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Harry Dent: Stocks Will Fall 70-90% Within 3 Years

Creating the buying opportunity of a lifetime
Monday, January 30, 2017, 12:02 PM

Economist and cycle trend forecaster Harry Dent sees crushing deflation ahead for nearly every financial asset class. We are at the nexus of a concurrent series of downtrends in the four most important predictive trends he tracks.

Laying out the thesis of his new book The Sale Of A Lifetime, Dent sees punishing losses ahead for investors who do not position themselves for safety beforehand. On the positive side, he predicts those that do will have a once-in-a-generation opportunity to buy assets at incredible bargain prices once the carnage ends (and yes, for those of you wondering, he also addresses his outlook for gold):

All four of the cycles I track point down now. One after the next has peaked in the last several years. All four point down into early 2020 or so. That's only happened in the early to mid-'70s when we had the worst stock crashes back then, the OPEC embargo, etc -- the worst set of crises since the 1930s.

Of course, in the early '30s we had this same configuration of all four of these fundamental cycles, cycles that have taken me 30 years to hone and say "these are the four that matter".

The next three years are likely to be the worst we see in our lifetimes. It will be more like the early 1930s when stocks hit a debt bubble and financial asset bubbles crashed, which they only do once in a lifetime such as the early 1930s. Stocks will be down 70, 80, 90% -- that's to be as expected in this stage of the cycle after such a bubble.

I went from being the most bullish economist in the '80s and '90s to now being of the most bearish because what goes up goes down. That's what cycles do. At heart, I'm a cycle guy. Demographics just happens to be the most important cycle in this modern era since the middle class only formed recently -- its only been since World War 2 that the everyday person mattered so much; because now they have $50,000-$60,000 in income and can buy homes over 30 years and borrow a lot of money. This was not the case before the Great Depression and World War 2.

And based on demographics, we predicted that the U.S. Baby Boom wouldn't peak until 2007, and then our economy will weaken -- as both did in 2008. We've lived off of QE every since

That's a brief summary of my fundamentals and of why I tell people this is not the time to believe in the Trump rally. I'll go into that. I'll show you why that cannot last and he cannot create 4% in growth. 

Then we also go into which areas will have been favored by demographics and by our cycles. You'll never see prices this low if you protect your capital now and convert it to cash or to safe, long-term high quality bonds, then you can take advantage of the sale of a lifetime. If you don't, you'll have seen your financial assets wiped out a good bit more than they were in 2008 and '09, and the markets won't come roaring back to new highs next time.

Click the play button below to listen to Chris' interview with Harry Dent (44m:31s).

Transcript: 

Chris Martenson: Welcome to this Peak Prosperity Podcast. It is January 26th of 2017, and I am your host, Chris Martenson. Now, as I record this, the U.S. stock markets are hitting new all-time highs. The Dow has just cracked the 20,000 mark, and the world's equity markets have powered to new 17-month highs while looking at all time highs as well. The narrative is that this has something to do with Trump, although I cannot find anybody who can explain to me why Europe's markets should be anything but threatened by the trade stances of Trump.

Regardless, that's the narrative as used to explain all of these seemingly unstoppable stock market advances. However, as you already well know, the explanations put forth in the media to explain things are nearly always inaccurate, just plain misleading sometimes, or just wrong. My own favorite is that the stock markets are no long divination machines capable of discounting the future, but merely gauges of liquidity, telling us that the world's central banks have overdone it again, and poured too much fuel into the furnace.

Now, to really understand the probable future, you have to have been rooted in the fundamental always, always, always. I know that fundamentals are out of favor right now, but trust me, they will come, roaring, back. They always do. Today I'm very excited to have with us one of the world's great economists. Yes. Some do exist, and a master of the fundamentals, Harry Dent. Harry is the author of The Sale of a Lifetime and editor of the free newsletter "Economy and Markets," which can be found at HarryDent.com.

Mr. Dent has correctly called nearly every major economic trend over the past 30 years, including: the 1991 recession, Japan's lost decade, the 2001 tech crash, the bull market and boom in housing of the last decade, and most recently the bubbles in credit and in housing. Now he's said that U.S. equities will "crash to a degree we haven't seen since the Great Depression."

