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The Great Depression lies ahead, bear market bounce, dot com bubble burst, Greenspan, low interest rates, home prices, housing developments going broke, Obama stimulus may help
Last night I enjoyed a seminar in Colorado Springs, CO, featuring "guru" Harry S. Dent, who was entertaining as well as being dead serious about what lies ahead. He talked from his new book "The Great Depression Ahead" which is about how to prosper from the imminent crash and depression.
What follows is 100% Mr. Dent's opinion:
- He is certain we will have a depression next year.
- He expects a "bear market bounce" by early summer where the DJIA may hit 10,000 to 11,000 before dropping hard. He didn't like to speculate on how low the DJIA could go, but thinks maybe 3800 (it's at 7900 today). He expects a bear market bounce in the near term, but said to be sure and get out of the market by July-August and go to cash, as he expects it to crash shortly after the run-up. This is just his opinion, none of us have a crystal ball. Keep your eye on your investments and the markets.
- He said when the dot-com bubble burst that people needed a place to put their money, so they looked at real estate as a safe haven since it rarely declines. Then we had tax cuts in 2001 that put a lot of money into play, then Greenspan set very low interest rates which put mortgage money into massive play, thus creating the real estate bubble of which we're now on the downside. He showed charts back to the early 1800's, where every "bubble" was following by a depression.
- He described the situation in terms that a bubble builds, things go to insane heights, then the rug is pulled out from under and eventually we find out who had it right all along and get to survive. He feels this is natural, normal, and healthy, though ugly to live through.
- He said home prices in Southern California inflated as much as 400% in just a few years earlier this decade and doubled in many other places; a pure and total bubble. The real estate bubble that is now deflating will continue to deflate, and will deflate the most in those markets with the greatest bubble activity (CA, FL, NV, AZ, NYC). The so-called smallish "starter homes" in Southern California are still $500-600K and prices out most young couples seeking a starter home. (Here in COLO SPGS we have many homes in Old Colorado City and other neighborhoods in the $150k price range, making them attractive as starter homes for young people).
- He said Colorado, and most other inland cities (Dallas, etc) did not inflate like coastal areas and will not suffer the huge deflationary effects of the bubble. In that respect, people in much of the intermountain west and the midwestern "heartland" should fare a good deal better during the years ahead.
- His advice is to NOT pay off your mortgage. In a depression CASH IS KING and if you hoard your cash now, you'll see amazing bargains in the next few years. If you have cash (like Warren Buffett), you can deal yourself a good hand.
- He thinks that many housing developments will go broke. Smart guys like Warren Buffett who have billions of dollars in cash will buy them up for 20% on the dollar and eventually make a tidy profit when things get back to normal, which they always do, but it takes time and pain. (Here in COLO SPGS, we have the 12,000 acre "Banning-Lewis Ranch" that began in 2006 or so, yet I'm told they've only sold 73 homes so far. Not sure these firms have the cash to make it through or if they'll go bust and be bought up by bottom fishers.)
- He's big on demographics. Average age to buy a starter home is 31; then kids come along and at the average age of 43 the couple buy another home to move-up to. He thinks these population waves occur in 40-year cycles and that the next wave of starter home buyers won't materialize until about 2012 and that generation won't hit the "move up" stage until 2023 at which time their earning power will propel us out of a decade of sluggishness.
- Demographically, population aging is the most important factor; age is an accurate predictor of spending patterns. We boomers are entering an era of declining spending and the follow on crowd is not quite ready for starter homes.
- Demographically, declining population trends portend bad news for China, Europe, Russia and the USA. Positive population trends are seen in India, Brazil, South America, and much of Asia that is not part of China.
- He thinks the Obama stimulus may help a bit, for 12-18 months, but that NOTHING can be done to change the bubble-to-depression cycle which has been consistent for hundreds of years.
- He notes that China is now applying stimulus, in the form of highways and railroads (we should be so smart). This spending is having a positive effect on the economy in China, where bank lending is now edging up.
- Best career fields for the future seem to be legal (lots of lawsuits) and medical (aging boomers will need nursing and medical care).
- He thinks that the huge Federal deficit will have to be restructured with our creditors (China, Japan, Saudi's, etc) who hold tons of Federal debt. He feels this workout will equate to a Chapter XI bankruptcy, and that what emerges will be a very different America. One effect of this day of reckoning will be a massive restructuring of the entitlement programs of Social Security, Medicare and Medicaid.
- After the presentation, I stood at the book signing table and heard him mention that oil and natural gas stocks were a decent prospect, given that many are so far down from their highs and will be back up when oil rises again, possibly later this year. (I have some money in Canadian Energy Trusts, like PWE, PVX, AAV, PGH that are currently paying dividends of 19-22% less a Canadian tax of 15%, meaning I'm still getting 17% on a stock with a 20% dividend).
