Most investors don't take seriously warnings about the future of the economy and the financial marketplace, but those who did avoided the dreaded “Cs” of finance: the Credit Crisis and Crash of '08. We are talking about the headlines of several years ago screaming that a ‘Category 6 Fiscal Storm', ‘Debt-Driven Meltdown', ‘Systemic Banking Crisis' and/or an ‘Economic Earthquake' would happen in the very near future. And the future is now!
Some Predictions do Come True
Such warnings and predictions were often derided as just negative nonsense coming from alarmists rather than from the insightful economists and financial and market analysts who made them. To their collective credit they were all substantially correct in their prognoses of what we could expect to happen as exemplified by what has occurred (and is still occurring) over the past 6 months. Perhaps we should have paid more attention to what they said and as I compiled in the 6-part series back in 2006 regarding the “Ominous Warnings and Dire Predictions of World's Financial Experts."
Once again warnings and predictions are being put forth about the next crisis to befall us and this time round it behooves us to pay more attention and make sure this time that we are better positioned to survive and prosper whatever comes our way.
Below is a major market forecast by Harry S. Dent Jr., the author of ‘‘The Next Great Bubble Boom' and his latest book entitled ‘The Great Depression Ahead' who states that “The most important cycle change for your wealth, health, life, family, business, and investments is just ahead during the first and last depression you are likely to experience in your lifetime.” As such, it should be ignored at our peril.
Dent makes it clear that his predictions, while almost always contrary to most economists and expectations, have almost always proved to be correct because they are based on the same sound and quantifiable logic insurance actuaries use with a high degree of accuracy to predict, decades in advance, when people will die. Dent says he applies the same science to predicting what things will happen in between birth and death - such as when people enter the workforce, get married, spend, are most productive, borrow, invest, retire, buy houses and so on. He believes that such a study of demographics and other key cycles allows him to determine the future based on the facts of the present and of demonstrated behavior so he can see the pig, or the pigs, going through the python. With that understanding of the basis for his forecasting he goes on to predict (and I paraphrase) that:
Dow will Rebound to 10,000 - 13,200 within 6 Months
A likely massive stimulus plan will bolster the economy somewhat into 2009 for a likely rebound in the Dow to between 10,000 and 13,200. A projected bullish scenario puts the Dow between 12,000 and 13,200 between April and September 2009 if the Treasury rescue plan takes hold with the markets anticipating a recovery. A projected bearish scenario assumes that if the recovery is at best rocky, or at worst that we were to move more into a depression in 2009 than a serious recession, that the Dow would only get back to 10,000 to 11,000 and not last as long.
Oil will Increase to $180 - $215+ by 2010 and then Decline to $40 - $60 by 2015
Oil prices will likely rise to a commodity bubble peak of between $180 and $215, possibly even more, between late 2009 and mid-2010 unless the economy implodes earlier in 2009. We should then see a major crash in oil prices, beginning in 2010, back into the $40 - $60 range, and possibly even lower, between 2012 and 2015 which will continue for years.
Commodities will Peak between 2009 and mid-2010
Commodities in general, including gold and other precious metals despite their crisis hedge qualities in the past, will likely peak between mid- to late 2009 and mid-2010.
Dow will Fall to 3,800 - 4,500 by 2012
The next accelerated stock crash, led by emerging markets, Asian stocks, financial stocks and tech stocks - and finally by oil and commodity stocks - will likely occur between mid- to late 2009 and late 2010, when most of the damage will occur, and continue off and on into mid- to late 2012. The Dow will fall at least to 4,500 and more likely as low as 3,800 by mid-2012, the 1994 low where the stock market bubble first began.
Nasdaq will Fall Below 1,100, its 2002 low, by late 2010 or mid-2012 at the latest.
Economy will be in a Depression by 2011
The worst of this next depression is likely to hit between mid-2010 and mid-2013, especially around early 2011, but if the banking system continues to implode a deep downturn or depression could begin sometime in 2009 instead of 2010.
Unemployment could Increase to 12 - 15% by 2011
Unemployment could reach 12-15%, or possibly higher at the peak of the depression.
Inflation will Increase until mid- 2010 and then turn to Deflation
A rise in inflationary trends from mid-2009 into late 2009 or early mid-2010 will then reverse to an ominous deflationary trend in prices, as the economy slows and all assets deflate, as they have done after every bubble boom in history.
Interest Rates will Increase
The Federal Reserve will raise interest rates aggressively from mid-2009 forwards due to rising inflationary pressures which will contribute to the on-going crash of the stock market down to the 3,800 to 4,000 level.
U.S. Dollar will Decline
The U.S. dollar, which declined in early 2008 in the face of a strong stock market and which strengthened considerably during the Crash of '08, is likely to decline again into 2010 - 2012 as the stock market declines considerably further. The dollar will then strengthen again before we see the second milder stage of the depression between mid-2017 and early 2020 or 2023.
Housing will Decline by 40 - 60% from Today's Levels
A more severe deflation cycle in housing will begin between late 2009 and mid-2010 and will likely last until somewhere between mid-2011 and 2013, and possibly as late as early 2015 in larger homes. During that period the average American house price will fall at least a further 40% and as much as a further 60% from today's market prices.
Greatest Economic and Banking Crisis since the 1930s will Occur Between 2010 and 2012
Dent concludes by saying “If you thought 2008 was scary, 2010 to 2012 will be the greatest economic and banking crisis since the 1930s. You must be prepared in advance to survive this most difficult season. Do not accept the proposition that you cannot, or should not, take steps to guard against losses. As an investor, it is your money, your future, and your responsibility to protect yourself in the best way possible and there will be the greatest reward for those who do prepare during this once-in-a-lifetime ‘great sale' in financial assets.”
If you doubt the validity of Dent's above mentioned predictions consider this: ‘The Great Depression Ahead' was written in the fall of 2008 yet Dent projected on page 56 that a) many banks would fail - that has already happened; b) or have to merge with others - that has already happened; c) or have to be bailed out by the government - that has already happened; d) the Fed would have to cut short-term interest rates to near zero - that has already happened; e) the federal deficit would soar to in excess of a trillion dollars - that is already a reality and f) the 30-year Treasury bond would eventually fall to something like 2% in yields (3.77% as of March 16th, 2009). Dent has an extremely good track record of telling us what we would rather not hear and acknowledge as most likely the case so it behooves us to make the most of this important information. Dent encourages everyone to apply for his free periodic e-mail updates to his basic forecasts and investment strategies and to check out ‘Free Downloads' at www.hsdent.com for further and more current information. I encourage those readers who have found the above forecasts to be informative to buy his latest book for a greater understanding of the study of demographics and other key cycles that allow him to determine the future so precisely.
In summary, we are being forewarned yet again about yet another economic and financial crisis coming down the pipe. This time don't get burned as you most likely did during the Credit Crisis and Crash of '08. Instead, position what is left of your portfolio such that you will actually prosper during this ongoing financial hurricane. Now that you know what is about to happen, take action, now! To just hope that everything will turn out okay would be downright foolish.