He has recently predicted a drop in the Dow to 6,000, and "when the dust settles it'll eventually plummet to 3,300. Along the way it will see another real-estate collapse. Gold will sink to 750 an ounce, and unemployment will skyrocket. It's, going, to get ugly."

Certainly provocative views that I know we are all excited to explore with Mr. Dent. Harry, welcome to the program.

Harry Dent: Well, nice to be here, Chris.

Chris Martenson: Well, thanks now, Harry. Before we dive into current events and your predictions, I would love for you tell our listeners about your methodology, so they understand the basis for your views and predictions. What's your framework?

Harry Dent: Well, you know first what I do, Chris, I don't study government policies, because governments react to what the real economy does, and the real economy, 80 percent of it to be exact, is driven by consumers and business, and that's mostly through consumer spending. I look at the predictable things that people do as they age, and I look at things that impact consumer spending and business growth; everything from the aging of the population. People spend more money in their mid to late forties. They get more productive as workers.

I look at technology cycles and when technologies come together most favorably for business and productivity of workers. These things are crystal clear things, and they're very easy to forecast. What I tell people, against what economist say, the long-term is easy to forecast and to see. It's the short term that can be incredibly difficult, because more and more cycles come in as you get to more of short term; more and more political factors.

I mean just imagine how hard it would have been -- And even the smartest money I tracked didn't get this one -- to predict that Donald Trump, number one, would have won against clear polls that said that Hillary had it in the bag, 80 percent chance of winning. Then if he had won by surprise it would have gone against all of the pundits, saying oh, my gosh he'll create so much uncertainty that the markets will crash or go down. The opposite happened.

That's how difficult the short term can be to predict. But, the long-term? Yes, I could see that Japan's baby boom generation peaked decades ahead of the rest of the world because the births there peaked just before and after World War 2. Japan was set to crash in the nineties when the rest of the world's baby boomers were in their strongest stages in spending in the United States and Europe and other countries.

We could see that housing was gonna peak ahead of the economy, because spend on housing peaks ahead of peak spending. So the most important indicators I have I got in the eighties. The first one was the spending wave. It's simply a 46-year lag on the birth index, which I adjust for immigrants, legal and illegal that are here today and when they were born on average. Forty Six is the age when the average family spends the most money in their lives.

We get yearly updates from the government and the Consumer Expenditure Survey on not only total spending and by age, but from cradle to nursing-home. I can tell you when potato chips peak. That's at age 42. When cruise-ship travel peaks. That's at age 70. Nursing-homes are gonna be the hottest things for the next three decades we've ever seen, because the Baby Boomers are just about to start to enter that last thing that peaks at age 84, and largely for women.

We look at demographics, but I also look at geopolitical cycles. By the way the demographics, which we predicted way back in the late eighties when Japan had declined. When we predicted that, we said hey, the U.S. Baby Boom won't peak until 2007, and then our economy will weaken as it did on that 46-year lag in 2008. We've lived off of QE every since. There was a cycle that I had to kind of come up with, because the second boom and bubble from 2002 to 2007, which we predicted, but I thought it would have been much stronger, as was the first bubble from '95 to 2000.

I had to go back and dig. I found out why. I found a geopolitical cycle that's positive. Every 17 to 18 years "Kum Ba Yah" in the world and then it's negative. Well, that cycle hit in 2001 for obvious reasons, 9/11 and was terrible ever since. That cycle doesn't bottom until around 2020. Then things get more favorable again. I've also tracked a technologic cycle. You just look back. I mean this is one of the most clocklike. Every 45 years.

You know the steam engine came and then peaked in it's impact and factories, and then steamships peaked in 1875, and then railroads peaked in 1920, and automobiles saturation and super highways in 1965, and now recently the internet. We all have the internet. We all have Google email, broadband, and all of these things and Smartphones and stuff. Now, innovation is down to social media. To me Facebook is great, but it's entertainment. It's in the dancing of cats and dogs. It won't triple the productivity of my research business as Google and email did.

Then finally there's a roughly boom/bust cycle, which I have a secret way of forecasting, of which nobody's aware. Here's the point, Chris. All four of these cycles point down now. One after the next has peaked in the last several years. All four point down into early 2020 or so. That's only happened in the early to mid seventies when we had the worst stock crashes back then and OPEC. You know cartels and all of this stuff, the worst crisis since the nineteen thirties.

