Announcer: Welcome to Creating Wealth with Jason Hartman, President of Platinum Properties Investor Network in Costa Mesa, California. During this program, Jason is going to tell you some really exciting things that you probably haven’t thought of before and a new slant on investing, fresh new approaches to America’s best investment that will enable you to create more wealth and happiness than you ever thought possible.
Jason is a genuine self-made multimillionaire, who not only talks the talk, but walks the walk. He’s been a successful investor for 20 years and currently owns properties in 11 states and 17 cities. This program will help you follow in Jason’s footsteps on the road to financial freedom. You really can do it. And now, here’s your host, Jason Hartman, with the complete solution for real estate investors.
Jason Hartman: Welcome to another edition of Creating Wealth. This is your host, Jason Hartman, and welcome to show No. 75. It’s my pleasure to share with you the interview I did last week with very famous best-selling author and demographic economist, Harry Dent. I think you’ll like that, so we’ll come up with that here in just a moment.
As far as future shows, we’ve got some really good guests coming up for you. Tomorrow, I’m interviewing Gerald Celente with Trends Research, and he has a lot of interesting projections for finance and economics. We’ve got another interview coming up with G. Edward Griffin, the author of Creature from Jekyll Island, a very famous book about the Federal Reserve and inflation, monetary policy. I think you’ll like that.
We’ve got an interview this week that we’re recording on credit restoration and how to manage your credit for its highest and best use. We’ve got an interview already in the can that we’ve recorded on feng shui, which I have to say a lot of your tenants believe in, so you better know about it. It may seem like a little bit of a soft subject, but believe me, there are a lot of people out there who put a lot of credit in feng shui, the ancient Chinese art of placement.
So that will be coming up for you as well as some experts from our recent Masters’ Weekend. So we’ve got a lot of stuff coming up for you on future shows. We don’t have time to do the Ask Jason column today, given the length of the interview with Harry Dent, but do go to the website, www.jasonhartman.com, and submit your questions, comments, reviews, agreements, disagreements, if you hate us, you love us, let us know. We love hearing from you either way.
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Make sure you visit www.jasonhartman.com and visit our newest section. That is our Members’ Only section. We’ve got a lot of free resources that are being posted now in the Members’ Only section and some more that we will post later, and we’ve got presentations from various Masters’ Weekend speakers. Some of these are very highly paid attorneys and tax people and you can get it all free on the Members’ Only section. It’s free to become a member. It only takes about ten seconds, 20 seconds, to just fill out the little form and you are a member and you have access to proprietary data.
In the future, we’ll continue to post pdf files, spreadsheets, audio files, video files that are not accessible to the public on our website, that are just for our friends of Platinum Properties Investor Network and the Jason Hartman.com website.
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Okay, well, it’s really my pleasure to interview Harry Dent on the show. He is a fantastic author and prognosticator that I have been following for must be almost 15 years now, and Harry Dent has really been sort of a god of the financial services industry. I mean he, years ago, back in early 2000, people were listening to his predictions with baited breath. He was the guru of Wall Street.
And he’s written several best-selling books. I discovered him – I believe the first book of his I read was The Great Boom Ahead and I think that was published around 1995 or so. And then I read The Roaring 2000s and The Roaring 2000s Investor. I believe his last book was The Great Boom Bubble and his next book, happily enough, is entitled The Great Depression Ahead. So again, I want to just stress to all of our listeners, there’s a lot of negative news out there and you know what? I mostly agree with it. I think our economy is in a mess, a huge mess. But you know every crisis is an opportunity and there are loads of opportunities out there right now.
We have largely been sitting on the sidelines of the REO property market, the bank-owned foreclosure properties, until just recently because they haven’t really been a good enough deal for us. And now, the deals are getting pretty good and we’ve been recommending them to our clients, as well as a lot of larger apartment properties in many markets around the nation. And we’ve got basically brand new, up to maybe five years old, newer, nice homes in nice subdivisions in the various 39 markets around the country in which we do business. You can buy them for $50,000.00, $60,000.00, $70,000.00 and even if you paid cash, which I think is a terrible deal to pay cash, even if you paid cash, you can get nice returns on these investments: 12, 13, 15 percent.
Now, if you finance them and use the beneficial effects of leverage, you can up those returns to 25, 30, 40 percent. Of course, we can’t guarantee anything, but boy, these are pretty conservative investments. Check them out on our website at www.jasonhartman.com, click on the Properties page. Again, not everything we have in inventory is up there, so contact one of our investment counselors by just filling out the web form on the website, or give us a call and our phone number is on the website at www.jasonhartman.com.
Okay, one more comment about Harry Dent. I was really glad to interview him, love his work. He made some predictions, many of which came true. I mean the guy has just an impressive track record. One that didn’t come true and I did ask him about this was when he predicted that the Dow would come to 30,000, and of course, that didn’t even get anywhere close. But he explains that in the interview and I think you’ll really enjoy the interview.
Again, Mr. Dent, just like so many commentators, really, virtually all of them, tends to view housing as a national market and it’s funny when you ask all of these experts about the real estate market or the housing market. They paint it with a broad brush. But as soon as you then ask them, well, what about Texas versus California, or North Carolina versus California, or North Carolina versus Florida, they say oh, well, of course, those are much better markets.
So, you have to kind of dig a little deeper when talking to all of these experts to really see what they think because if you take it at face value – and I know when they do their various media interviews and so forth and comment on the markets, they have to talk in sound bytes and say things in brief format because television, for example, I think is largely the idiot’s medium. You just don’t have much time. So that’s one of the things to just remember when you’re listening and as soon as I asked Harry Dent about the local markets, he parsed them up and segmented them.
Anyway, I think you’ll find this interview interesting. Again, not much time to talk to you today, but I will talk to you more on the next show. Listen in and enjoy the interview.
Harry Dent Interview
Jason Hartman: Well, it is my honor and pleasure to welcome Harry Dent to the show. Harry, it’s good to have you on.
Harry Dent: Nice to be here, Jason.
Jason Hartman: Good. Well, tell us a little bit about what you do. You’ve written several books, many of them hot selling books, and give us a little background on your company.
Harry Dent: Well, you know I really got into forecasting in the late ’80s after working in business consulting, first at Bane and Company, but large companies, and then with new ventures and small companies in California. And I just started realizing that the baby boom, this new generation, was driving all these trends, and just kept doing more research into the new technologies emerging and this generation, and kind of came up with a whole new way of approaching economics.
We look at demographic cycles. In other words, the predictable things people do as they age, and of course, people kind of come in large generational surges like the baby boom generation.
