Suncoast Business Forum; Harry Dent

Oh. The phone is a special presentation of w. we do YOU Tampa St. Petersburg Sarasota thinking office furniture treatments where our in-store design staff help you select the furniture and fabrics to capture the look you're after. Greeting the family on business celebrating its 25th anniversary and a proud supporter of PBS Ed W.. What would you do if you could predict the future. Haven't you ever said. If I could predict the future I'd make millions. Well imagine if you're an economist and you develop an analytic method that would have accurately predicted the great stock market rally of the 1990s which is one of the greatest bull markets in American history. Well you're about to meet a man who did just that. And he predicts that the rallies are not over. Coming up next the Suncoast business form. In the early 1990s a relatively unknown economist named Harry Dent wrote a book

called the great boom ahead in which he predicted sweeping changes in the economy in the coming decade including an explosive rally in the stock market as his predictions came true the public spotlight focused on Harry Dent and he was in great demand in the media and as a speaker. He's since published three more books. The whirring 2000s the roaring 2000s investor and the next great bubble boom. Harry Dent now lives in Tampa Bay and he's here to share his forecasts with you on the Suncoast business form. Harry welcome it's good to have you with us. Nice to be here Jeff. In your overall work you've made the human life cycle an important part of your theory and you've discussed how understanding the patterns of regeneration can actually influence both the economy the financial markets and so forth. Let's talk about this concept of a of a generational wave. Well I mean you know when you look at predicting the future people do predictable things as they age now. Individually we may not be but but like an actuary you can sit there and say people in the diet

age seventy six point seven and that's a very useful statistic so we know when people are going to be innovative when they're young which can drive small cap stocks drives inflation inflation did not happen because the Federal Reserve happen because young people were very expensive. We always say young people cost everything and produce very little. So they have a lot to do with productivity are very productive when they're in their 40s and 50s and they're very unproductive in their teens or costly. So you go through this innovation stage of inflation then they get in the workforce and they become more and more productive. We go from like we said like the 70s 80s was like hippies the yuppies cocaine to rogue and sometimes we call it the baby boomers the largest generation in history was simply switching into their productive mode and having kids and families and being workers. So then the next big stage and the most important is spending productivity and earning. And that peaks for the average family today about age forty eight. Now the highest income people Slater may be in more like

age 55 to 59 but this is this is what makes our economy boil new generations earn and spend more money. Surprise surprise the economy performs and when you get a generation as large as the baby boom that's that's one of the key insights I got in the late 80s I'm like not only can we predict when these people are going to spend and how much but this generation is much larger than the Bob Hope generation before or any generation. And all these immigrants are coming in adding to this generation so this is going to be the greatest boom in history not just another bull market like the 50s and 60s. And then finally they start to retire. While the retiring and spending last which the Japanese have already done we predict in the late 80s that the Japanese economy would go down for 12 to 14 years which it did and the peace so people can see what's going to happen to us when our baby boomers get older and don't spend. House prices are going to go down stock markets going to go down when the con is not growing and that's already happened in Japan 20 years ahead of us. But when these people are older though they have the most money

particularly wealth to invest they are in the highest positions in government and corporations. So we call those the power years. And so the baby boomers are going to really now change society through philanthropy government management much more than they did when they were just becoming bigger and better consumers. So that a lot more changes ahead and the truth is I mean we've been known for being so bullish but in the next five to 10 years we're going to see a lot more volatility. And as we go forward it's going to be on the downside not the upside that you predict. In the near term there's more upside and there is downside. Yet we see this boom lasting till probably about the end of this decade and we're coming out of this last crash and everybody is bearish on stocks because they've gone nowhere but that's what stocks do. They go sideways until everybody gives up and they go up we think we're going to have a big year next year in the stock market. We have been saying the Dow could go as high as 30 to 40000 by the end of this decade around 2009 or 10. We are now pulling that forecast back tracking past scenarios

because yes we have strong technologies which we've been predicting strong baby boom spending the Fed has said it can't slow it down without raising interest rates almost endlessly. But we do have headwinds we do have oil prices commodity prices are in a bubble. Just like housing and stocks before and we don't see that ending for years. And this geo political situation something did change in 9/11. The world is not the same it's not a safe the news is constantly bad the Middle East is not going to see a resolution not in the next month or two and not in three years so we were saying well maybe the DAL Goma more like 20000 but yet we've got another boom ahead and people probably at least double their money in the stock market in just maybe three years. Let's talk about developing this theory that you that you have of the generational way with these different components you first presented this I think in the early 1990s in 1900 to there about yeah actually I started when I was running small businesses at the time and doing a lot of turnaround management so I started off speaking to small business executive tech

