Harry S. Dent Jr. - The Great Depression Ahead: How to Prosper in the Crash Following the Greatest Boom in History

THANKS TO MY literary agent, Susan Golomb; my partners at HS Dent, Rodney Johnson (President) and Harry Cornelius (Business Development). For research, Stephanie Gerardot and Charles Sizemore. For newsletter administration, Nicole Nonnemaker. For PR, Barbara Henricks and Nancy Lovell. For marketing, Arthur Labuvosky. For directing the HS Dent Financial Advisors Network, Lance Gaitan. Special thanks to the members of the HS Dent Financial Advisors Network and its board of directors: Bill and Phyllis Nelson, Mike Robertson, Beth Blecker, Joe Clark, Don Creech, and Daryl LePage.

... and the Next Great Depression to Follow

The Perfect Storm: Peak of Baby-Boom Spending Cycle Collides with the Oil and Commodity Bubble in Late 20092010

ARE YOU AWARE that we have seen long-term peaks in our stock market and economy every 40 years due to generational spending trends, as in 1929, 1968, and next around 2009? Are you aware that oil and commodity prices have seen bubbles that have peaked every 30 years, as in 1920, 1951, 1980and next also around late 2009? Dont these sound like the same seasons that occur every year in our weather? Why should you be any more surprised by natural cycles in our economy that peak and decline than by winter coming in December? Your life cycle goes through seasons of childhood, adolescence, young adulthood, midlife crisis, late adulthood, and retirementa time that is expected to last about 80 years today. You make natural changes in your life and investments as you age in anticipation. Are you aware that the economy has a life cycle of about 80 years that is likely to be very different from yours and will impact your life dramatically at times? Whos the 800-pound gorilla here, you or the economy? And this is one of those times!

We have been one of the most bullish forecasters since 1988, forecasting the greatest boom in history as the largest generation, baby boomers, moved upward in a predictable spending and productivity cycle as they aged. Generations do this every forty years in modern times. How could economists miss this? We have always called for a long-term market peak and extended downturn to begin around the end of this decadeand now we are approaching that point. Boom will turn to bust and inflation will turn to deflation. We are about to move from autumn to winter in the economys life cycle. Have you stored your nuts? Are you ready to plant your seeds for the next spring season?

We are entering the first winter season in our economy since the 1930s. Are you prepared for this to happen?

Another important long-term cycle is cresting: an oil and commodity bubble has been building since the early 2000s. Baby boomers will slow in their spending and create a slowing economy in the United States and most of the developed world from around 2010 to around 2023 regardless of this cyclebut the rebound in the economy from the massive stimulus program is likely to either see rising inflation pressureswith the rising interest and mortgage rates, and rising oil prices again toward $100+ into the peak of the 29- to 30-year Commodity Cycleor a disappointing rebound that clearly says that the deflation and demographic downtrends are winning and that the economy is heading down again despite the massive stimulus. Either way the stimulus program is likely to fail between late 2009 and early to mid-2010. The last bubble in long-term Treasury bonds near 2% yields is likely to crash and give way to a final bubble in hard assets like gold and oil.

The perfect storm has been brewing: the collision between our long-awaited peak in baby-boom spending and the final bubble of this unprecedented bubble boom, the oil and commodity bubble. It started with the first severe crash in 2008, but that was only the appetizer. The main course will be ushered in by an equally brutal crash that is most likely to occur between mid- to late 2009 and late 2010 and take the Dow to as low as 3,800, the 1994 low where the stock bubble first began.The last surge of this bubble will likely cause stocks to resume their downtrend again between April and September 2009. Oil prices are likely to see one last extreme bubble between late 2009 and mid-2010, with prices at $80+ before the entire bubble boom, which started in late 1982 and is expected to last until around late 2009, peaks and we then enter the Next Great Depression. We will see the continued deflation of three great bubblesstocks, real estate, and commoditiesand the broader deleveraging of the greatest credit bubble in history. Your life is about to change for reasons outside your control. You cant change the direction of the winds, but you can reset your sails!

This next season in our economy will impact your life, family, business, and investments more than any other economic era in your lifetime has done. If you thought 2008 was scary, 2010 to 2012 will bring on the greatest economic and banking crisis since the early 1930s. If you think that you will be okay because your investments are spread out over a number of sectors, you are wrongonly cash and high-quality bonds will fare well in the great crash ahead. If you think real estate already saw most of its downturn in 2009, you will be shocked at how low home prices will fall in many areas. Home prices will have to drop 50% to 60% nationally to get back to fair value, not the 10% to 20% we have seen in 2008and that will have a devastating impact not only on the banking system but also on our government, which will have to continue to take over these mortgages and liabilities. If you think your kid or grandkid is going to get out of that expensive school you just mortgaged your house to fund and walk into a great job market and live happily ever after, you may be wrong again, at least in the next few years.

Our best rule of thumb for how low housing prices will fall in your area, given that valuations and trends are so different regionally, is this: What was your house worth at best in 2000, and at worst in 1996, when this bubble began?

Are you aware that the Japanese blue-chip stock market, the Nikkei, was down 80% from 1990 to 2003 as Japans baby-boom generation slowed in spending ahead of ours, just as we forecast in 1988 based on generational cycles? Are you aware that real estate in the largest and most densely populated city in the world, Tokyo, has been down over 60% from 1991 to 2005? That flies in the face of the traditional argument that they arent making any more land and it cant go down! The rest of the world was booming when this occurred. Japan experienced an extreme bubble in real estate and stocks ahead of the rest of the developed world. Japan was the first major country to begin to age past its prime due to declining birthrates and represents a great leading indicator for what will occur in the most affluent nations of the world as they age likewise on about a two-decade lagdespite the continued long-term boom in emerging countries such as China and India. Even China will start to age and slow about a decade from now.

The dramatic downturn in Japan in the 1990s demonstrated two important principles: bubbles always deflate once they go to extremes, and trends can undergo extreme change when a generation peaks in its spending and productivity levels. More extreme trends will hit the United States and Western world just ahead, and this will change your life, your business, and your investmentsincluding the prospects for your kids education and careersmore than at any other time during your life.

In The Great Boom Ahead, in late 1992, we said, Get ready for the greatest boom in history. Now we are saying, Get ready for the Next Great Depression. We expect to see a once-in-a-lifetime going out of business sale on financial assets that will wipe out wealth for most but create new wealth opportunities for the few who see this coming and are liquid and financially sound enough to take advantage.