Of course, in the early thirties we had this same configuration of all four of these fundamental cycles that have taken me 30 years to hone and say these are the four that matter. Another problem with economists, Chris, is very simple. They look at so many indicators and short-term stuff that they can't see the forest for the trees. That's why they miss these long-terms trends that are so predictable.

The next three years are likely to be the worst we see in our lifetimes. It will be more like the early nineteen thirties when stocks hit this sort of debt bubble and financial asset bubbles crash, which they only do once in a lifetime like the early nineteen thirties. Stocks'll be down 70, 80, 90 percent that is to be as expected in this stage of the cycle after such a bubble.

I went from, as the most bullish economist in the eighties and nineties to now, as one of the most bearish, because what goes up goes down. That's what cycles do. At heart I'm a cycle guy and demographics just happens to be the most important cycle in this modern era since, and only since we've had a middle class form, and only really since World War 2 has the everyday person mattered so much because they have $50,000, $60,000 in income and can buy homes over 30 years and borrow a lot of money.

This was not the case before the Great Depression and World War 2. That's a brief summary of my fundamentals and of why I am telling people this is not the time to believe in this Trump rally. I'll go into that. I'll show you why that cannot last and he cannot create four percent in growth. People should have gotten, as really safe especially for the next three years. Now after that and the point of this new book The Sale of a Lifetime, there will be one opportunity after next to buy stocks or emerging market stocks or commodities or gold or real estate.

Then we also go into which areas will have been favored by demographics and by our cycles. You'll never see prices this low if you protect your capital now and convert it to cash or to safe, long-term high quality bonds, then you can take advantage of the sale of a lifetime. If you don't, you'll have seen your financial assets wiped out a good bit more than they were in 2008 and '09, and the markets won't have come, roaring back to new highs next time.

Chris Martenson: Now, Harry. What a provocative and very much information of interest. Let me start here then with this then because I think we can build off of this nicely. A very open question for myself, my listeners, all over the world as well obviously is will this be through inflation or is this through deflation. You've talked deflation. That's what I've heard and a fall in these financial assets prices.

Why not have somebody such as John Hussman or Grant Williams or other astute Fed observers, Axel Merk, people like that who know the Fed and the central banks well. They've committed some of the most egregious of policy blunders every, because they've tried to do things such as prevent the very cycles about which you've talked; at least the business cycles and asset cycles.

They want to see if they can smooth those out, prevent them from, going bust. All of that. At this point when we try to resolve the inflation versus deflation question, there are some who say that when this next sort of deflationary wave comes, they know what to do. They'll just keep printing. You've said they'll lose that battle. Do I have that right?

Harry Dent: Yes. I'll tell you why. They've already printed $13 trillion global, and of course Japan are still, going, at rapid rates especially Japan. Guess what we've gotten out of that? Zero to one to two percent at best inflation in all of the developed countries that have printed all this money. It's because this money is being printed to stop and tame deflation. Deflation means that debt deleverage, banks fail, business fail, prices go down. That squeezes margins. That's what happened in the Great Depression. Deflation is a ball of wrecking.

Now, the biggest problem here as you've said these other experts had correctly said, this is terrible policy to try to smooth out these cycles in the economy. The economy grows through the dynamics of opposite. Free market capitalism is the opposite of democracy, just as men and women are opposites and positive and negative poles on a battery. That's how you create energy and dynamic growth. Inflation and deflation are part of this cycles. Booms and busts are a part of these cycles.

In the bust and inflationary and deflationary times are when we get the greatest innovations that then move mainstream with the next demographic boom. This dynamic is necessary and by the stopping of this dynamic and just to create a comatose economy where Japan's grown at zero percent now for 26 years. The U.S. has been growing at two percent now for eight years. That won't even last with demographics while getting worse. You just basically freeze innovation. You kill the golden goose, I call it.

This is terrible policy. They are just fighting such persistent and long-term downward demographic and even technological innovation trends and all of this sort of stuff. Here's what happens in an economy for the first time in history where you have the Baby Boom Generations in most as developed countries than the Millennial Generation to follow them. As we move forward, you get to the point where there are more Baby Boomers to retire than Millennials to enter the workforce.