NYP back in the late executive community active community CEOs small businesses. But yeah we put out our first book in 1902 and then we started really talking more in the public. But but you know like you say how do we develop it. I was a business consultant large companies and small and I was just seeing all these changes in technology in all these new businesses and trends merging in the new tracking bags. Oh it's baby boomers are demanding this is these yuppies it's these new young baby boomers starting all these trends and then you start looking at demographics Oh here's how many there. Here's what they do. And next thing you know I kind of like trip onto a new economic There I wasn't really looking to do that at the time I was just looking to have better research for my business customers but one day I was like I did this was a nineteen eighty eight. I got all these charts on my desk about the S&P 500 here adjusted for inflation. I got the baby boom birth index over here and all of a sudden I say those charts look exactly the same putting together 45 50 year lag. Damn almost 98 percent correlation. Spending way we move forward the birth

wave for the peak in spending of the average person which is a highly quantifiable statistic. Bam. You see the stock market. Fifty years in advance I said. I've got something here. We can predict the future not 9 11. Not a lot of things. Maybe not oil prices but the stock market we can tell you generally where it's going. If I was the point is something tangible. That was the product of the innovate of the innovation wave the baby boom wave. What would you say if you look back to the 80s or 90s what was or the 70s actually with the innovation wave really what would be that that that technology that product that moment in our economy that says this is a product of that innovative wave. Well you know there's a lot of things but you'd probably come down to something like the semiconductor back if you go back two generations it was phones and it was automobiles and electricity and radios and TVs. Those are huge innovations at the time and I mean electricity changed everything. Well now it's computers it's PCs and now it's wireless phones

that have computers and image and then on a fall in that Internet broadband These are changing the world how we communicate it's leveraging globalization in a big way it's allowing customisation of products and services and much higher quality products and service. We always said the the worst. Well the worst stereo in a Yugo today is way better than the best air on a Mercedes 20 30 years ago so the whole quality revolution but it's all about communications. We collapse business structures because of that. We're much more flexible. So it started with the baby boomers that was their innovation stage. We actually market on a 20 to 23 year lag we call it the yuppy index 1958 83 is when most of the new companies that are growing today and most the new technologies emerge whether it's Intel in semiconductors or Apple in computers or software with Microsoft Wal-Mart you know new brokerage companies like Schwab across the board all these companies are merged and now these companies are growing up together with the baby boomers who are

working form investing in them and buying their products. How did the public react in 1900 to about this time you were predicting an explosive market hadn't happened yet. Market was actually kind of sluggish in the early 90s. How did the the public react or did the media react to this very bold concept that you're putting forward. Well again it I mean I got a book published because the concept made sense you talk about baby boomers doing predictable things that ages and like the spending way people see that some of that makes sense. But people would still say well I don't know about Dow 10000 by the end of the decade. We were also saying the government was going to balance its budget and have a surplus between 1998 and 2000 back and people said well we know that's not going to happen and it did happen. Not government cut. It was just higher tax revenues from a booming economy so people would say yeah that makes sense makes a lot more sense than economists but I still don't know about those targets. So it's same thing after this crash we said the bow could go 20 30 40000 people saying Is it wouldn't your argument make sense but I just can't see the

dial going on about hey we're in a bubble boom. A bubble boom would be described as what how would you describe that. Well I mean we look back at it it's both because the size of this generation baby boomers but we find we look back in history we find that bubbles always occur when interest rates are low. And when new technologies are moving mainstream like automobiles and electricity from 1914 to 28 we had two major stock bubbles and crashes in the last one led to the Great Depression. Low interest rates new generation moving up the spending curve and productivity and new technologies leverage the holding high productivity high earnings growth. You look back since the baby boomers hit the scene in the 70s on we had bubbles in in-flight inflation commodities oil gold and then crash. Then you get stock market bubble first 187 second one 2000 third one ahead still. Housing little bubble 70s little bigger bubble 80s super bubble 2000 of 2005 greatest housing bubble in history.