Anyone have any thoughts on the likelihood of a depression?
My own view is that the government will keep interest rates low and allow inflation to rise as this is a relatively painless way of "diluting" the massive amount of debt out there. So we could get a return to 1970s style stagflation.
This means that it will be best to get out of cash and into "real" assets like land, property, gold, etc.. There will, however, be a lag before any inflation kicks in. My best guess is around mid 2010 but definitely something that needs to be monitored.
My own view is that the government will keep interest rates low and allow inflation to rise as this is a relatively painless way of "diluting" the massive amount of debt out there. So we could get a return to 1970s style stagflation.
This means that it will be best to get out of cash and into "real" assets like land, property, gold, etc.. There will, however, be a lag before any inflation kicks in. My best guess is around mid 2010 but definitely something that needs to be monitored.
Dent said inflation was a possibility, but he explained away inflation by saying the deflation in housing will take care of it. Going forward is bound to be very interesting.
As for the DJIA or S&P, I think we revist 1996 levels at some point (Greenspans irrational exuberance).
Similar to how people thought Japan was overvalued at 20,000, then kept going up to 40, and crashed.
Ultimately we settle at 400-600 S&P. Although what I havent seen talked about is bond prices, and what that'll do to stocks. If bonds burst, and yields go up, that can't be good for stocks. The current market is not pricing that in IMO. 8 or 10% yield on a 10 or 30 year.
Last night I enjoyed a seminar in Colorado Springs, CO, featuring "guru" Harry S. Dent, who was entertaining as well as being dead serious about what lies ahead. He talked from his new book "The Great Depression Ahead" which is about how to prosper from the imminent crash and depression.
What follows is 100% Mr. Dent's opinion:
- He is certain we will have a depression next year.
- He expects a "bear market bounce" by early summer where the DJIA may hit 10,000 to 11,000 before dropping hard. He didn't like to speculate on how low the DJIA could go, but thinks maybe 3800 (it's at 7900 today). He expects a bear market bounce in the near term, but said to be sure and get out of the market by July-August and go to cash, as he expects it to crash shortly after the run-up. This is just his opinion, none of us have a crystal ball. Keep your eye on your investments and the markets.
- He said when the dot-com bubble burst that people needed a place to put their money, so they looked at real estate as a safe haven since it rarely declines. Then we had tax cuts in 2001 that put a lot of money into play, then Greenspan set very low interest rates which put mortgage money into massive play, thus creating the real estate bubble of which we're now on the downside. He showed charts back to the early 1800's, where every "bubble" was following by a depression.
- He described the situation in terms that a bubble builds, things go to insane heights, then the rug is pulled out from under and eventually we find out who had it right all along and get to survive. He feels this is natural, normal, and healthy, though ugly to live through.
- He said home prices in Southern California inflated as much as 400% in just a few years earlier this decade and doubled in many other places; a pure and total bubble. The real estate bubble that is now deflating will continue to deflate, and will deflate the most in those markets with the greatest bubble activity (CA, FL, NV, AZ, NYC). The so-called smallish "starter homes" in Southern California are still $500-600K and prices out most young couples seeking a starter home. (Here in COLO SPGS we have many homes in Old Colorado City and other neighborhoods in the $150k price range, making them attractive as starter homes for young people).
- He said Colorado, and most other inland cities (Dallas, etc) did not inflate like coastal areas and will not suffer the huge deflationary effects of the bubble. In that respect, people in much of the intermountain west and the midwestern "heartland" should fare a good deal better during the years ahead.
- His advice is to NOT pay off your mortgage. In a depression CASH IS KING and if you hoard your cash now, you'll see amazing bargains in the next few years. If you have cash (like Warren Buffett), you can deal yourself a good hand.
- He thinks that many housing developments will go broke. Smart guys like Warren Buffett who have billions of dollars in cash will buy them up for 20% on the dollar and eventually make a tidy profit when things get back to normal, which they always do, but it takes time and pain. (Here in COLO SPGS, we have the 12,000 acre "Banning-Lewis Ranch" that began in 2006 or so, yet I'm told they've only sold 73 homes so far. Not sure these firms have the cash to make it through or if they'll go bust and be bought up by bottom fishers.)
- He's big on demographics. Average age to buy a starter home is 31; then kids come along and at the average age of 43 the couple buy another home to move-up to. He thinks these population waves occur in 40-year cycles and that the next wave of starter home buyers won't materialize until about 2012 and that generation won't hit the "move up" stage until 2023 at which time their earning power will propel us out of a decade of sluggishness.
- Demographically, population aging is the most important factor; age is an accurate predictor of spending patterns. We boomers are entering an era of declining spending and the follow on crowd is not quite ready for starter homes.