Ugh! The workforce has not grown, which it hasn't. It's at negative for the next several years. Then it's at just above barely positive for decades to come. How do you grow four percent with that? Productivity has gone down ever since the baby boomers started to retire in the very late nineteen nineties. It went from 67 percent to now 62.5 percent. By the time they've fully retired by 2024, it'll be at 58 percent by a projection. We'll lose another 4.5 million of our workforce.

How do you grow at four percent with a workforce in decline for decades to come? How do you grow at near zero productivity? We're at the lowest productivity rates since the Bob Hope generation was retiring en mass in the early eighties the down of their cycle. It set to get worse. This Trump thing, if he just shifts around the pie and shifts taxes from the government to consumer and business and cut off some regulations and things like that build some infrastructure, this will not happen! You will not have created four percent in growth. It's demographically impossible.

Japan has stimulated much longer than us at three times of quantitative easing in the last several years. They still long term grow at zero with zero inflation and zero productivity. They would have had deflation and bank failures had they not printed so much money.

The money, as printed by a being, is to keep the banks from falling over like in the Great Depression. The price of that you go into a coma economy such as Japan. You never go to what I call the winter, deleveraging deflationary season of deleveraging back to the next spring with mild inflation, boom, as we did while going from the thirties, forties, fifties, and sixties.

This is horrible policy. If we'd have let this crisis have happened and have let some banks fail and some companies fail and had gone through this, we'd have been over the worst by now. The Great Depression, the worst of it was over in three years. Then we did nothing but grow for decades after that because we had lifted a lot of debt off of consumers and businesses.

When banks fail, it's because they have bad loans. They have to write them down or write them off. That's why the go under. Then the stronger banks take over their assets and you reorganize the system of banking, but you come out of it with far less debt. Japan now has more debt than ever. We have more debt than ever, and our government deficit, which is the smallest part of our debt, private debt is much larger, has doubled every eight years. Has anybody noticed this? Five to ten trillion under Bush, ten to twenty under Obama.

It'll be 20 to 40 over the next two administration, and I don’t think it'll have been with Donald Trump. I said when he got elected I will not be as surprised if he doesn’t last the first year either because he does something so stupid that he kind of gets pushed out or impeached or he gets shot. If anybody's to get shot, people who shake up things, and he's shaken up things more than anybody in history, at the most rapid rate-- People who shake up things such as Reagan, such as Kennedy, like Lincoln, often get shot.

Chris Martenson: Well now, we can the feel the pressure building, right. You said we got nothing for all of our QE. It's not quite right.

Harry Dent: No. We got two percent growth. We wouldn't have had it, and when we did stop the system of banking collapsed in like the thirties. Two thousand and eight looked just as 1930 did. No. I get Republicans that say all the time to me, Chris. Oh, Harry, this quantitative easing did nothing. Oh, no. It did a lot. The problem is there's a big price for it. It kills the whole free-market system and kills free markets in general. The central banks have taken over the bond markets and pushed down long-term risk-free rates in everything else, real estate, bonds, stocks, are heavily impacted by these sub-zero rates.

Chris Martenson: Not just impacted. I'll give you the other thing that my heading was towards, is that it also gave us the largest of wealth gaps in all of history. Last year 62 people had as much wealth as half of the world. This year that number is eight. This breeds a sort of social injustice. Listen. We're primates. We're humans. We hate unfairness. This is deeply unfair that the central banks are printing out of thin air, and it's really preferentially showed up in a very small set of pocketbooks.

That's not really good for the social experiments. We have a lot of tensions around all of this. Let's talk about what it hasn't done. It hasn't led to a real resurgence in corporate R&D and the next wave of investments that'll do great things for growth or a future economy or productivity. We have financial engineering. We have speculation. We have prop trading. Listen, Rome went down this path. You debase your currency. You just print it out of thin air, or make your coins lesser and lesser actual metal content and people catch on. We're smart. We go “hey if that's the game, I'll do this. Why would I expend effort by trying to create real new as valued products and services.” It's a risky thing, and it's with hard work.

I'll just go over here into this highly speculative arena poll while knowing that the central bank has my back. They'll bail me out if I really screw up here and make bad decision, but that's just awful.

