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Harry Dent: Bold Predictions of the Great Depression Ahead
by Alexander Green, Chief Investment Strategist
Monday, October 6, 2009: Issue #1108
As they said in the movie “Poltergeist”: “They’re baaa-aaack.”
Who’s back? Harry Dent, the self-styled “economic futurist,” who presumes to tell us about the great economic booms and busts that lie ahead.
How can he possibly know these things?
According to Dent, an analysis of the “highly predictable” nature of consumer spending based on demographic trends – increasing spending during child-rearing years, peak spending as the kids leave home and slower spending during late work and retirement – reveals what lies ahead for the economy and the stock market…
Harry Dent: Dow 44,000 & Other Flimsy Forecasts
Harry Dent is a man worth listening to. After all, he has a near perfect track record – as a contrary indicator…
For example:
- With less than auspicious timing, Dent brought out The Roaring 2000s Investor in 1999, confidently predicting that the Dow would hit 44,000 by 2008. With the luxury of hindsight, we now know he was off by 30,000 points or so.
- At the time, Dent also argued forcefully for NASDAQ stocks, predicting, “The technology revolution will favor Internet-oriented companies.” Within three years, the NASDAQ lost three quarters of its value and the leading index of Internet stocks plummeted 89%.
And Dent didn’t confine his market predictions to the U.S. He further forecast that Argentina would see “moderate growth until 2015 and then stronger growth into 2025.”
No, Argentina would suffer a currency collapse and financial crisis followed by rioting, social unrest and years of economic stagnation.
It’s obvious now just how wrong Dent was. But 10 years ago, plenty of brokers and investors agreed with him. He sold hundreds of thousands of books and raked in millions as an advisor to top Wall Street firms, including Morgan Stanley (NYSE: MS).
Harry Dent’s Next Bold Prediction: The Great Depression Ahead
Five years later, bloodied but unbroken, and using his same demographic trends theory, Dent published The Next Great Bubble Boom: How to Profit from the Greatest Boom in History: 2006-2010.
Well, no. That period encapsulated the biggest bust since the Great Depression. As for his revised forecast of Dow 40,000 in 2009, it looks like he’s off by 30,000 or so points again.
With a track record like this, you might imagine Mr. Dent would shy away from economic prognostication.
Yet he’s promoting a new book. And if you’re looking for a reason to be optimistic about the market, you’ll find it in his chosen title: The Great Depression Ahead.
Within weeks of the book’s publication, the Dow began a 48% ascent, one of the six biggest rallies in the last 100 years.
Look, I’m not entirely unsympathetic to Mr. Dent. Anyone in the investment prophecy business needs the skin of a rhino and a Ph.D. in humility. No one gets it right all the time.
Moreover, Mr. Dent has made hundreds of predictions in his long career, so I’m sure he can point to a few successes. (Of course, so can an orangutan heaving darts at the stock pages.)
It’s just that Dent has made millions in book sales and investment advisory fees peddling this mumbo-jumbo.
(Poor advice does have its consequences, however. His AIM Dent Demographic Trends fund severely underperformed the market and was quickly folded into another fund. His name was quietly dropped.)
Yet Mr. Dent is still out there, offering dubious investment advice based on faulty premises.
The truth, of course, is this…
Forget Harry Dent… Listen to This Advice Instead
While anyone can make a good call from time to time, no one can consistently predict the economy or the stock market.
If you don’t accept this – a fundamental investment tenet with great investors from Benjamin Graham and Warren Buffett, to Peter Lynch and John Templeton – your chances of long-term success are slim.
Yet Mr. Dent clings to his demographic theories and economic futurism. And that’s unfortunate.
Someone really ought to let him in on one of the great secrets of investing: Your only real mistakes are the ones you don’t learn from.
Good investing,
Alex
Editor’s Note: While Harry Dent continues to make wrong predictions, The Oxford Club’s “market neutral” approach has generated consistent, award-winning investing results for many years. In fact, the independent Hulbert Financial Digest ranks the Communiqué newsletter in the top five in the nation over the past 10 years. Find out more here.
