Harry Dent sees a meltdown coming this summer, and he’s already advising investors "to get 100% out of stocks," writes Shirley Won, reporter and columnist for The Globe and Mail.
Global stock markets are poised for a crash by summer, as Europe’s debt crisis and slowing spending by aging baby boomers put the brakes on global growth, warns US economic forecaster Harry Dent, Jr.
"It’s a replay of 2008 and early 2009—only the recession goes deeper," suggested the founder of Tampa-based economics research firm HS Dent. "The 50% to 70% decline will happen in the next two to three years, but I think you are going to see the strongest part this year."
Severe market downturns don’t usually happen in a presidential election year, but the Federal Reserve is "running out of bullets" to spur the economy, said the author and newsletter writer who predicted Japan’s severe downturn and the surging US market in the 1990s.
"We told people to get 100% out of stocks last Friday," Dent said. "You might miss the last 2%, 3%, 4% or 5%…but when it falls, it can fall so rapidly."
Unless the United States unveils more stimulus like its two previous "quantitative easing" or bond-purchasing programs, the recent market rally can’t last, insisted the author of The Great Crash Ahead. "You may get another bounce in the markets, but you just push the crash lower down the line into 2013 and 2014."
He sees Europe slipping into recession as it embarks on austerity measures, and dragging the United States with it. Slower growth will hurt the export-oriented Chinese economy as well as resource-based countries, such as Canada and Australia…so it is a "worldwide slowdown," said Dent, who focuses on demographic trends for much of his economic analysis.
The economies of the developed world will stall also because the boomer bulge is getting ready to retire, said Dent. "In the United States, 92 million baby boomers are now shifting on average from spending and borrowing to saving and paying down debt…
"How are you going to stimulate an economy with an increasingly aging population?" he asks. "Look at how well it worked in Japan…Its market is still down close to 80%, 20 years later."
Like stocks, global real estate is also in a bubble spurred by easy credit, but is bursting in different areas at different times, Dent said. He has been renting a home in Tampa since 2005 as he waits for the battered Florida market to bottom before buying. "The home I have been renting for six years has fallen at least 40%, and I am expecting another 20% or 30% decline."
When an asset bubble bursts, prices often return to where the rapid, price run-up began, he said. "Look at what your real estate was worth between 1996 and 2000. That is the range it will fall to…I think housing in Vancouver and Victoria could decline 60 or 70%, while Toronto is more like 50%, and Montreal a little less."
Not all of Dent’s predictions have been right. His biggest error was predicting that the Dow Jones industrial average would hit about 35,000 in the last decade, but it only reached over 14,000 in 2007. Investors gun-shy from the swoon in tech stocks shifted from US securities to real estate and hot emerging markets, such as China, he said. "We did not anticipate that."
He expects the new crash will be similar to the one in 2008-09 when everything fell except for the US dollar. To weather the next downturn, conservative investors should be out of stocks, and invested in US Treasury bills and short-term and long-term US government bonds, he suggested.
Aggressive investors might bet on stocks falling through the ProShares Short S&P 500 ETF (SH), he said, or on a rising US greenback through PowerShares DB US Dollar Index Bullish ETF (UUP).
He also expects gold and silver bullion prices to decline in the next crash, but he has only given a partial sell signal on these metals to his clients.
"Gold and silver often rally a little longer than stocks," he said. "I think gold [now around $1,630 an ounce] will end up at $740, and maybe even lower…I think silver will end up between $5 and $10 several years from now."
ETF Not for Everyone
Harry Dent oversees the Dent Tactical ETF (DENT), but suggests that most investors avoid this go-anywhere ETF. "People would be better off to be safe in cash, or bet on the markets going down," said the economic forecaster whose firm has run the ETF since late 2009.
The quantitatively driven ETF uses a momentum strategy, but that doesn’t work well in a volatile market environment, he said. The ETF lost 8% last year versus a flat S&P 500, and gained 4% in 2010 versus a nearly 13% gain for that index.
He says the ETF is mostly intended for advisors who don’t want to put their clients’ investments 100% into cash, or don’t want to use ETFs that short the market. He only promotes the ETF to advisors in his network, not individual investors.
The ETF is not designed to outperform the market, but rather takes a defensive approach and can be largely in cash at different times, he noted.