Harry Dent: Right. Well, why not use flip homes and speculate in tech stocks. Exactly. It's a something economy. It's artificial. It's grown for the wrong reasons. People keep with saying oh, well, the Fed will hit massive inflation at some point. No. They won't. The problem with the Fed's policy, what will have killed them and defeated this is that all they've done was to create even greater bubbles in debt and in financial assets, real estate and stocks and everything than we had in 2007. They'll burst again. Bubbles only burst.

The don't even need something big to happen. Real estate started going down before the economy went down, before the subprime got nasty because it got to expensive and baby boomers had run out of their cycle of home buying. Bubbles always burst. That's the danger here. What gonna trigger this next bubble? I mean a crisis in banking already brews big time, worse than Greece in Southern Europe and Italy. Germany has worse demographic than the Japanese had when going into the nineteen nineties and the decade ahead. Everybody thinks that Germany is the strongest country in Europe that'll have held it together, meanwhile Deutsche Bank has gone down like a flaming plane already.

China has bubbles in real estate that are so extreme they'll have to burst in the next few years. When that happens you'll have triggered a tsunami around the world in real-estate crashes. This thing will not last much longer, and then bubble will burst, and that's the price we'll have paid for this free-money, something-for-nothing economy where, like you say, the rich get extremely richer. This does favor, and it's not the top 1 percent I look at. It's the top 0.1 percent that run away.

They have as much wealth as the rest of the one percent put together. These are the people who make the most money off of free money, because they can leverage and they have the money to invest in these financial assets. They're the ones that benefit, while Homer Simpson has very little in the markets and only their home. Of course, that home got killed in the last great recession and it'll get killed worse again.

You're right. This is about income inequality off the charts. It's exactly how the economy looked in 1929 before the Great Depression not just the peak of a generation's spending, not just a debt bubble, not just financial asset bubbles, but we had the same 1 percent of people in control of 50 percent of the wealth, just like we have now. It's gotten even worse.

This is unsustainable period. When it crashes it'll be worse than ever. All they've done is to create a bigger bubble. We've added $57 trillion more in debt around the world t the $150 trillion we had at the top of the last bubble and most of this in the emergent world, which is the least stable and has gotten crushed by the crash in commodity prices. I mean, we have the worst downturn. I'm convinced over the next three year, the worst financial crisis and bubble burst of our lifetimes.

We will not see something this bad again, so hey. Stocks are way overvalued. You've got this very irrational rational Trump rally, which I call the final blow-off phase. I don't think it lasts past July, but I do think it goes higher. I think we'll see stocks at least ten percent higher from here before the economy figures out that we can't grow at four percent no matter what this crazy person does. He is a crazy person. He may be smart in a lot of ways, but he is crazy. Any psychologist would have marked him off on a few things right away.

When it bursts people will be surprised, and one of the things about which I've warned people the most, Chris, yeah, people say well, gosh I don't want to get out of this bubble. Yeah. Maybe it's a bubble, but it keeps with going up. Here's the problem with bubbles. They'll go down typically 80 percent, 70 to 90 and especially in stocks or commodities, but half of that crash and most of the bubbles in history have come in the first two to three months when the markets finally get it, and the smart money runs like crazy, and the dumb money and most people end up with the holding of stocks that go down by 40 to 45 percent in two to three months.

This happened in the '29 crash. It happened in the Nikkei crash in 1990. It happened in the tech wreck in early 2000, and it happened just last year. You can see this just last year. China's second stock bubble burst by 45 percent in the first three months in late 2015. You had everyday households who lost everything. They had gotten money on margin and stuff. The government stupidly encouraged this to try to offset their real-estate slow down. Then people just got wiped out.

That's the danger. If you hold out-- Right now I think this Trump rally has enough behind it that people are probably okay into the summer, but I'll tell you if we see this market keep with going up into the summer, and we start to approach that classis crash season from late July to late October, I'll tell people you've got to get out. You've just got to be safe. If you miss another five percent then hey, you could've gotten slammed by 40 percent in three months, so better to do that.

Chris Martenson: Now, at the heart of all of this, of course, you've got these big trends. You named these four big trends, and they have a very good both explanatory and predictive power and it make sense, right. We can say well, what is an economy? Well, it's about people when buying and consuming stuff. Maybe we should have tracked the people. I get it. What you talked about though is with the federal debt in the United States, the doubling every eight years. Using my handy-dandy rule of 72, that's a nine-percent-compounded annual rate of growth.