And so, as the baby boom has been aging and getting married and having families and buying houses, we’ve seen a boom and we started realizing in the late ‘80s when we first got some of our first key indicators that a lot of people were calling for a depression in the 1990s on a famous contratian for kind of a 55 – 60 year cycle, when we were saying no, no. The ‘90s are going to see the greatest boom in history because the baby boomers are going to be in their strongest period of productivity and spending, and then that boom was going to continue into this decade and we would see a depression on an extended downturn from late in this decade into the next decade and beyond. We also projected the Japanese slowdown in the early ‘80s.
So again, we took indicators that economists do not even look at and say oh, my gosh; these think the long term is very predictable. Economists have it backwards. It’s the short term that’s difficult. This recent crash in stocks kind of, even though we were expecting it sooner or later, kind of came out of nowhere and in all this hidden off-balance sheets stuff and all, and then kind of like Enron.
But the short-term stuff, you can get huge curve balls, but long-term trends are very predictable. Every 40 years, we’ve seen generations peak in their spending and you get long-term tops and stops, like 1929, 1968, and now between 2007 and 2009. And commodities are somewhat, too. It’s a different clock. It’s more of a technology cycle, but commodities have peaked every 29 – 30 years, in 1920, 1951, 1980, and now we think we’re due for some sort of a peak higher. We don’t think the commodity boom is over yet. Probably around late 2009, early 2010.
So we start with fundamentals, technology cycles, which go through very clear stages and affect our economy, and we look at demographic cycles of spending, investment, borrowing, all that sort of stuff, and down to micro areas like potato chips, if need be. And then we look at cycles that repeat, like this commodity cycle and like the four-year cycle in stocks and the decennial cycle and things like that.
And then, finally, in the short term, our newsletter, we look at just like any technical analyst would be how bullish or bearish are people and that sort of thing, whether the markets are likely to be going up or down short term because the short term really doesn’t have as much to do with fundamentals.
So we say in the long term, the fundamentals are everything and they’re actually pretty darn easy to measure and project. And in the short term, the technical indicators, how bullish and bearish and crazy people are, makes more difference. We’ve got panic hedge funds selling, unwinding all their leverage in bad moves, and that’s just causing a short-term meltdown that doesn’t have that much to do with the economy.
Jason Hartman: I agree with you. I kind of differentiate that by saying there’s the virtual economy or the Wall Street or the financial economy, and then there’s the real economy, you and I trading. And there’s a difference. Those seem to be distinct elements and as you see these hedge funds unwind and deleverage, you’re seeing a lot of artificial downward pressure on various commodities out there and various assets I believe.
One of the things I love about your work since I discovered it in the ‘90s is how it seems to be pretty simple, at least the way you put it has simplified it so much for me. You name the peak earning years. I think you say they’re about age 46. Or the peak spending years. Do you want to go into that for us? It seems so easy to follow demographics.
Harry Dent: It’s true. The demographics are simple. We have a lot of indicators and putting them together can be complex to some degree. But yeah, the indicators themselves are very simple. Yes, people enter the workforce at age 20 ½ today, on average, part from high school, part from college, and they grow up and earn and spend more money until a plateau between 46 and 50. So all we do is take the birth index, adjust it for immigration, past and future forecasts, move that forward 48 years for the average peak in spending, and boom. The economy grows without – you’ve got a 50-year leading indicator. The economy grows without the stock market adjusted for inflation generally follows that. It’s an incredible indicator.
And our indicators, because they’re simple, No. 1, and No. 2, because you can project them well into the future, they allow people to plan for the rest of their lifetime, not just till the next election.
Jason Hartman: I agree with you.
Harry Dent: It’s a whole different approach and again, economists hate people like us because they say that’s not possible and the world’s too complex and it’s changing too fast. But the more complex the world gets, the smarter we get and the better our information, and all we’ve done throughout all of human history is understand more processes and make things predictable, like the seasons and farming and all this stuff. And now, we’re saying, gosh, you can literally see the major trends in inflation and deflation, in spending, investing, different countries around the world, different regions in a country, decades in advance.
Jason Hartman: Well, I agree with you and that’s one of the things that’s interesting about your work. It seems reasonably predictable to look at macro trends in the United States, but the thing I don’t know, I know that in the U.S., we’ve, of course, got the baby boomers at 76-million person cohort. We’ve got the Gen Y or millenialists. That’s about 80 million, even a bigger cohort, I believe, by a little bit. And so they’re entering the workforce now. The baby boomers are starting to think about cashing out and get out of the workforce or at least downgrade their spending, start cashing out their retirement plans, and so forth.
But what are the different cohorts around the world because the economies are so coupled and interconnected nowadays? I’ve never heard you address that thought and I was wondering what you think about it.
Harry Dent: Well, we are going to address that much more in our book that’s coming out late December, January. We have an entire chapter that looks at the spending waves we call it, the same concept – moving forward the birth index or the age distribution for when people will spend the most money. And it’s very different around the world. We’re about to see a very major divide or pivot point here where the Western nations, like Europe and North America and Australia, New Zealand, and Japan to a lesser degree, that have really driven the world economy so much for decades and centuries, are literally starting to age and slow down, that the millennial generation here is the first generation actually that their birth levels only came back up close to the birth levels of the baby boom. In other words, it’s not a bigger generation. It doesn’t take us to new highs.
Our country is going to more like plateau for many decades. Europe doesn’t even have an echo boom generation, which means after 2010, they decline as far as the eye can see.
Jason Hartman: And they’ve got a big legacy problem because they haven’t replaced the younger workers.
Harry Dent: That’s it exactly. They don’t have young people and without young people, you die. I mean we’d say Europe, if you look at it demographically, is kind of like a person going into retirement. Europe is retiring.
Jason Hartman: The whole country.
Harry Dent: They’re going to slow and contract. The United States is more like at its peak, like in its 40s and 50s, still at the crest, still healthy and strong and wealthy, but not going to grow like it did in the past. And you’ve got these new Asian economies that are the new 20-somethings and 30-somethings. China, surprisingly, has a strong growth into about 2015 to 2020, but then they age.
Jason Hartman: They’ve got a demographic problem, too.
Harry Dent: They have a demographic problem because they stopped having kids by law in the early ‘70s. So you see in our theory that hits you about 50 years later, 46 – 50 years later. India – if I had to place my bets on one country going into the future, an investment for my kids, it would be India. India has demographics, as long as they don’t screw it up, to grow into the 2060s, for five or six decades ahead. Many countries in Southeast Asia grow to 2040s, ‘50s, ‘60s, some Middle Eastern countries farther out than that. Most of Latin America grows for many decades.
So we really are going to switch from the developed world to the emerging world after this boom because people have been saying it’s going to be Asia’s decade or Asia’s century, but, hey, we’ve been growing rapidly, too, with this big internet boom and this giant baby boom generation. But the West really does slow down and the United States is in a much better position primarily for the thing that most people criticize – our immigration. Our immigration has kept us younger and the immigrants are having more kids and so we actually do have – it’s not a bigger generation, but we have at least a generation to kind of like replace us and at least let us plateau for the coming decades and then have another boom.