And believe me it's not going to housing prices are not going to stay up there long term any more than stock prices so we call this a bubble boom. And it's not all just this productivity but baby boomers every year they age they have more money and therefore one k plans and their investment account and this money chases everything so it wasn't an accident that when the stock market suddenly slowed down after one of the greatest runs in history the money immediately went I don't mean months and months like a mediately one of the housing speculation. So we had a housing bubble far beyond just a man. So we're saying until the baby boomers peak in spending a let's say around 2009 of 10 the next three four five years we're just going to continue to see bubbles we think there's more coming in the oil and commodity bubble and we think there's going to be another stock bubble. Again geo political forces now it may not be and probably won't be as extreme as the 90s where we're pulling back on that one but we're saying Dow 20000 maybe instead of 40 Nasdaq 5000 instead of 10 or something. But the money's going to go into stocks next because there's nowhere to go

housing slowing. So bonds interest rates are edging up so money almost has to go back in stock when the bubble burst in 2000 the stock market you had a pullback 25 percent in some cases far more than that that people are speculating in in technology areas. How long do you expect when a bubble bursts. How long do you expect there to be a trough from those inflated bubble we'll see. We've been tracking this with past bubbles. We mostly compare this on the general in our generation cycle in our technology cycles to the 1920s bubble. There was a tech bubble in the late 1999 crash in the one thousand twenty two just like this one 80 years ago two generations back. And then the market came up for a year just like it did in 2003. Jumped up and then went sideways for two years. I'm dead. I'm going nowhere. Never go up again. Even greater bubble happen from one thousand twenty five to twenty nine the roaring 20s bubble. Nobody expected that even though there was a bubble before because they figured once a bubble burst it's over and we're going into a long term downturn. The reason we kept bubbling was the trends

were still up. Technology was still moving mainstream. That generation Henry Ford was still spending money. But when and when that final bubble burst. Generations slowing down and spending technology said that 90 percent 90 percent household had radios. Automobiles electricity appliances cars. There was nowhere for technology to grow the S-curve it Pete. We call it. So we go in the Great Depression. So that's the difference. We've been saying this boom is not over. Yes we had a crash 2000 2002 but we only went back to the 98 lows in most markets. And we've got another wave up. But when this one peaks let's let's I'm going to call it late 2009. My best guess. We're going to go into a long term downturn just like the Japanese did 20 years ahead of us they didn't have a baby boom after World War 2. That's why their commie slowed. Japanese stock market from 1990 2003 went down 80 percent from 1991 to recently. Home prices every day home prices in Tokyo. Average home down 60 percent from that bubble.

So boom bust bubble boom. But when a bubble boom finally ends and there's you know a bubble after bubble bubble when when there's nowhere to go and the trend slow down it ends badly. What do you what impact will this have on the baby boom generation which will be approaching its retirement years. Well they're going to be in their power years their retirement years their high networth years and they're going to need to continue to build their wealth for retirement and all of a sudden the two biggest drivers of their wealth the stock market and real estate are going to be going down not up. And again we're saying the stock market's going to peak let's say around to that late 2009 give or take a year and it's going to slide like Japan did until about 2000 2022. It's going to be a long term correction now every 40 years we get this on generation cycle the market was down like 29 to 40 to beginning a world war two and it was basically down from late 68 adjusted for inflation and 82. So so we get 26 year booms approximately 14 year downturns this should not be a surprise to investors. But everybody's surprise they just think stocks been going up. And people

tell me they go up on average 10 11 percent a year so they think that's where they're going to get. We say the stock market by 2020 or 20 will be lower than it is today. You know how we're going to get the gains in the portfolios. Well that's the question how are people likely to get the gains. Are there alternatives that people can anticipate using your analysis and your theory. Well we say it's one thing we do different in investment strategy we agree with all good financial planners diversification portfolio planning systematic investing you know don't go chase just performance because you'll get caught in these bubbles. But we say look there are different stages seasons in our economy we call it like summer winter or spring fall and we're what we call a growth boom where it's best to be in stocks and particularly growth stocks large cap growth stocks do the best best risk return. But when that season ends you go into a deflation downturn like Japan just saw and we saw in the 30s their bonds high quality bonds are the best investment you may only get 6 7 percent returns. But your principal appreciates on those bonds

because interest rates are fall in the commy slowing. So in the great debate you would have been best to be in stocks like General Motors in the roaring 20s ride the bubble up and then buy their bombs in the 30s because the largest companies and of course the best governments survive the downturn and pay off their bonds their earnings may go down. Tax revenues may go down to the government deficits are going to be horrendous. So so you have to switch your strategies when the seasons change. You could be an international stocks in Asia during the downturn you'd be in health care during the downturn because the aging of the baby boom you could be in certain type of diversified reach you know and you'd be in high quality bonds or here you've got a diversified portfolio that's very different from what you would have wanted in the 80s 90s and roaring 2000s where you want to be in different sectors of stocks and you own some bonds and international and some small caps and things of value and but those things will all go down for a long time if they're just going to go down for a year or two you could be a planner and say hey just ride through diversify you know prune a little bit they think if stocks going to go down 12 14