Harry Dent: Yeah. That's versus GDP that's grown anywhere between 2 percent recently and 3, 3.5 percent at that. That's one statistic we quote. From 1993 to 2008 in the baby boom, debt grew at 2.6 times the rate of GDP. Any economist that does not see that, as turning into a debt crisis down the road should not have been an economist, and should be barred from practicing.

Chris Martenson: I agree.

Harry Dent: Most economist say oh, this is okay. It's not okay.

Chris Martenson: It's not. The canard I have to bat around all the time is somebody'll say well, so let's say Japan. It's the ultimate Petri dish for this. Why that country hasn't gone down in flames, I don't understand because the total amount of debt that they carry right now per household is about million dollars per household, right. It's just off the chart. I've looked at the total debt of the country. People say oh, but Chris they owe it to themselves. What do you say to that one, Harry?

Harry Dent: Well, first of all, the greatest amount of debt in our economy all economies, developed world is private debt, three times typically government debt, as much as four time in the boom. That is owed to the banks and people like that, and they go under, or you go under when you can't pay it, or you lose your house, or you buy stocks on margin, and you lose everything. It's not true. Governments owe it to themselves.

Okay, but a lot of this debt was supposed to be used to pay us social security and healthcare, which is underfunded by get this about $70 trillion, just like a lot of pension plans have to report the amount of pensions or healthcare benefits they've promised their workers that has not been funded in a conservative investment plan to meet those. The government's $70 trillion unfunded.

They get in a debt crisis or they can't grow their debt further because nobody wants to buy their bonds anymore because their debt ratios are high. How will they pay our benefits. They can't pay them despite the debt crisis, but that only makes it worse. It's absurd to say oh, we owe it to ourselves. Studies show that when government debts gets above 90 to 100 percent, it starts to slow the growth of GDP. It's a burden on the economy.

It's the same thing. When household debt you know gets to 100 percent or more of GDP, it slows their spending because they pay more and more interest and the government pays more and more interest. Right now, as we talked about earlier by suppressing, I mean by artificially pushing their bond rates down to zero short term and more like two percent long term instead of the typical five to six percent inflation rates and such, they’re cheating.

They can handle this debt-burden short term because they buy their own bonds and push rates down. Well, that's cheating, and that won't last. In the long terms we'll go back to treasury bonds at more like five to six percent. Then Japan would be bankrupt overnight. Their entire budget would be for interest if we just went back to the normal three percent inflation and five to six percent long-term bond rates. They'd be bankrupt overnight and interest would have started to consume a huge portion of our government budget.

No this is not maintainable. It's just another ridiculous bubble talk. When you get in bubbles, I'll tell you why. People are stupid. That's what this books is about, Chris. People never see bubbles because they don't want to. They're in denial. They've gotten something for nothing. There house has gone up by 15 percent a year instead of the normal 3 percent a year with inflation. Stocks have gone up by 20 percent or higher a year instead of the normal seven percent or something like that. Their mortgage costs them four percent instead of six to seven percent. My cars loans, leases are at two percent now. They used to be at six percent.

We're getting a free lunch. People love that. It makes them feel good. It make them feel high. When somebody like me says hey, sorry folks, we're in a debt bubble, we're in a financial asset bubble, and everyone of these that looked like in history has busted, and has busted horribly when it did, and people got wiped out. People want to shoot me. They want to shoot the messenger. They don't want to hear it. CNBC hates me. Some people in Fox Business like me because they understand that debt is not good like this, but most people just don't want to hear it.

Chris Martenson: Let's section the people out a little bit. There is an article that's really interesting that just came out in the most recent issue of the New Yorker where the very wealthy to include tech mobiles who have really made it like the start up founder, cofounder of Reddit, but as well as many hedge fund managers, private equity people. They're very wealthy people. They've obviously got access to some very good information, and they buy bunkers in New Zealand.

Here's the thing I run into Harry, is at the retail level like the average person on the street it's very hard to communicate some of this stuff too, definitely a shooting of the messenger, and people who really don't want to believe otherwise. But the people who are the most worried right now are the people who have the most experience in the financial markets.

I mean, I talk with guys and gals with decades of experience, running of hedge funds for 30 years. They look at all of this, and they say this is a mess.

