble peak that we won’t see challenged for decades, if ever, and everyone has been predicting a “soft landing” ever since.
Tech stocks peaked at 5,050 on the Nasdaq in early 2000. The soft landing forecasts for that one hit the trash bin quickly with the Nasdaq down to 1,100 by late 2002 and only back to 3,200 after a massive, decade-long rally (they’re not likely to go much higher in the decade ahead either).
Today, this 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.
Trust your own common sense instincts.
Distrust the opinions of analysts and journalist that rely on this flawed human model of forecasting.
Humans may be the most intelligent species on earth, but we are 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.
That’s what the smart money does. And that’s why the top 1% control 45% of the wealth today while 30% are at their lowest levels in the past century.
We’re here to help you think like the smart money!
Ahead of the Curve with Adam O’Dell
Contrarian thinking is the only way to make money in the markets.