It’s really grim if you look at Russia, East Europe, and Europe going forward, and not too far down the road, China and Japan are the real aging nations.
Jason Hartman: Yeah, I mean Russia is really a dying nation, even though they’re prosperous now. But they really have a huge demographic bubble in Russia. On the Europe question, is there a distinction between Eastern and Western Europe as far as the demographic bubble because I know that Western Europe is really a retiring region, but what about Eastern? Is that different at all?
Harry Dent: Eastern Europe booms a little longer, somewhere out to 2015 or ’20, but then decline sharply. Southern Europe, Spain booms and has growing demographics into 2020 and Italy into 2015 and Greece, but then they really drop off. Southern Europe actually is the worst. Well, Russia’s the worst and then Southern Europe and then probably East Europe. And then West Europe, and then Northern Europe is the best. The biggest surprise is that the people in Scandinavia, Norway, Denmark, Sweden, and all that –
Jason Hartman: Very wealthy countries.
Harry Dent: – they have a very high women workforce participation and very strong support for them, so their women still have a reasonable amount of children. Not enough to replace themselves. I mean they’re going to slowly slow down, but not as much as the rest of Europe. So they’re kind of the best positioned. Great Britain, Denmark, and Scandinavia are the best positioned in Europe.
Jason Hartman: Very interesting. Tell us more about the Dent Method and what do you look at? Tell us of these peak spending and peak earning years. I think those are great little simple barometers there. What are those?
Harry Dent: Yeah, the peak spending comes between 46 and 50. It’s kind of like a double peak. And then people spend less the rest of their life and, of course, there’s a reason. But this whole cycle tends to revolve around kids. We enter the workforce around age 20, some people 18, some 22. We get married at age 26, some people earlier, some people later, depending on whether you went to college or not. Then we have kids in our late 20s, early 30s, and then by the time we hit 46 – 50, our kids are either getting out of high school and going into the workforce, or they’re getting out of college and going into the workforce. So they leave the nest between 46 and 50.
And once they leave the nest, not only do you not need a bigger house, and in fact, you bought your house many years before when they were in high school, but you don’t buy a car as often because you’re not driving them around to soccer practice. You don’t need as much food in the refrigerator. You don’t have as much car insurance and on and on and on. So people naturally save more for retirement and spend less.
Now, saving is a good thing for the individual, but for the economy, you get a whole generation like Japan in the ‘90s, just all of a sudden shift from spending more to saving more and spending less, well, you get an endless recession. That’s what Japan had. We did predict that downturn in the late ‘80s, not only because they had an unbelievable bubble and stock bubble similar to the United States today, but because they were coming on a demographic slowdown two decades before the United States and Europe.
So one of the great things when people say what’s this going to look like, this slowdown we’re predicting, I say well, first of all, you can look at Japan. They’ve already been through it and you know what? Real estate went down 60 – 70 percent in Tokyo over many years. The stock market went down 80 percent, even though the rest of the world was booming. And their government tried to stimulate the economy. They had extremely low interest rates and you know what? You ended up being more on the deflationary side anyway because the government was pushing on a string. Old people don’t need to acquire durable goods and they don’t need to borrow money. They pay down debt. They save and they don’t spend. They particularly don’t buy durable goods, like cars and houses and things like that.
So these demographic cycles are very clear. People do stuff at predictable ages. We can tell you when they have the highest mortgage, age 41 – 42; when they invest the most money in stocks overall, like age 54, when they have the highest net worth, age 64; anything you want to know. When they buy potato chips, 42; when their kids are at the peak of their calorie intake at age 14. It’s a science.
Jason Hartman: Wow, that’s amazing.
Harry Dent: It’s nothing like economics where people are guessing what the government’s going to do and if the dollar is going to go up or down, all this crazy stuff. It’s a science that says look. I mean this is as predictable as life insurance actuaries predicting when you’re going to die.
Jason Hartman: Very interesting stuff. What is the peak earning year? What age is that? Is that 46 as well?
Harry Dent: It’s similar, yeah. In the late 40s. Earnings actually may peak a little bit later or a little bit higher, say more like 50 than 46 – 50, as people start to save a little bit. But yeah, it’s a similar time and then earnings goes down as well. People don’t just save and spend less, but earnings goes down. One of the first things that happens for a certain percentage of households is women who have been working to get the kids through school and college and support the household, say okay, I’ve had enough. And women start to leave the workforce quicker than men after age 50. So that’s one of the reasons that earnings goes down and another reason is people probably work less over time and work less hard and advance less fast.
But I mean regardless of the reasons, the statistics are clear. People earn and spend more money to age 46 – 50, and they earn and spend less the rest of their life.
Jason Hartman: Very good. So what about the issue of inflation? If you’ve got a large segment of the population in their mid-40s, is that going to create more inflation because there are more people consuming, more people earning, there’s just more wealth in the system, and when were we at that mid-40s, the biggest segment of the population in the mid-40s? Was that in the mid-‘90s?
Harry Dent: No, no. We’re at that now.
Jason Hartman: We’re at that now, okay.
Harry Dent: When the peak comes up, it crests the boom. And you know it’s actually counter intuitive, but it’s the opposite. Young people are inflationary. Think about this for a minute. It doesn’t get simpler than this. Young people cost everything and produce nothing.
Jason Hartman: Right, I read that in one of your papers.
Harry Dent: Yeah, okay. They’re inflationary. Parents have to invest a quarter million dollars to raise the average kid, not counting college. The government has to make major expenditures on the education system and all these services and stuff. And businesses have to build offices for them and equip them with new technology and train them for the first couple of years they come in, before they become productive. So when people are reaching their mid- to late-40s, they’re not only just earning and spending the most, they’re the most productive they will be as workers, and high productivity is disinflationary. It brings inflation down.
So the reason we had the highest inflation rates in U.S. history and remember oil prices were $40.00 in 1980 and they were $147.00 earlier this year, and we had inflation of maybe 4, 5, 6 percent this year, and back then it was 14, 15, 16 percent, and mortgage rates were off the roofs. It’s because this massive baby boom generation was entering the workforce. So we have an indicator, like our spending wave, that’s called the inflation indicator, and it’s a two and a half year lag on workforce growth. When more young people are entering the workforce, that tends to be inflationary.
Well, we had the highest amount of that in the late ‘70s with the highest inflation rate. And then what’s going to happen here ahead, and this is also kind of counter intuitive, but baby boomers are going to, since they’re a larger generation relatively, they’re going to start to retire in the next decade faster than the echo boom enters the workforce. And that, when the workforce contracts or slows, that is deflationary, so this indicator – let’s see. The spending wave came up in 1988 – 1989 inflation indicator. This thing tracks inflation better than I would have expected. I mean even on a short-term basis, it catches most of the wiggles and it says we’re going to have inflation pressures into 2009, early 2010, from the kind of growing workforce into late 2007 before this slowdown started. And then we’re going to switch to deflationary trends from 2010 onwards.