- 20-Year Market Projections: The Best “Crash” Advice We Can Give
- The Frontline of the Global Recovery
- The 2009 Great Depression: Why Stocks Are The Best Pre & Post Crash Investments
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8 Responses to “Harry Dent: Bold Predictions of the Great Depression Ahead”
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Alexander Green is the Investment Director of The Oxford Club. A Wall Street veteran, he has over 20 years experience as a research analyst, investment advisor, financial writer and portfolio manager.
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October 5th, 2009 at 11:00 am
Bravo! I’ve been waiting for someone to call out Harry Dent. This guy cost my clients and I a lot of money in the past and then comes out with a new book and all of a sudden it’s being passed around the office as if this were “the second coming”. Crap! There really is a sucker born every minute.
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October 5th, 2009 at 6:49 pm
Harry Dent does not claim to have secrets; he just uses historical data and a different angle for what influences markets to go up or down. Like all investing information, you read it and then decide for yourself what you will use for your strategy and risk profile. Most market analysts, brokers and property experts are always talking up the market.
We would be hard pressed to find many that advised their clients to get out of the market pre crash in 2007. I have read all his books and subscribe to his email forecast newsletter and find the information very relevant. In fact it has helped me to make better returns and more importantly avoid the major losses.
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October 6th, 2009 at 10:13 am
Alexander,
I greatly respect your intellect. However, I have three questions; have you read, word for word, “The Great Depression Ahead”? Do you subscribe to his daily email service and read each of his emails? Do you have a mastery of Elliot Wave? I thought Elliot Wave was bunk until I started studying it. If you were a master of it, you would know that the advantage of that skill is to increase the probability of predicting market direction. Magnitude of that direction is the unknown. Dent explains that and admits the numbers he gave in his marketing material for the magnitude were the maximum. He also gives other possibilities of values (that are significantly less) for that magnitude. His biggest sin was to use the maximum values for his book titles and marketing. I subscribe to his service that gives daily email updates. These updates have been more accurate than anything I have seen regarding market direction. Yes, the magnitude he markets for his books is misleading to those that don’t subscribe to his email update service but I think it is a big mistake to demean someone without knowing his true value.
Oxford sends to me marketing material daily that is hyperbole; however, that does not diminish Oxford’s value to me. You have a wonderful service and I preach your techniques to others and have been responsible for others to subscribe to your service. If you can answer yes to each of my three questions, then I may question my own reasoning power. If you don’t…shame on you!
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Dan Hare Reply:
October 13th, 2009 at 10:25 am
Dear Russ,
My brother has been a very devout “waver” for decades and shares Prechter’s forecasts/warnings with me sometimes. My understanding is that the magnitude of the market move is supposed to be accurate, but the cycle length is unknown — you say the magnitude is unknown.
I find EWT intriguing, but am still waiting to see any consistency in their forecasts. Seems like they have predicted 6 out the last 2 recessions, and 3 out of the last 0 depressions. I can still remember my brother telling me we were in a depression back in 2001, based on EWT. Fear does sell, though. Glad I didn’t listen to him.
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Russ Furse Reply:
October 13th, 2009 at 12:58 pm
Regarding magnitude…
EW has 3 rules that are absolute for stocks, 3 guidelines (not rules but usually happen) and a personality that confuses. Magnitude is determined by 1 of its 3 guidelines, thus it is not 100% known but merely a high probability. EW is always correct from what I have seen; however, those that interpret it are not.
Here is an article from a non Prechtor stock newsletter.
What the Man Behind the Most Profitable Short Sale Ever Says Now
By Tom Dyson
Robert Prechter just closed out the most profitable short sale in history…
Prechter is one of my favorite stock market analysts. He writes a newsletter called the Elliott Wave Theorist. Over the past three years, the advice in his newsletter has been sublime.
Prechter is pessimistic. He thinks America is heading into the worst depression in 300 years… the worst since the founding of the American Republic. Doug Casey, founder of Casey Research, is another bear. He jokes Prechter is the only analyst who thinks things will be worse than he does.
Prechter makes his stock market predictions by studying America’s social mood. When he expects an improvement in the social mood, he’ll predict a rise in the stock market. When he sees Americans becoming pessimistic, he turns bearish.