years and in real estate then you've got to do something different. Do you think that the financial media and financial service industry is doing a credible job of of alerting people to these kind of trends or are they really focused more on short term activity. I know that there's a credo in this industry that's been created by economists and everything else is you know you can't predict the future so just diversify do the right thing. And that's the best you can do. You know it's it's the one thing I run across all the time. People are like you just can't do that. You can't tell people something going to happen 10 20 years from now and I'm like no we can't. We can't predict a lot of things but we can predict general trends in the commy general trends and inflation which sectors will benefit from the aging of the baby boomers. We can predict every stage of the lifecycle of a technology does this on this day. It's got a childhood it's got an adolescence it's got in adulthood it goes through a midlife crisis it slows it retires. So if you know what stage in this technology is we can tell you what's coming next and what's coming next is a huge shakeout like the 1930s that's the next stage. So. You

can predict these things but economists say no don't all we can tell you is what went wrong here and we can tell you now this is happening what may happen for the next year or so but that you shouldn't let people think they can predict the future well I'm like how could you plan for the future without predicting at least some basic things how you're going to retire. If you don't see this slowdown coming and. Was I lucky to predict this for the Japanese it was a very simple calculation the Japanese were aging and we're going to spend last after 1990 that was not a complicated projection. Let's talk about you personally because what you've done is come up with a theory that that really was not popular you published. You presented to the to the public. You went on in the media and basically whatever opposition you had from other economists or people who were skeptical in the end in the 90s certainly You proved that there was a lot of weight to what you were saying. It was popular when it's popular when you're right. And frankly I think this theory will become much more accepted. But it we're going to have to be

right about the next boom and we're going to be right about the downturn. Now the unfortunate part of that and we're right in this theory does come except it will people finally see this theory when it won't do much good. They will have already missed this downturn missed a lot of the opportunities in the upturn. I bet the stock market's going to go up 40 50 percent next year like it did in 2003 and leave everybody in the dust by the time people get in it'll slow again. If you're not there you missed it just a few days a year a few years out of a decade the stock market tends to make most the gains and and when it falls it falls hard fast so it's not like you can just average out of it. You get you get hit hard on the downside so but you know that's what it'll take. We just have to keep predicting and we're changing right now we're really gauging our forecast because of this Middle East thing and the oil bubble. OK. We do that and it takes usually couple decades approve any new theory. Scientists do that they do. They say you know Einstein says well of my theory of gravity is right than when there's a collapse. You know this should happen. People have to wait it happens Halley these guys and if I'm right about our bits

Halley's Comet should come out on this day. He's got to wait nine years till that comes around then people say you know I guess your theory is right. So that's all we do. He put it out. Harry who or what would you say is has been the greatest influence on you. Well you know I mean when I was growing up my father was because he grew up in a small town in South Carolina. And the next you know he was a political strategist and consultant to Major presidents and so he was very can do person very positive and that was inspiring only problem was he was in politics which just didn't appeal to me so then I'm when I first got married my father in law was a private investor worked right down the street in his office lived in Palm Beach and I just said you know this and high level and very intelligent high level integrity I said you know I could see being more like this. So I got more into investment economics and then in undergrad out of Harvard Business School but undergrad universe South Carolina had a number of great professors but one I'm really striving dick not all. He was a very bright very humorous guy but he was

actually an investment manager in the real world he's a professor but he actually managed money so I said now here's somebody that teaching. So I did. So all of a sudden between my father in law and this professor I'm like OK I want to be involved somehow in business finance and investment and I really I had no clue when I was growing up you know. No idea what I wanted to do and then that's where it kind of clicked. And then you know things just happened by accident and they're wrong. And when you were at Harvard you went to Harvard Business School. You did it all begin to become clear it was an after business school that well you know I was still I was more into business management strategy and I got out of there and worked for Bain and company very good company in Boston and learned a lot in a few years and I learned Harvard Business School is great because the case method you just had to think on your feet and respond and communicate you had to analyze intuitively it wasn't all about you know just doing numbers all day and learning theory so that was that was very good but it it was during consulting that I was using demographics and technology kind of trends I started saying women if this works in individual industries why wouldn't it work

for the whole economy so it wasn't until gosh years after business school in 1988 that I got that i like oh my gosh we can predict the stock market 50 years in advance with a simple lag on a simple graph. Wow that's powerful. So it took a while and that happened a lot of research but really a lot by accident like like most good things. Well I am afraid we're out of time it's been great having you with us. And we'd like to thank you for joining us for the Suncoast business for you. Business celebrating its 25th anniversary.