Again, we can go two and a half years on this indicator, but we can also go past that and predict, well, we know that people enter on average at age 20 – 21, and we know they exit on average at age 63. So we can project those trends in the future and it actually projects deflation.
Now, the difference is disinflation means a lower rate of inflation. So since the peak of inflation, I think, at about 16 percent in 1980, we went down to very low inflation, say about 1 – 2 percent in the late ‘90s, and now we’ve come back up to 3, 4, 5, 6 percent here recently because echo boomers have been entering the workforce a little faster. Then we will eventually go down and see prices fall. Deflation is when prices actually fall and the only time we’ve seen that was in the 1930s. The only time in any of our lifetimes and certainly not in my lifetime, it was 80 years ago and we’re saying the same thing is going to happen again.
It appears that the government is going to inflate their way out of this, which they’re going to try and we’re going to get inflation, we think, first. But eventually, when the economy slows down, you have to write off all these real estate loans and real estate goes down 50 percent instead of 20 percent. The contraction of loans in the banking system will destroy way more money because it’s so leveraged, 10:1, than any stimulus the government can put in and you end up with deflation in the end.
So that’s a mind-blower and it’s a contrary forecast. We think we’re going to have inflation into late 2009, early 2010, if we get any kind of recovery from this stimulus plan. And then the government’s not going to be able to keep stimulating and inflating because inflation becomes the problem. And then the economy finally goes down because baby boomers are on a real down slide of spending and the governments can’t do anything about it and they’ve blown all their ammunition anyway and we go into a deflationary downturn, like the early ‘30s.
So you can imagine there’s a lot of threats there and a lot of opportunity to understand something like that is going to happen.
Jason Hartman: Right. So I agree with you in part, but here’s a big part that I’m not sure I agree with you on. We’ve got this global economy and we’ve got 2.5 billion people that are playing in the game that just they weren’t playing 20 years ago. So what do you say about the consumption from China, India, Latin America? I mean there’s a lot of consumption and that is – it’s inflationary, I would say, but there’s production with it, so when you look at it through the Dent glasses, I’m not sure what you think about that. But the Fed here has really realized that they just don’t have control over the global economy. If it were 20 – 30 years ago, the Fed would do something and the U.S. would react and it would change things dramatically. And they’ve used almost all of their ammo. Their last bullet in the gun is 1 percent or 100 basis point decline in the Fed rate.
And so they’re almost out of bullets. They can’t do it because they don’t control the rest of the world. Now, they’re doing things like coordinating rate cuts and opening more discount windows and credit facilities, but it just doesn’t seem to be doing the trick. So what do you think about the global consumption issue that wasn’t here before?
Harry Dent: Well, first of all, global consumption’s great for them, but what people don’t realize and this is just a fact, we export only 3 percent of our GDP to all of Asia. So Asia could be growing at 20 percent a year, but if we’re imploding and we’re slowing, our economy is still going to slow, and Japan went through the same thing. Japan had an endless recession and mild deflation even with the rest of the world booming on an unprecedented scale across the board in 1990. Everybody was booming in the 1990s, except for Japan.
So that’s one example where a country went through deflation anyway. And the fact that our economies are coupled, but they’re not that coupled. We don’t sell that much to Asia. And the second thing is these emerging countries in their early stages and it was true of our country, too, 100 years ago, are more dependent on commodity prices. It’s more part of their equation. India spent 60 percent of its budget on commodities and foods and China 40 percent. We only spend about 10 percent of our economy.
So these commodity cycles are very important for their inflation rates and we show the commodities are due to peak around 2009 or 2010 and decline for a decade or so before they come back. So there’s a lot of factors, but –
Jason Hartman: And when you say commodities, can you parse that up for us? Are there any specific commodities to which you’re referring or are you making a broad stroke there?
Harry Dent: Well, it’s broad. They do tend to peak together and the last major peaks, like in 1920, major commodity peak, 1980, 1951, these different commodities, agricultural commodities, industrial metals, precious metals, energy, oil, all peaked within about a year of each other. So they do tend to run in similar cycles and right now, we would be the most bullish looking ahead by we think a huge buying opportunity is coming here in oil and energy. If oil hits close to $50.00, we think oil could go back to its highs or even make a new high, $180.00, in the next year and a half. And that would outstrip anything any stock market could do. And gold will probably at least double. Gold is a hedge against both inflation and monetary meltdown and oil is a great hedge against terrorism and that sort of risk. So those are the two commodities.
I think any rebound in the economy will be good for the whole commodity spectrum, but I think it would particularly be strong in energy and precious metals.
Jason Hartman: Okay, so back to the precious metals thing, on the gold issue. I’m a bit of a gold bug and I generally agree with gold bugs as far as their premise. I just don’t agree with their conclusion and the reason I don’t because it all makes so much sense. Gold should be $2,000.00 an ounce right now in my opinion, but the problem is that it’s manipulated by all the central banks that keep selling it off to suppress the price. They trade it amongst each other and those transactions are recorded and they suppress the price artificially because they want to pump up their fiat currencies. I can’t see any other thing than that. There’s just a lot of manipulation in the gold market and all precious metals for that matter. Silver, certainly, too. I don’t know if you study that or what your thoughts are on it.
Harry Dent: I don’t get into that level, but again, we do look at cycles and gold did peak in 1980, near $800.00 an ounce, and it was projected to go to $5,000.00 and the next thing you know, years down the road, it’s at $200.00 something. And oil peaked at $40.00 and was projected to go to $100.00 and the next thing you know, in 1986, it’s $11.00. So, these commodity cycles are among the most volatile. And yes, they can be manipulated and everything else, but if I had to put my money in one place here near term, I think stocks are probably going to fall one more time, maybe down to a stronger support around 7,000 or 7,200 in the next few weeks or few months.
But I think ultimately they’ll bounce in the next year with this recovery maybe 20, 30, 40 percent. But I would way rather have my money in places like gold and energy and oil right now because the bounces there could be doubles or triples.
Jason Hartman: Versus stocks that won’t have that much of an advance.
Harry Dent: Yeah, with stocks going up 20, 30, 40 percent. I mean this would be what we call a B-wave rally. It’s a bear market rally. All this stimulus may get lending back to some degree, it may help housing stop. Like you said, what we see, our indicators say if we get any type of substantial turnaround in the U.S. and global economy, inflation is going to come back faster than hell. Inflation is the biggest problem over in emerging countries right now. China and all these countries are running higher inflation rates than we are and again, they’re much more sensitive to commodity prices.