In 2007, for example, America was feeling more prosperous than ever before. But problems were beginning to appear… especially in the real estate market. House prices had peaked a year earlier, and the credit markets had started to lock up. New Century Financial collapsed in March 2007.
Prechter knew these problems would infect America’s social mood. On July 17, he told his readers to expect a major decline in the stock market:
“Aggressive speculators should return to a fully leveraged short position now,” he wrote.
Here’s another example: In February 2009, the stock market had fallen 58%, the largest bank in the world, Citigroup, was on the brink of bankruptcy, and Wall Street was in total panic. The daily sentiment index was registering 3% bulls for the S&P 500. In short, the social mood was the darkest it had been since the 1970s. Prechter sensed a turning point.
On February 23, Prechter told readers to expect a strong bounce in the stock market and advised them to close out their short positions. “To be successful,” he said, “you have to sell when people love ‘em and buy when they don’t.”
Prechter claims selling the S&P in July 2007 and closing the position in February 2009 was the most profitable short sale in history. “This [800-point profit],” he says, “is surely the largest number of points that anyone has ever made, or will ever make, in the S&P futures in 19 months, and maybe ever.”
Less than two weeks after I’d received this letter, the social mood turned positive and the stock market started a record-breaking rise. Here’s what Prechter predicted this new trend would do to America’s psyche…
“Regardless of its extent, [the rally] should generate substantial feelings of optimism. At its peak, the President’s popularity will be higher, the government will be taking credit for successfully bailing out the economy, the Fed will appear to have saved the banking system, and investors will be convinced that the bear market is behind us.”
As I write, seven months later, the S&P is up over 60% from its lows… As Prechter warned, a wave of optimism is washing across the investment community. Except for his remark about the President’s popularity, which is waning, Prechter’s description of the social mood in America could not have been more accurate.
Thing is, Prechter has now turned bearish again. The S&P has rallied to his target area of 1,000 to 1,100, and he says a new turning point in the social mood is at hand. In his August issue, he advised his clients to get bearish again…
“Investors should continue to keep the bulk of their wealth in cash and the safest possible cash equivalents, in the safest institutions,” he writes. “If you actively invest in the stock market with money you can afford to put at risk, it’s time to return to the short side.”
Although it’s worth noting Prechter’s pessimism, I wouldn’t bet against the market until it displays a bit of weakness – like if the S&P 500 fell to its lowest low of the past month (around the 1,025 area). This ensures you’re betting with the short-term trend, rather than against it.
Good investing,
Tom
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Russ Furse Reply:
October 13th, 2009 at 1:06 pm
One clarification for magnitude…
When I spoke of magnitude, I was talking about the number of points of the correction from the just completed trend move.
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October 13th, 2009 at 7:54 am
I agree with Sergio and Russ that Dent’s insights can serve as a good (or even great) barometer on macro economic trends. He has been far more accurate on alerting and predicting macro trends than anyone else in my estimation.
I too am a longstanding Oxford Chairman’s Club subscriber and highly value the consistent ‘market neutral’ approach. However, tools and insights provided by others such as Mr. Dent also have a place in the investment toolbox.
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October 13th, 2009 at 2:39 pm
Your criticism of Harry Dent brings up great points, but I think your hindsight on his predictions is too premature.
You mention that Argentina suffered a currency collapse and financial crisis after he predicted “moderate growth till 2015″. It’s only 2009. Lots of volatile things can happen and do, but until 2015 or 16 or so, it’s only fair to wait till then to conclude that no moderate growth occurred.
You also mentioned that 2006-10 “encapsulated the biggest bust since the Great Depression”. True, but you failed to acknowledge the huge boom during that time as well, till late 2007.
You mention the Dow’s 48% ascent within weeks of Dent’s Great Depression book coming out. Yet his book predicted a bust coming anytime between late 2009-mid-2010. It’s not 2010 yet. Why not wait till mid or late 2010 to conclude (or hint) that he “was” wrong??
Demographic “theories” are like economic “theories” — based on past trends, politics, research, etc. Helpful but not totally accurate all the time.
I’m not an Oxford Club member, but am market neutral — utilizing Buffet’s advice as well as hedging with Harry Dent’s. They are not mutually exclusive, as different sectors behave differently at different times.
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