168-TNG Radio – Harry Dent 4-3-10

This week Bruce Norris is joined by Harry Dent. Harry is the president of the H.S. Dent Foundation, which publishes the H.S. Dent forecast. His mission is to help people understand change. He is the author of many books, which include The Great Boom Ahead 1992 and The Roaring 2000s and The Great Depression Ahead.

Before he wrote his books, Harry was working towards a degree in Economics, but then changed to Finance and Accounting. He felt that economics did not teach much, and that most economists were not able to predict anything. He eventually went to Harvard Business School and studied business strategy and marketing. This is probably why he comes to different conclusions than many economists.

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Harry has been studying demographics in his consulting work. In 1998, he was sitting in front of the S&P 500 and the Birth Index for Baby Boomers. He looked at those 2 charts and he noticed that they looked a lot alike. Harry knew that the peak in spending was between 45 and 49 for the average economy, and this knowledge led him to conclude that he could predict the economy 50 years in advance with just one indicator. A boom typically starts when a generation is young, and ends when they begin hitting their 40s. Not too long after, he discovered that there were many correlations between different economic factors.

Harry’s business of predictions has been an ongoing learning process. He has extended his studies to real estate and different pieces of the economy. Recently, he had to revise his book The Great Depression, because he got new information about merging markets between countries like Europe and Australia. Emerging countries do not have the same kind of spending habits as that of developed countries. This is why he makes different predictive calculations for merging countries.

Attempting to accurately predict the future can be exhausting, because every time you think you’ve accounted for all the factors, you discover there is something missing. Harry has to account for political cycles, commodity cycles, urbanization and other factors which affect the merging of countries. Bruce feels that Harry’s non-arrogant mentality lends credibility to Harry’s work. The fact that Harry is open to new information, and to the idea of revising his own theories, is why Bruce pays attention to him.

Harry’s first book was named The Power to Predict. This book is about indicators like “the spending wave”, “the 46 year lag,” and “the inflation indicator.” This book also contained the “S-curve,” which describes the 4-stage business and economic cycle. Harry predicted that DOW would hit 10,000 by the early 2000s, and that the boom would end by about 2007. This book accounted for new technologies like the internet and new car models. When new technologies develop, they cause bubbles.

Japan was mentioned in this first book as well. Harry claimed that Japan was going to slow, and that the United States and Europe would improve. People thought he was crazy for making that claim, because at that time, Japan was booming with growth. In 1992, people thought the U.S. had seen its best days, but Harry claimed that there would be a boom around the year of 1998 to 2000, which would result in a government surplus. Harry also predicted at that time that inflation and interest rates would decrease around that time.

Bruce feels that the legitimacy of Harry’s predictions is confirmed by his ability to predict both bad times and good times. Also, Harry uses very specific terms when describing the future of economics. Harry doesn’t use moderate language in his predictions. He has noticed that economies tend to either be bullish or bearish. The good times don’t last forever, and he thinks that people who make predictions about never-ending prosperity are foolish. When markets go up, they tend to increase for 25 to 27 years. When markets go down, the downturn typically lasts 12 to 14 years. Harry currently believes that we will have a period of demographic weakness from 2008 to 2023.

Every 40 years we get a major downturn and the government tries to fix it, but they cannot do this because they cannot fight demographics. When you’re in a demographic boom, the government can stimulate because you have a generation that needs to spend and borrow a larger amount of money. Harry is claiming that the current government stimulus program will fail, because it is simply causing the younger generation to buy earlier when they would have bought a home in the future. Also, Harry does not believe the baby boom generation will be affected by the stimulus, because they are done with the home buying part of their lives.

Most people only study one theme of economics. This means that if they are bullish, then they will selectively read bullish material. These people have already come to a conclusion before studying the evidence.

In the early 70s, Bruce read a book from Howard Ruff named The Coming Bad Year. At that time, Bruce did not have much knowledge of economics, so he read this book as if it came from God. One of the suggestions that Howard made in this book was to buy 200 pounds of wheat. At that time, Bruce had two kids and he didn’t want to run out, so he bought 1000 pounds. This experience taught Bruce that you cannot believe everything you read from proclaimed experts.

Economists don’t have tools to project 50 years in advance, but Harry believes that demographics can do this. Harry predicts that the value of gold will decrease in value during the downturn, because this is a deflation season not an inflation season. This is contrary to the opinions of many people, but Bruce actually tends to lean in favor of Harry’s opinion on this matter.

The more popular you are as an economic writer, the more people respect your opinions, and the more likely they are to plan their lives according to your predictions. This is something that Harry thinks about frequently. Harry actually encourages people to read other authors who think contrary to his opinions, so they can have a fully educated opinion.

A long-term boom prediction is bound to have some down cycles mixed in. Bruce asks how one can know the difference between an anomaly downturn and a downturn which leads to a depression. If demographic trends are still up when downturns occur, then the market will eventually recover. Baby boomers are moving into their 50s and 60s. During this time, they will be saving more and spending less. This tells Harry that the government stimulus will not work.

It is easier to predict long trends than it is to predict precise downturn points. For example, during the past crash, our indicators led us to believe that the DOW wouldn’t go past 7200, but it actually went down to 6440.

Harry claims there is an 80-year new economic cycle. This 80-year cycle is described as the 4 seasons model. There are always 4 seasons that occur in economics just like summer, spring, winter, and fall. We had the spring boom during the 1940s to 1960s. From 68 to 82 we had the summer downturn in which we experienced inflation and low spending. From 1980 to we went through the fall boom in which the baby boom generation began to spend a lot. We are going from high inflation to low inflation, which causes lower interest rates. The stock market does well when interest rates are low and this causes a bubble. Now we are up against the winter season, in which all our bubbles will decrease and cause deflation.

This 80-year cycle occurs over two generation booms which last around 38 to 40 years each. This cycle is repetitive going backwards, but there is an exception. If you go back into the 1800s, we still had a similar cycle system, but the two generation cycles only lasted about 28 to 30 years. This is because we were more of a farming society at that time. We did not have so many powerful middle class consumers. Right now, the commodity cycle is less important to our countries cycle. Commodities only represent about 10 percent of our economy.

Bruce asks if Harry has a process to determine whether or not false predictions are based on something unforeseen. Harry assumes that when bad predictions are made, that something was missed. Most people assume that the markets just aren’t getting something, and those people will be vindicated. The automobile industry correlated with a technology bubble from 1912 to 1919, and then a big crash occurred in the 1920s. We assumed another bubble would happen in 2006, but we did not see this. Harry tried to find an explanation for this by searching through history. He found a commodity cycle and a geopolitical cycle. During the boom of 2006, we had oil prices dramatically increasing which affected our ability to accurately predict the effect of the boom. Also, we had war problems which affected Harry’s predictions.

Harry Dent’s website is www.hsdent.com

You can find his books there and other activities which his company is involved with. Join us for part two with harry Dent next week.