So inflation is going to wreck this party, if the government is even capable of offsetting this credit deleveraging meltdown. But we’re saying hey, in the end, they won’t be able to because baby boomers are just going to weaker on them and that’s going to cause more deflationary downward tendencies.
So the government’s stimulus plan is not going to work. At best, it ends up in an inflation crisis, which keeps them from stimulating further, and then it switches to deflation. At worst, it’s not enough. Whatever they do and whatever China does is not enough because this credit deleveraging, credit default swap thing is so huge and so toxic that it just – I mean it is literally possible for credit to contract faster than the governments can stimulate.
Jason Hartman: And that is certainly what is happening now.
Harry Dent: That is what has happened thus far, yeah. But this credit is also massive. That’s the biggest argument we have internally in our company right now and with other people. Do we get much of a rebound and bounce, which stokes inflation, or do we just keep melting down? We got people even in our company that think huh, uh, and then some other economists I work with think you know, I just don’t think they can stop this credit meltdown. I think they can because I’m looking at the Libor rates going down. I’m looking and the markets have clearly switched from worrying about a banking meltdown to worrying about oh, my gosh, how deep is this recession going to be. They clearly switched and that’s why the Libor rates are coming down, gold has come down.
But I tell you, gold gets down much farther and oil gets to $50.00, we’re going to give a very strong buy signal because even if we just get a half-hearted bounce, even if oil just went back to $100.00 a barrel, which would be very easy –
Jason Hartman: Which I agree with, by the way. I think oil is going to be $100.00. I think the Dow is going to be at about 6,000. That’s going to be its bottom. And that’s where we’re going to be, so I don’t know.
Harry Dent: Most bubbles, and it’s true of housing, as well. Go back to where they started or a little lower, and the bubble really started in stocks in late ’94 when the Dow was about 3800 and house prices we’re saying will have to go back to 1996 to 2000 levels, kind of where the bubble started there, somewhere in between there. So we think the Dow’s probably going to end up a little lower than that, but it’s probably – I wouldn’t be surprised to see it hit 7,000 just near term before we get some type of more concertive bounce. We haven’t had a bounce yet that’s lasted more than several weeks.
Jason Hartman: Yeah, the election didn’t seem to help.
Harry Dent: I think we may get a 3 – 6 month bounce, but I don’t think it’s going to be that big. I think this market is mortally wounded.
Jason Hartman: Yeah, it’s a bear market. Well, talk to us about, first of all, on housing. I want to ask you to parse that up a little bit if you would because people talk about the housing market as though it’s some nationwide phenomenon, and in a country as large and diverse as the U.S.A., there’s a market in Texas and there’s a market in California that are dramatically different.
Harry Dent: Yeah, it’s very different.
Jason Hartman: Yeah, it’s very different. Do you want to parse that up for us a little bit?
Harry Dent: It’s both true. The markets regionally are extremely different in valuations and supply, demand, and space limitation and all that stuff. But nationally, there’s still like an overall baby boom bubble and the baby boomers were in their peak home buying years in the early part of this decade, and then the Fed lowered interest rates to 1 percent and the banks started offering all these no-money-down, low teaser rate loans, and people just went nuts.
We were predicting in 2003, 2004 that the housing bubble would peak well ahead of the overall economy, as it did in the roaring ‘20s. Housing prices peaked in 1925. The economy didn’t collapse until 1930 and then housing as well. And that’s because demographically, housing peaks early in the cycle and also bubbles can only go so far until they blow themselves with their own extremes.
Robert Schiller – there’s a chart. Actually, on our website, we have some information about our new book. We got a Q&A that’s very useful. It’s free to download. We’ve got a video just about that and we also have a two-page press release, and in there, it’s got three key graphs. It’s got the spending wave, this 40-year cycle. It’s got this commodity cycle and it’s got a housing chart from Robert Schiller at Yale. He went back and adjusted housing for inflation, size, and quality, and you know what? Housing is basically flat long term, adjusted for inflation. It basically goes up with inflation replacement cost.
And housing in 2005 and 2006 got to basically twice its long-term value, double what it should be. So that means housing has to drop, we’re saying, 40 – 60 percent. And that might be 30 percent in Dallas and it might be 80 percent in Miami.
Jason Hartman: And it has done that in some markets. The problem is though, when you look at a market like – I mean I agree Miami and California and all the bubble markets have another 15 percent decline ahead of them in my opinion.
Harry Dent: We think they got more than that.
Jason Hartman: Oh, even more. Oh, well, okay. I’m too optimistic. I’m usually not accused of being too optimistic, by the way, but maybe I am. But you look at a market like Dallas where you can buy at virtually the cost of construction. There’s no land in the equation and it seems like you really don’t have that much downside risk there, but who knows.
Harry Dent: Yeah, I agree, and that’s why we tell people if you’re looking at housing since, you’re right; it is so different across the country. This whole thing bubbled up together and hey, while housing was going up 3 or 4 percent in Dallas, it was going up 15 percent and you’re in Miami. So there’s going to be a huge difference. Look at what your house was worth in 2000 or at worst in 1996, in that timeframe. That’s a good indicator for where housing will have to go back, and again, that may be a 20 percent correction overall in Dallas and 70 or 80 in Miami or New York City or San Francisco. So there’s huge differences.
And you’re right. Places like North Carolina and Texas and Utah, I mean there’s a lot of places that aren’t overvalued or just barely overvalued and they’ll only probably come down because generally, demand goes down and commodity prices come down and some construction costs. But basically, there’s a huge difference in the exposure and I’d much rather have a house in Dallas or Raleigh, North Carolina, than Miami or San Francisco right now.
Jason Hartman: Yeah, couldn’t agree with you more.
Harry Dent: Especially New York. New York is going to get crucified.
Jason Hartman: Oh, yeah. All of the financial stuff. They’re laying off people on Wall Street like crazy. Tell us about your thoughts – we talked about inflation a few minutes ago and I wanted to jump in there and ask you what do you think about the Consumer Price Index and the government’s official numbers of inflation? Do you think they’re accurate? Do you think they’re crazy? I think they underestimate true inflation and you could certainly say that 8 – 10 months ago. Nowadays, prices have softened up on a lot of things and they’re not so sure. When I used to say that 8 – 10 months ago, everybody thought yeah, you’re so right. There’s no way inflation is only 3 or 4 percent. It’s easily 10 – 12 percent.
But now, people are kind of looking, well, maybe the government’s not off by that much. What does Harry Dent think?
Harry Dent: Well, I think their indicators show the direction. I don’t think they’re that accurate, I think on both sides. I think in some cases, they underestimate the quality. They measure a car as a car, and a car is not a car. Cars are way smoother driving, way better stereos, way more safe, way more everything than they were. Just like Robert Schiller showed, we have this perception that housing goes up so fast over time, but when you adjust it for the average size and quality of the features, they haven’t gone up as much as people think they’re going to. But inflation, maybe an average of 3 percent long term.
