Let's Hear that Roar, Bull! Why Harry Dent Believes in a Continuing
Bull Market
By: John Shepler
There's nothing more fun than snoozing on the beach while
your investments are skyrocketing and you're getting wealthy
for doing, well, nothing at all. Ah, money for nothing. Now THAT's
the true American Dream.
Sadly,
the dream has taken quite a beating in the last year or two.
Those stocks that were doubling and tripling in value as you
watched have nosed over and plummeted. Some have left big craters
as they burrowed, self-destructing, into the ground. Most of
us have experienced at least a taste of reversal of fortune,
and it's a bitter taste indeed.
But wait! There is a great golden hope. It's the unbridled
optimism of Harry S. Dent and his prosperity predictions for
what he calls the "Roaring 2000s." Harry says that
the boom of the 1990s is not really over. Indeed, the bull is
just starting to roar. He bases his predictions on demographics,
and he is convinced that the future trends of the economy are
quite readily predictable. What's more, he's so convinced that
we can all make a bundle following his theory that he's laid
out the best investment strategies in his book, "The Roaring
2000s Investor; Strategies For The Life You Want."
Babies Make the Best Soothsayers
If you want to know where the economy is headed, count the babies.
A chart showing how many babies were born, year by year, gives
us fully half of what we need to know to predict the future.
The other half is a chart that shows what these babies do during
their lifetimes. The eat lots of baby food and go through baby
clothes like crazy. But then they go to school, get jobs, buy
cars, rent apartments, take honeymoons, make more babies, buy
houses, trade up for better everything, and eventually start
sucking down the social security trust fund.
We're frighteningly predictable beings. We all pretty much
need the same things at the same times in our lives. Insurance
companies have known this all along. They don't know exactly
when you are going to die, but they have a very good idea of
how many of your classmates will be around in 10, 20 or 50 years.
That's how they know how much to charge for insurance.
Harry Dent has tapped into this quite commonly available database
and found a startling correlation between the Dow Jones Industrial
Average and the number of births that occurred 46.5 years previously.
Why that offset? Because the peak spending in the average family
occurs when the parents are 46 and a half years old. All you
have to do to predict where the stock market is going is to look
at the chart of U.S. births lagged for peak spending. Harry has
done this and you'll find just such a chart on page 25 of the
book. Where will the Dow peak? Looks like 41,000 in 2008.
Before you stand up and shout "that's nuts," there
is a bit of a caveat. Dent's charts show an approximate correlation
between the DJIA and family spending. It's not a precise tracking,
but it's close enough to provide food for thought. If this man
is right, we could be back in the gravy again soon, provided
we haven't gone screaming out of the market yet, vowing never
to return.
If you can buy the theory and stomach the unpredictable short
term gyrations of the stock market, "The Roaring 2000s Investor"
may well be an excellent guide for making money in the years
to come.
OK, Babies, How Do I Cash In?
Harry's book, published in 1999, doesn't really address the dot.bomb
debacle of early 2001. He did predict a market correction in
the second half of 2000 (page 27), but admits that 20% corrections
are possible and you just have to ride through them. Better yet,
knowing the future trend of the economy, you can use extra cash
to buy stocks at bargain prices when the market takes a short-term
dip.
From
now until 2008, Harry Dent is expecting generally stable prices
and a rising economy. He calls this the "Growth Boom,"
which started around 1980. The best investments? Large Company
stocks, international stocks, and resort and high-end residential
real estate.
After 2008, look out. We will enter the "Shakeout"
phase when the baby boomers pass their peak spending years. It
will be a flashback to the 1930s with a full-blown depression
and massive unemployment. At that time you want to be out of
big company stocks and into long term government and high quality
corporate bonds, small town real estate and commercial properties.
Small cap stocks will do well, but only after the impending stock
market crash. By the way, Harry has the Dow crashing back to
something like 7,000 in 2023.
What happens after 2023? The next boom begins and slowly winds
its way back to the Dow 40,000 peak by about 2050. This will
be a time for big company stocks again, but there will be some
pitfalls along the way.
Other countries with different birth rate patterns than the
USA will peak and dip at various times in the coming years. Japan
doesn't look good, but other Asian countries do. Thanks to the
birth patterns generated by WWII, most of the world will boom
and bust about the same times, but there are differences in regional
areas that investors can take advantage of when the USA stock
market tanks starting in 2008.
Prophet or Screwball?
It is said that if you laid all the economists in the world end
to end they'd point in all directions. That's likely true of
investment writers, too, although I've noticed that the majority
of them like to hop on whatever bandwagon is in vogue. Sadly,
by the time most of us get a leg up on that bandwagon, the parade
is about over.
So, is Harry Dent on to something fundamentally different
than most money people? Or did he just hop on to ride the big
bull market, and is likely to get thrown off as a cranky bull
turns into a foul tempered bear for the "growling 2000s"?
I'm inclined to think that Harry Dent is promoting a good
fundamental theory, based on societal demographics. The data
is there for anyone to see. It only remains up to interpretation
as to what the birth rates and spending patterns really mean.
How strongly will they'll really influence stock and bond prices
in the future, compared to other factors? I'm struck by how closely
the 46.5-year offset in birth rates matches the performance of
the Dow adjusted for inflation, at least back to where the chart
starts in 1953. That makes me both excited for the possibilities
over the next 6 or 7 years and really nervous about what we're
in for after 2008.
I really enjoy reading his books and am fascinated with the
explanations of how Dent comes to his predictions. If your interest
is piqued, I'd suggest not only reading "The Roaring 2000s
Investor", but also his earlier books, "The Roaring
2000s." and "The Great Boom Ahead."
Please Note: As far as investment advice
goes, I'm not giving any. I'm just a guy who dreams of napping
on the beach as his wealth multiplies automatically. And it if
does...see you at the yacht club!
Books of Interest:
The Roaring 2000s Investor:Strategies for the Life
You Want by Harry S. Dent , Jr. Using his proven ability
for predicting specific financial trends, the author of the nationally
bestselling "The Roaring 2000s" provides pragmatic,
innovative investment strategies designed to revolutionize financial
planning for all investors.
The Roaring 2000s: Building the Wealth and Lifestyle You
Desire in the Greatest Boom in History by Harry S. Dent,
Jr. Discover the profound changes and opportunities on the horizon
as the Information Age reaches its peak, new trends in employment
and spending emerge, and investment choices open the doorway
to unprecedented personal wealth.
The Great Boom Ahead : Your Comprehensive Guide to
Personal and Business Profit in the New Era of Prosperity by
Harry S. Dent, Jr. The book that predicts America's greatest
era of prosperity, by one of the country's most astute prophets
of economic trends. Charts throughout.
Also visit these related sites:
Harry Dent - Harry's site, with his philosophy, books and sign-up for his newsletter.
Millionaires Like You - We all dream of being rich, but think it is only for the lucky few. Surprisingly, most millionaires are just ordinary people who have taken simple measures to become wealthy within their own lifetimes. You can too.
Sadly,
the dream has taken quite a beating in the last year or two.
Those stocks that were doubling and tripling in value as you
watched have nosed over and plummeted. Some have left big craters
as they burrowed, self-destructing, into the ground. Most of
us have experienced at least a taste of reversal of fortune,
and it's a bitter taste indeed.
From
now until 2008, Harry Dent is expecting generally stable prices
and a rising economy. He calls this the "Growth Boom,"
which started around 1980. The best investments? Large Company
stocks, international stocks, and resort and high-end residential
real estate.