Tuesday, October 21, 2008

Are we headed for a depression? (Yes, in 2010)

Harry Dent's New Forecast

In a recent article from Canadian Business Online, Harry Dent explains why his forecast for the Dow's high was way off. Basically, Dent says that he underestimated the strength of the bull market in commodities and the negative geopolitical environment.

Dent's overall outlook for the future goes like this: The U.S. economy will be in recession between June and October. That will take the pressure off commodities, which will fall throughout the second-half of 2008. Later this year into early next, a rally in stocks will follow. But then? That’s it. “Between mid- to late 2009 and late 2010, runaway commodity markets collide with the broad peaking of the baby-boom spending wave, and that’s going to create a crash,” says Dent. “The boomers will be spending until late 2009. After that, the extra support the boomers delivered is going to progressively fall out of the economy, and that’s going to be the final nail in the coffin on the postwar expansion of U.S. debt.”

U.S. stock markets will sag for a decade. Investors will have to be nimble to preserve their wealth. Between mid-2010 and mid-2011, Dent suggests locking up money in high-yielding, long-term bonds and leaving it there for the decade — the years between 2010 and 2020 will be a rare period in which bonds will outperform stocks. Dent’s advice is to be ready to go all-cash when the crash comes and “then sit for a year and wait for the smoke to clear.” “By 2012, the crash will be over and serious deflation will take hold as the housing, oil and stock market bubbles deflate — that’s going to drive up the value of bonds,” he adds. “For two out of four seasons of the larger cycle, stocks do well. But this is going to be one season they don’t.”
Dent also recommends picking up Asian and health-care stocks in late 2010. The decade of economic reorganization will lay the groundwork for the emergence of China and India as major economic players in the early 2020s, so it will be smart to get in early on the empires of the future. “Let the crash hit, and then buy China, India and health care,” says Dent. “International and emerging-market stocks will do better than U.S. stocks in this period, and everything is going to be on sale.”

Thanks to the Stock Market Advantage for the above!