And on the other hand, there’s a lot of things that are underestimated and I know for one thing, for affluent people, inflation is way higher. There’s too many damn rich people in this bubble and you gotta stand in line for a Maserati, wait two years, and pay a premium, and all this stuff.
Jason Hartman: Not so much anymore, though.
Harry Dent: The cost of good wines and high-end homes, vacation homes, have gone up way faster than other things, so it also depends on who you’re looking at. There’s no question that inflation rates on the affluent are higher. But hey, as long as bonds follow the CPI on a certain kind of basis and the direction is right, then we can still predict the direction of inflation. And I don’t think their numbers are totally accurate for sure, but I think it goes both ways.
Jason Hartman: It depends who and I know Forbes, I believe, was publishing and I haven’t been able to find it – I have looked for it a couple times – a cost of living well index, the inflation for the rich. I wish I could find that. I’ve gotta have my paper in front of me.
Harry Dent: I’ve got that somewhere. I’ve pulled that before and it is much higher. Anybody who’s affluent knows that there’s no question about it. Now, I’ll tell you another thing that our research shows from way back and going over history. The times of the greatest demographic expansion, growth in population, growth in prosperity, have been inflationary. In other words, inflation is a leading indicator of prosperity. It’s an investment in the future. Inflation comes when you have to incorporate a new generation in the workforce, when you have to make major new infrastructure investments, and then those investments pay off over time and the generation, of course, pays off as they earn and spend more money and grow up.
And so, inflation, basically the math of inflation of the ‘70s, you just add 30 years to it and you get this boom because people cause inflation when they enter the workforce around age 20 and they have high peak productivity around age 46 – 50. So it’s like a 30-year leading indicator, and back historically, it was more like 20. But it’s very clear if you look at history. The times of the greatest expansion, whether it be the Greek and Roman Empires or the 1100s – 1200s, when cities were growing across Europe, or the 1500s and 1600s, when there was massive expansion, inflation was rising.
So inflation is not the monster people say it is. It actually reflects higher specialization of labor. The more things you contract out to other people and they specialize on, the more services you get, the more you have to pay. But if you specialize yourself, you make a lot more money, so you can afford to have all those services and do what you want and do what you do best.
And so there are a lot of different levels of inflation. There is short-term monetary inflation and commodity inflation and you can create inflation, obviously, from irresponsible government. But really long-term inflation, like the inflation we’ve seen in this century, basically says you know what? You’re in growing times. Demographics are growing, technologies are growing, infrastructures are growing, and you’re making investments to keep up with that and they pay off over time.
Jason Hartman: That is a very interesting outlook. I completely agree when you talk about the specialization of labor. The division of labor issue in a high tech society is by nature inflationary because you have to pay a profit margin to every provider. That’s a very interesting point. I never thought about that.
Harry Dent: It’s really a luxury to be able to do that. I mean imagine going back to Little House on the Prairie and the wife’s got to beat the clothes on the rocks all day and you got to sit out there and push the plow and fix the house –
Jason Hartman: You do it all yourself. There’s no middleman.
Harry Dent: There’s nobody to help you and you have to do everything yourself. Nobody’s good at everything.
Jason Hartman: Very good point.
Harry Dent: We’re very inefficient.
Jason Hartman: Well, so when we talk about inflation, if you would address the entitlement issue. See, as I see it, the government has – what – a $56 trillion entitlement bill coming at it.
Harry Dent: Yeah, it’s just ridiculous.
Jason Hartman: As I see it, there’s only a few ways the government can work its way out of that mess. No. 1, break the promises, which they’re not going to do because that would be political suicide for both parties. No. 2, it would be increase production, especially in the form of exports. Cut spending, that’s not going to happen. Increase taxes, there’s simply not enough revenue to be gained. The solution I see for the government is just create more fake money, more fiat money.
Harry Dent: Yeah, but even that doesn’t do it either. You can’t create something from nothing. That’s never worked long term. If you create fake money, it ends up deflating back out of the system.
Jason Hartman: But the problem with our society is that our whole focus is on the short term. Everybody, every CEO’s –
Harry Dent: That’s human nature. That’s always been the case. Here’s the solution. I’ll tell you the solution. And it’s not your solution, it’s not my solution, it’s not the government’s solution. It’s the economy’s solution. Kill the damn system. Pull the rug out. After bubble boom, pull the rug out, have deflation, have banks failing, have companies failing, reconsolidate, go through a big Chapter 11, and then you rearrange all your debts and obligations. And you know what? People would only do it – you’re right. Government cannot deal with this because it’s politically unacceptable. They can’t meet these obligations over time. We’re talking a not rosy situation for the next 12 – 14 years. Even if we had the economy continue to grow 3 – 4 percent, we couldn’t fulfill all these obligations with the aging of our society and fewer young people. It’s ridiculous.
But nobody will face it. Consumers won’t admit it. Government won’t admit it. You’ve got this one guy – I forget his name – running around, Peter Sun and his foundation, and this other guy, Pascom Control, or something, saying there’s a huge problem, it’s much bigger. And they’re right.
What I’m saying is it will never be dealt with unless it’s forced to. In a crisis, we will end up restructuring this and the truth is the affluent people will get nothing from entitlements and everyday people will get more ration entitlements, but they’ll be the ones that will get them. And they’re just going to have to restructure the whole system. It’s gonna happen between 2013 and 2016 is our prediction. They’re going to be dealing with the banking crisis and the collapse of real estate into 2012 and the second term of Obama or whoever is elected – and it will be a Democrat, if it’s not him – they’ll be dealing with this restructuring of entitlements.
Jason Hartman: So will the entitlements be there?
Harry Dent: They’ll be restructured. They’ll be greatly rationed to the people who really need them, but what’s going to happen across this economy and it happened in the Great Depression, too, taxes went up, of course, mainly on the rich and businesses, and entitlements were created like unemployment and Social Security for the every day person more. The affluent are going to lose their benefits. If you don’t need it, you’re not going to get it. And people are going to have to retire – they’re going to have to be restructured. They’re going to have to retire a little later and that makes sense because we’ve been aging dramatically in the last decades. We shouldn’t have retirement set at age 62 or 65. It should be at 70 and ultimately at 75 or something.
Jason Hartman: Yeah, I agree and I think a lot of people want to work.
Harry Dent: There’s another thing that’s important to understand. In the ‘30s, when we went through the last kind of depression crisis, we were a net creditor to the world. We were more like China, the up and coming emerging country, versus Europe. Today, we’re a net debtor.
