Economic forecaster Harry Dent just made another dire prediction, and investors should hope he's wrong.
Dent, bestselling author and financial newsletter writer, told CNBC Tuesday that he sees a stock market crash in the United States starting in the third quarter of 2013 and continuing for a year and a half.
Dent said real estate prices and stocks would plummet more than 60% by the end of 2014, or sooner, meaning the Dow Jones Industrial Average would fall below 6,000. He also said the United States would be close to bankruptcy by then.
Dent cited U.S. demographic shifts and the nation's debt crisis as the main drivers of a crash. He said had it not been for the U.S. Federal Reserve's recent moves to stimulate the economy, the stock market would already have collapsed.
"We call this the economy in a coma," he said. "Basically, without these trillions of dollars of stimulus, we would be in a downturn, in a depression, because we also have $42 trillion in private debt, the greatest debt bubble in history, and that needs to unwind."
Now his theory of a "baby boomer spending wave" suggests the U.S. is heading down a dangerously similar slope.
Dent says as consumers age, they spend in patterns. When baby boomers were having kids, they spent more and the economy flourished. As those children left home, boomers spent less and less, leading to a declining economy.
This happened in Japan, where the working-age population peaked in 1995.
By 2015, Dent says the United States will see a disproportionately high number of older people and a smaller population of the younger, productive people of child-bearing age.
"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]," Dent said.
"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."
Money Morning Chief Investment Strategist Keith Fitz-Gerald, who has followed the Japanese economy for decades, agrees with Dent's theory that the United States is approaching this "demographic cliff," but disputes Dent's prediction that we're heading for a stock market crash.
"Investors should be very careful with spectacular predictions like this because even though the demographic changes suggest they may happen, the timing is far from an exact science," Fitz-Gerald said. "For example, if you look to Japan, where Dent made perhaps the most famous of his predictions, that country has defied all odds and managed to hold on for far longer than anyone thought possible, let alone probable."
It's good news for investors that Dent's wild predictions don't always come true.
In 2006 he forecast that the Dow would reach 40,000 by the late 2000s. And at the beginning of 2012, he predicted the S&P 500 would decline 30% to 50% during the year.
The S&P ended the year up 13.4%.
Our Global Investing Strategist Martin Hutchinson outlined last year how any stock market crash that happens in the future will be drastically more dangerous than those in the past. Check out why here.
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Dent, bestselling author and financial newsletter writer, told CNBC Tuesday that he sees a stock market crash in the United States starting in the third quarter of 2013 and continuing for a year and a half.
Dent said real estate prices and stocks would plummet more than 60% by the end of 2014, or sooner, meaning the Dow Jones Industrial Average would fall below 6,000. He also said the United States would be close to bankruptcy by then.
Dent cited U.S. demographic shifts and the nation's debt crisis as the main drivers of a crash. He said had it not been for the U.S. Federal Reserve's recent moves to stimulate the economy, the stock market would already have collapsed.
"We call this the economy in a coma," he said. "Basically, without these trillions of dollars of stimulus, we would be in a downturn, in a depression, because we also have $42 trillion in private debt, the greatest debt bubble in history, and that needs to unwind."
Dent's Stock Market Crash Theory
This isn't Dent's first high-profile prediction on the economy. He's most famous for predicting in the late 1980s that Japan, then on top of the economic world, would suffer a slowdown lasting more than a decade.Now his theory of a "baby boomer spending wave" suggests the U.S. is heading down a dangerously similar slope.
Dent says as consumers age, they spend in patterns. When baby boomers were having kids, they spent more and the economy flourished. As those children left home, boomers spent less and less, leading to a declining economy.
This happened in Japan, where the working-age population peaked in 1995.
By 2015, Dent says the United States will see a disproportionately high number of older people and a smaller population of the younger, productive people of child-bearing age.
"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]," Dent said.
"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."
Money Morning Chief Investment Strategist Keith Fitz-Gerald, who has followed the Japanese economy for decades, agrees with Dent's theory that the United States is approaching this "demographic cliff," but disputes Dent's prediction that we're heading for a stock market crash.
"Investors should be very careful with spectacular predictions like this because even though the demographic changes suggest they may happen, the timing is far from an exact science," Fitz-Gerald said. "For example, if you look to Japan, where Dent made perhaps the most famous of his predictions, that country has defied all odds and managed to hold on for far longer than anyone thought possible, let alone probable."
It's good news for investors that Dent's wild predictions don't always come true.
In 2006 he forecast that the Dow would reach 40,000 by the late 2000s. And at the beginning of 2012, he predicted the S&P 500 would decline 30% to 50% during the year.
The S&P ended the year up 13.4%.
Our Global Investing Strategist Martin Hutchinson outlined last year how any stock market crash that happens in the future will be drastically more dangerous than those in the past. Check out why here.
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UNCERTAINTY AND VOLATILITY NOW PERMANENT
Nobody knows exactly when the U.S. economy and government will "collapse". Keith Fitz-Gerald favors a Japanese-like series of "lost decades" driven by declining birth rates and an aging, less productive population. He may be right.
America may be in for a long grinding process of attrition where markets never quite seem to fully recover and returns remain subnormal ( single digits). Wages stagnant for many and unemployment stuck in the high single digits. However, we may have a number of very disruptive financial crisis along the way, such as a bond market crisis and a huge spike in interest rates that few are prepared for. Volatility and uncertainty is bound to be our partner where ever we go from here.
I don't understand why no one is pointing out that Harry wrote the book the roaring 2000's with a Dow between 20,000 to 30,000. I don't see how he or anyone else expects anyone to take any prediction he makes seriously. Yet that mealy mouthed liar has the nerve to brag in public about his prediction successes. What successes? Where?
Mr. Dent seems to be right about the general trends to come but has a history of severely overstating them. The market topped at about 14,000 instead of 30,000. If he is predicting a 60% + decline then there will probab;y be at most a 20% decline, not uncommon for bear markets and recessions are inevidable at some point but that doesn't mean a full blown depression.
Market prices are dramatically inflated. Stock prices are trading up simply because nothing drastic has come to pass yet. The Fed is still printing money, right now their balance sheet is 3 Trillion. Our government can't even cut 1 Trillion out of DEFICITS over TEN YEARS.. face it, they will never be able to pay the Fed back.
Everyone invested right now has their finger on the trigger to exit. It will once again be blamed on a "computer glitch" but its really a series of stop-loss orders as everyone scrambles to get out, and what starts with a sharp drop will result in an avalanche. There have been materially no gains economically in years, the Fed has simply printed up price increases in stocks and propped phony house prices from the former bubble. Without Fed money there would be no "growth".. all of these "gains" are cash-advances on the credit card. Don't fall for it. Don't invest in stocks, short them when the market crashes.
AMERICA: LAND OF COLLECTIVE "DREAMERS"
With the amount of Government and Central Bank (FED) interventions in recent years ( 2008-2013) nobody can call this a "normal" economy today by any traditional standard. Markets and valuations have been distorted by all the liquidity. We are all living a veritable "dream" and it may be a bit unpleasant for us when investors in America wake up one morning and realize its not at all like what they thought, hoped, or dreamed.
It certainly will be humiliating for voters to be confronted by the harsh reality they were so easily duped (twice) and left holding the bag ( $$ Trillions and Trillions of New Federal and state debt). The "mark" is the big financial loser here. Figure it out, if you can. You'll be "working" till your 75 or until you croak. Forget about social security or a traditional pension. The money won't be there for you, as promised.
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