- Demographically, declining population trends portend bad news for China, Europe, Russia and the USA. Positive population trends are seen in India, Brazil, South America, and much of Asia that is not part of China.
- He thinks the Obama stimulus may help a bit, for 12-18 months, but that NOTHING can be done to change the bubble-to-depression cycle which has been consistent for hundreds of years.
- He notes that China is now applying stimulus, in the form of highways and railroads (we should be so smart). This spending is having a positive effect on the economy in China, where bank lending is now edging up.
- Best career fields for the future seem to be legal (lots of lawsuits) and medical (aging boomers will need nursing and medical care).
- He thinks that the huge Federal deficit will have to be restructured with our creditors (China, Japan, Saudi's, etc) who hold tons of Federal debt. He feels this workout will equate to a Chapter XI bankruptcy, and that what emerges will be a very different America. One effect of this day of reckoning will be a massive restructuring of the entitlement programs of Social Security, Medicare and Medicaid.
- After the presentation, I stood at the book signing table and heard him mention that oil and natural gas stocks were a decent prospect, given that many are so far down from their highs and will be back up when oil rises again, possibly later this year. (I have some money in Canadian Energy Trusts, like PWE, PVX, AAV, PGH that are currently paying dividends of 19-22% less a Canadian tax of 15%, meaning I'm still getting 17% on a stock with a 20% dividend).
Anyone have any thoughts on the likelihood of a depression?
Harry Dent is a HACK! He wrote a book titled "The Next Great Bubble Boom: How to Profit from the Greatest Boom in History: 2005-2009." The book predicted the DOW would hit 30,000. Need I say anymore about him. Be careful who you listen to.
I am a complete novice to the economy, but for the past 2 months I have been scanning many economists: Peter Schiff, Jim Rogers etc.
From what I have read about the most: Cash will NOT be king as it was in the 1929 crash. Hyperinflation will most likely set in...that is where cash is virtually useless because it may take $150 to even buy a loaf of bread.
Please type in How did Argentina survive hyperinflation on Yahoo. There is a blog of how Argentina threw money into an infrastructure program. Apparantly the first stages of hyperinflation unemployment is eased and things can even look prosperous. Even wages get bigger. Then...so do prices. And more expensive, and more expensive till it becomes out of control and you will literally need a wheelbarrow of money to buy a loaf of bread.
Are you certain he said that cash will be king? No other economist I read said this. Please let me know.
Thank you for sharing this information.
P. S. HOw can we tell the dollar is losing value? (One of the first signs of hyperinflation is the dollar starts to lose its value, gold goes up, and groceries go up (I believe) 100%...please note California's primary health insurance just went up 30%). I am going to repost this as an individual question on the board as well.
I am a complete novice to the economy, but for the past 2 months I have been scanning many economists: Peter Schiff, Jim Rogers etc.
From what I have read about the most: Cash will NOT be king as it was in the 1929 crash. Hyperinflation will most likely set in...that is where cash is virtually useless because it may take $150 to even buy a loaf of bread.
Please type in How did Argentina survive hyperinflation on Yahoo. There is a blog of how Argentina threw money into an infrastructure program. Apparantly the first stages of hyperinflation unemployment is eased and things can even look prosperous. Even wages get bigger. Then...so do prices. And more expensive, and more expensive till it becomes out of control and you will literally need a wheelbarrow of money to buy a loaf of bread.
Won't happen. Who will have a wheelbarrow of money to buy the loaf of bread? It will sit on the shelf and get stale until the merchant decides to sell it for a dollar or get nothing. Assuming he doesn't get shot first.
There's not a lot of talk about it, but some (maybe even many) think the bond bubble is the next to pop.
If we retest 1996 levels for the Dow and S&P, that will entail a massive erosion of wealth. But I think we have a lot of deleveraging to go, so it's anybody's guess, and I don't think the reality of our situation is priced in. Our financial system is basically insolvent, our automakers are facing bankruptcy clinging to an obsolete business model, our companies are offshoring jobs in a desperate attempt to make huge losses smaller and our government just passed the biggest ticket piece of legislation sandbagged with the most pork ever, so we are not making history in a good way.
We have mortgaged our future with foreign capital, we are getting deeper in debt and someday our debt will be called. We spent our way in, but I doubt we'll spend our way out.
You won't get hyperinflation unless all the money the government is printing gets to us.
So far it's not..it goes into the banks and stops.
The fact that banks are not being free with the money (lending) is helping to stave off hyperinflation.
What we the peons are seeing is price inflation though..notice food and gas keeps going up ?
Its the Fed that never is able to predict the bottom that is like to satr hyperinflation because of policy. Look back and you will see thsi is what has happen evrytme in the past. Its just that they can't see the bottom until its months behind. Then the massive borrowing that the governamnt has done will make in very tough for along time.Otherwise the FED would keep interest rates lower all teh time to spur growth.
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