We don’t have the ability to say we’re going to inflate or do whatever we want or restructure benefits or create because China and major countries in the Middle East are holding our dollars and our bonds, and they don’t want us to go down. They don’t want those things to depreciate more than they have to, but if we’re irresponsible, they’ve got the ability to say well, I’m sorry. We’re not buying anymore of your bonds. We don’t trust you and we’re dumping the ones we’ve got, and that means you’re really in trouble. How can you inflate if there’s nobody to buy your fake money?
Jason Hartman: Right, I agree, but the question is are they going to kill their own customer? They can’t seem to create enough internal demand in their own countries and they will create more as time goes on, but –
Harry Dent: They don’t want us to die. That’s what I’m saying. They will work with us, just like a creditor.
Jason Hartman: They’re already doing it.
Harry Dent: Filing Chapter 11. But we can’t just do whatever we want. We’re going to have to do things that are a little more responsible, and I think the best thing to do is invest in infrastructures, here and around the world. And then, that’s something that at least whoever’s lending you money, like China, or bailing us out – I think China’s gonna have to bail us out in the end, in the Middle East. And now they’ve got something they can claim revenues for 30 years if we’re building water systems or roads or alternative energy systems and things. I don’t know exactly how it’s going to work out. All I know is to compare it to a Chapter 11 reorganization. I think our entire economy is going to be basically bankrupt.
And if not dead, like a Chapter 7, where you just say okay, it’s dead. Sell off the assets at fire sale prices, and give the money, whatever little bit is left, to creditors. You just reorganize the debts and agreements, and we’re going to have to reorganize our debts to China and our internal debts and our entitlement systems. And we’re just going to have to go through Chapter 11, sort it out.
And it’s going to be a mess, but we’ll come out with a much lower cost of living and business structure and lower cost real estate in the end, which will be a huge boon to the young people just coming up. They’re going to be huge winners. It’s the baby boomers with all these inflated assets that are going to lose. These young people are going to be able to buy a house for $100,000.00 instead of $200,000.00, and be able to get a 4 percent mortgage instead of a 7 percent mortgage.
Jason Hartman: Oh, so you’re prediction on rates, you think rates will be kept low or what do you think about interest – mortgage rates?
Harry Dent: I think they’re getting about as low as they’re going to get here. They may go a little lower with a weakening economy, and then any sign of recovery, rates are going to hike right back up. You’ve got a 30-year Treasury right now close to 4 percent when inflation recently, CPI, has been 5 – 6 percent. Now, obviously that’s only because they expect an extreme slowing in the economy. The economy looks like it’s going to rebound and we’re going to be back at inflation rates of 5 – 6 percent. Well, that Treasury bond ought to be at 8 – 9 and that means mortgage rates ought to be 9 – 10 and 11.
So you’re going to see interest rates go up if we get a recovery and up more than people would expect. And then eventually, when we get into the depression stage, which we don’t see until at least say mid-2010 through 2012, something like that, then rates come down. But they come down on a lag because in the Depression, most people don’t realize it that bond yields spiked in 1931 because the crisis looked so ominous. People were thinking, well, gosh, maybe even the government’s not going to pay off its bonds. Well, that’s certainly going to happen this time around when we’re sitting there begging China to bail us out because like you say, we’ve already blown our ammunition on this first phase.
We get into the second phase, we’ve got none left, and then you’ve got baby boomers slowing in spending, so it can be a mess. But ultimately, interest rates go down. The 30-year Treasury got down to 2 percent in the late ‘30s and early ‘40s during the Depression.
Jason Hartman: Yeah, amazing, amazing. Your new book coming out is called The Great Depression Ahead. There’s still many that are denying that we’re in a recession now, which I can’t believe. Can you give us a definition for depression? I mean I know there isn’t really an academic one out there, but what is Harry Dent’s definition of it?
Harry Dent: Well, again, for us, it’s a natural part of the business cycle. Four seasons: inflation and innovation, a growth boom when new technologies first emerge and create the highest productivity and growth, but then that also creates bubbles and asset inflation that’s not sustainable. And then the depression is when – it’s a shake out, kind of a Chapter 11, as we described, of the economy that takes all that leverage out of the economy and gets prices back down, and forces companies and banks to consolidate for greater scale and efficiency, and actually ends up creating what we call a maturity boom to follow, like the ‘40s, ‘50s, and ‘60s, where you see more mass prosperity rather than the rich getting richer in this recent boom.
So it’s a part of the business cycle. It’s a shake out of the system after a bubble boom and is accompanied by deflation in price. That is the key thing. The ‘70s downturn was inflationary. We had a larger generation entering the workforce and a big commodity bubble and all that sort of stuff. This time, because we have to wash out this leverage and credit in these bubbles, it forces deflation for a period of time. And that’s what distinguishes a depression from a recession.
A recession just means, okay, things go down, inflation rates slow down, economy slows; you get some unemployment, but hey, you don’t have banks failing all over the place and major business consolidations. Just minor. Depression is a major change in the economy. It’s actually we have an 80-year new economy cycle on our books and the depression hits right at the middle of the cycle. You’ve got an inflation season, a growth boom season, and you switch from rising, from an inflationary era, to a deflationary era for a time and it’s halfway through the cycle.
Jason Hartman: So let’s talk a little bit about your track record and I know we’ve got to close up here. Your track record, when I discovered you in the ‘90s, read The Great Boom Ahead, I just thought it was fantastic work and I really gotta compliment you. I love the work you do. Tell us about your track record. I seems like you’ve been right on pretty much everything, except your predictions on the Dow going to 30,000. Do you want to address that? Tell us what you think about it.
Harry Dent: Yes, we have been right about the directions of inflation, the economy, this boom, how long it would last, when it would start to fail. We were right about Japan. We were even right about the deficit disappearing for the government between ’98 and 2000. That’s probably the most astounding forecast we made and it was just because of a good economy.
What we’ve been most wrong about is the magnitude, first, of the 2000, 2002 correction. We said stocks are overvalued. We’re coming for a correction in late ’99, early 2000, but we didn’t see that big of a wipe out in tech stocks at first. It took us a while to catch up on that and see that, oh, that does happen in the tech cycle.
Jason Hartman: You mean P.E. ratios can’t be infinite?
Harry Dent: Well, no, no, no, we knew it was peaking. We just didn’t think they were going to drop 70 percent. We thought it would be like a 30 – 40, a normal correction. The Dow’s down 20 and the tech stocks are down 30 – 40.
Jason Hartman: Talk about washing excesses out of the system, I mean the dot.com bubble. If there was ever an example of excess and stupid business ideas and dumb business models that just never made any economic sense. It’s crazy.
Harry Dent: It’s funny, though. That’s not bad.
Jason Hartman: Well, no, because it’s innovation.
