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Harry Dent forecasts stock market crash end of February

with 4 comments

The celebrated demographics forecaster Harry S. Dent Jr forecasts a stock market crash by the end of February in his New York Times Bestseller ‘The Great Depression Ahead: How to prosper in the debt crisis of 2010-12’.

From around 10,000 today he has two scenarios for the Dow Jones in 2010: one, a fall to 3,300-4,600 in a broad crash also taking down real estate and commodities, including gold and oil; second, for the Dow to go even lower to 2,200-3,500.

Mixed track-record

Both are apocalyptic for stock market investors. Harry Dent made his name in the early 90s with a counter-consensus and very accurate, super bullish prediction about the outlook for stocks. His specialty is the study of demographics, or population trends, as a means of forecasting the future.

In his current book he apologizes some past errors, with a real howler being a stock market bubble in the late 2000s that just never happened or came close. Indeed, he is almost humble about noting the complexity of intermingled cycles that make forecasting tough.

Yet he has made some good calls in the past and his use of demographics is original and based in solid statistical information about population trends. There is also truth in his contention that the broad trends he mapped in his first forecasting coup in the early 90s did include an big downturn in 2009-2012.

Aside from his demographic analysis, Mr. Dent stands as a deflationist. He cooly says that all the government spending in the world will not offset the deflationary impact of a private sector collapse in business activity and trade, driven by falling consumption and a house price implosion.

Sometimes the simplest observations prove to be the best guides to future stock movements. For if this statement on deflation stands up then financial markets are currently way overvalued and heading for an imminent fall.

What is surely interesting for stock market investors is that Harry Dent is standing back from the day-to-day noise of the market. He is not talking about Greek or Dubai debt. He is not worrying about the latest unemployment or housing figures. His analytical model saw this coming twenty years ago.

Investment insight

For the full analysis you should read his very cogent book. But the obvious immediate implication is that stock market investors should sell now and not dally around. It is probably too late to sell real estate but certainly do not buy anymore.

Mr. Dent is negative on the immediate outlook for gold as he thinks the yellow metal will suffer along with all commodities in a rush to cash and short-term bonds. Thereafter Dent thinks there will be some great opportunities to buy long-term US bonds at high yields but curiously he does not foresee a rush to gold as bonds crash.

Harry S. Dent has been very wrong in his forecasts in the late 2000s but he seems on much more solid ground now with the Dow dipping under 10,000 last week. It is just very hard to come up with a positive alternative scenario that would save the long rally.

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Written by Peter Cooper

February 13, 2010 at 9:10 am

4 Responses

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  1. Yea I don’t really like dent’s news letter either.

    Bob

    March 4, 2010 at 7:13 am

  2. Edna:

    Why waste your money on Dent’s worthless newsletter? You yourself admitted that his forecats are useless.

    Joshua

    March 1, 2010 at 2:42 am

  3. @Edna:
    Your comment reflects a genuine understanding of the global financial problems that we face. I’ve been a serious student and investor in the global markets for many years (more than I care to admit!).

    In spite of the significant financial turmoil in the world today (e.g. Greek contagion, PIIGS domino effect, huge US budget deficits, huge US proposed budget for 2011, failed Treasury auctions, etc. etc.) I’d have to agree with Dent’s view that, in the short term, the US stock market will be “OK”. Looking ahead about 6 months or so, my view is that the US stock market will fall hard, and will drag commmodities (i.e. gold & silver) down with it. That will, in my opinion, be the time to load up on gold and silver mining stocks, as well as the physical stuff.

    Disclosure: I do not subscribe to Dent’s NewsLetter, but I am long in gold mining stocks, with small shorts in selected US market sectors.

    obewon

    February 14, 2010 at 10:12 pm

  4. Peter,

    I subscribe to Dent’s newsletter. It’s interesting but repetitive. He sends out short-term updates by email, e.g., buy (usually the SPY or QQQQ) and sell (buy SH or inverse ETFs). His short-term language is conservative: “may” go up in the short term to x on the SPX, “might” go down to y on the DOW, but then buy. It’s no more helpful than most “forecasters” (the most accurate forecasters are rarely right more than 50% of the time). He’s very bright and his ideas original but from a trading perspective it’s not terribly helpful. Not to give away his ideas (that others pay money for) but your piece above totally misses his short-term forecast, which he thinks has us going up into March to near DOW 12000 (he uses the DOW a lot, which is odd). I think almost everyone in the world knows the end of QE will bring weakness in March, but of course we don’t know what the next government trick will be pulled out of the hat. I have no more business providing a forecast than my 8 year old daughter but my guess is the markets will trade around SPX 1000 for years and computers will drive all the short term change up and down. The long term (20 year) investor will be fine, the short term investor will make nothing and the mid-term (1-3 yr) investor may get killed. One thing is for sure: there are a lot more people like John Paulson, Jim Chanos, etc. out there than you think and they have a lot more money that HAS to go into something. They are not going to keep it in cash.

    Edna R. Rider

    February 13, 2010 at 7:20 pm


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