Harry Dent: It’s exactly what the economy wants. When new technology comes, large corporations and governments don’t have a clue what’s going to be the killer apps and neither do businesses. So bubbles actually inflate, create a lot of capital short term, and let all these crazy people try all this stuff and then you pull the rug out in the depression, and you see who’s still standing. It really is a very efficient process. Somebody, I think it was John Vogel, was on CNBC the other day, and he said capitalism is kind of like religion. Everybody talks about it, but nobody really tries it. Capitalism is brutal. The markets are brutal.
Jason Hartman: Well, the thing that concerns me about what’s happening now is it seems like the government, they want to just socialize every loss. And of course, the rich on Wall Street want to privatize every gain. So it’s like they won’t let capitalism occur and it’s scary.
Harry Dent: Yeah, they’re going to regret this.
Jason Hartman: I agree.
Harry Dent: The correlation we use, in the early ‘90s, it was a short-term crisis, a short-term slow down in housing. There was a boom to follow. So then buying up the toxic debt, the S&Ls, and then sell them off, hey, it worked out. They didn’t lose a bunch of money doing that. This is a long-term downturn and they’re going to look like incredible fools that they ran up so much debt early on, bailing out businesses and banks, when it’s going to end up going down anyway.
So I agree with you. It would be better to just let this happen. Provide some liquidity and stuff, but don’t really bail out businesses. If they’re going to go under, let them go under. Don’t put it on the taxpayers. I think you’re going to have some really unpopular people. I think Ben Bernanke’s toast, poor guy. Not because he’s stupid, but it’s just he’s the wrong time.
Jason Hartman: Helicopter Ben inherited his job at the wrong time. Greenspan left at the perfect time, I’d say.
Harry Dent: But I tell you, Obama is a lucky person because, because this crash happened so bad and started to melt down before he got in, he’s not going to be fully blamed for this. It’s going to look like it was already in process and he’s going to be more like the savior to come in and help the average person. So he’s in a much better position.
Jason Hartman: What do you see in an Obama presidency economically?
Harry Dent: Well, again, I don’t think politicians – it’s not that they don’t make a difference. They’re predictable. If the economy slows, they will stimulate and the Fed will lower interest rates. And then when the economy overheats or inflation rises, they’ll tighten. And they always react too late, too little, or too much in this case. Hey, bonds, if bonds see inflation coming, they’ll raise interest rates, short term and long term. If they see a recession coming, they’ll lower interest rates. The Fed doesn’t have to do this stuff.
It’s this thing about we need a Mommy and Daddy to – oh, we got an owie and we need some cough medicine and a band aide, Mommy. We’re really childish on this. It’s not just the government’s fault. We as people don’t want to sit through a common cold and let our body get rid of some stuff. We’d rather take cold medicine and just stop it so we don’t have to get stuffed up.
Jason Hartman: Instant gratification. It’s a very popular thing.
Harry Dent: Yeah, instant gratification. I mean that’s human nature, unfortunately. In the end, these processes, these bubbles happen even though people warn against them and these depressions happen even though the governments try to fight them. The Japanese are the perfect example. Zero interest rates, every accommodation of the banking system, and housing still deflated 60 – 70 percent and stocks still went down 80, and they still couldn’t get out of a recessionary economy for 14 years.
So you can manage it better or not, but I think the best thing is a guy like Obama at least has the capacity to provide some leadership. We were in a time of change in the ‘60s and Kennedy was that type of a person; FDR in the ‘30s and Reagan in the ‘80s. Reagan was a real leader and we were changing direction then from inflation to disinflation, higher productivity, growing innovation. He was the right guy at that time. I think Obama is probably more the right guy because basically, we’ve been saying this for many, many years, the every day person’s going to turn on Wall Street and on entrepreneurs and on business people and say screw you people. You created this bubble. Now we’re suffering it. We’re the ones that need to be protected. And that’s what’s going to happen.
Jason Hartman: Yeah, interesting. Well, I didn’t let you finish on the Dow 30,000 prediction.
Harry Dent: Oh, yes. And that second thing is we looked back at the tech bubble that happened before, the bubble boom of the early 1900s, and there were two tech bubbles, one from 1914 – 1919 and a big crash, and then a second bigger bubble in the roaring ‘20s. So we were going back and looking at history, saying oh, my gosh, we’re going to have another bubble.
In 2006, when oil prices hit $78, we said uh, oh, no, this isn’t like the roaring ‘20s. We didn’t have an oil bubble and rising inflation rates and we didn’t have 9/11 and a worsening geopolitical environment. So in the summer of 2006, I went back and said, okay, here’s a divergence. Yes, the stock crashed. Yes, a slow recovery, but by 2006, we should have been zooming into this next bubble. There’s going to be a bubble.
So we went back and looked at history and I came up with two – and I looked very, very hard – two important cycles. One was this commodity cycle we’ve been talking about. Every 29 – 30 years, like a clock, commodity cycles peak. And we had. It’s not the same clock as demographics, so it’s just a coincidence that we have this commodity cycle coming and peaking at the same time as the demographic cycle and, of course, rising commodity prices are not good for stocks and stock valuations.
And the other thing we found is a very interesting – somebody had mentioned this once before and I kind of pooh-poohed it and I went back and really looked at it – there’s a cycle and I don’t know why, but we call it the geopolitical cycle. For about every 16 – 18 years, things will be very favorable for the stock market and then for 16 – 18 years, they’ll be unfavorable, just like coming after World War II and the wonderful ‘50s and early ‘60s. And then dah-dah-dah, the Cuban Missile Crisis and the Kennedy Assassination, and then Martin Luther King, and then the Vietnam War, then the Cold War. Things just progressively got worse.
That same cycle says that, in 2001, we went from a wonderful time for stocks in ’83 – 2000, wonderful for valuations, low interest rates, inflation, peace in the world, and then all of a sudden, we get this – 9/11 hits and ever since, the world hasn’t been the same. And rising terrorism and geopolitical conflicts and Russia and Iran, and stock valuations literally are half. We found the cycle stock valuations are half in the bad part of the cycle than they are in the good cycle.
So we cut our forecast from Dow 32,000 to Dow 16,000 and we didn’t even quite make that.
Jason Hartman: No, you didn’t.
Harry Dent: So that’s why our biggest problem has not been the cycles and the direction. We’ve been better than we even expected to be at that. We have been off in magnitude and so these cycles are part of what we hope to correct our magnitude problems.
Jason Hartman: Okay, good. Well, I’ve taken enough of your time, I think. Thank you so much, Harry Dent, for being on our show. It’s www.hsdent.com. A lot of great resources there. Anything you want to mention in closing?
Harry Dent: Yeah. Go there. We’ve got a lot of good stuff on the new book. You can also I think pretty soon sign up to get a copy of the book early at a discount and we’ve got a video that we’ve just given to update people on this kind of crisis, this banking meltdown.
Jason Hartman: Excellent. Thanks for talking to us today and your wise advice, I appreciate it.
Harry Dent: Okay, thank you, Jason.
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Duration: 68 minutes