It worries them because they worry that when this next turn comes, it won't be as your grandpa's turn where humans in little red, orange, and blue coats start to trade people and things get a little out of hand. These are with computers making decision at light speed while operating in microseconds to say that we're out of this market potentially.

They worry about these flash crashes that we've seen in small market to somehow perpetuating across the larger market structure, that is that I think we've had an SEC asleep at the wheel. I believe that our news guys Sal Arnick [PH] and the other guys, them as training. These are broken markets in many respects because we don't really have the same structure of governance on them that we did. It's a little bit worrisome. Maybe you've seen this as well.

When you see something like the dollar or the pound or U.S. treasuries move by whole percentage points in a matter of minutes, you know six, seven, eight, nine sigma moves should happen only, as happened, once every ten million to a billion year kind of stuff, it just speaks to me that this is a reason to be on edge. The edgiest people. The edgiest people I know are the ones who were the most sophisticated in these markets. I don't know that most people have really connected those dots as of yet.

Harry Dent: Yeah. That's what I call the smart money. That's what I track. I look at the commitment of traders. A small percentage of traders who are the commercial hedgers always tend to be on the right side of the market. At a major top, they've hedged as bearish, and on major bottom they've hedged bullish. These people are the people who understand this and are saying oh, my God. This thing has to go down. They're the people who understand that the higher a market goes the more vulnerable it is.

For most investors the longer they see real estate or stocks go up, the more confident they get that they won't fall. That's a total misunderstanding of history and investing. You're right. Only a small percentage of people get this, and these are the people I talk to. I just won't be as a mainstream forecaster at this point because everybody hopes this works out. Everybody as much as people know Trump has the impulse control of a grease fire, he's kind of crazy person. They're like well, we hope he does some stuff and takes us back to four percent. They hope.

Anybody that looks at the fundamentals, anybody that looks at cycles, debt cycles, financial asset cycles, anybody that looks at bubbles, this book has so many chart to show that all of these bubbles look alike. They look like the male orgasm chart from Master's and Johnson's back in the last fifties. That's exactly how they are. They're as a financial orgasm. Orgasm can only go so far until they get too intense.

Then when they end, they end rapidly. That's what happens with bubbles. I go out of my way to say “look, everybody, politicians tell you there's not a bubble. Goldman Sachs has said it’s not a bubble. Economists are saying it’s not a bubble. CNBC says it's not a bubble. Don't listen to these people. This looks like a bubble, quacks like a bubble. This is a bubble and bubbles only do one thing. They don't have soft landings. They burst violently.” The typical stock bubble as I said earlier is at 80 percent. That's how much Japan's ultimately went down in the Great Depression. It was 89 percent for the U.S. stock market.

We were kind of as China is now, the most of leveraged to come. China probably will be at 90 percent. In the U.S. it'll probably be at 80 percent. That's not something through which you want to sit because after that bubble burst in the early thirties stocks to 24 years to get back to those 1929 highs. You'll be dead as a retiree if you listen to your stockbroker and say well, he'll say stocks always come back, and we have you, as diversified.

I also ask investors to look at your 2008 crash portfolio. How did diversification work for you there? When real estate went down, commodities went down with gold and silver included, every stock market in the world emergent markets, as developed markets, small caps, large caps, all went down. How did that diversification work for you? It didn't

Chris Martenson: Harry, I have to get to the heart of this, then. I'll assume that the safest of investments here in your view is cash. I guess not Japanese yen, either, but in U.S. dollars. Is that fair?

Harry Dent: Yeah. Cash in U.S. dollars because the U.S. dollars versus other currencies was that had really rallied when the 2008 meltdown happened. It went up by 27 percent in three or four months, not because we have good monetary policies. We're the best house in a bad neighborhood, demographically, and we have less quantitative easing, cumulative than Europe and way, way less than Japan. U.S. in dollars, but also the highest quality of bonds.

In the Great Depression for that entire decade where stocks and real estate and commodities and everything else were decimated, the long term treasury bonds and AAA corporate bonds, the highest quality of long-term bonds roughly doubled in value when you include their dividends, and they paid higher dividends. Now with the balance in yields pay as high or higher dividends that stocks, and I think these yields may bounce a little bit farther later this year.

So yeah. It’s the safest asset, highest quality bonds. You can bet on the U.S. dollar to go up at least in the early stage of the crisis UUPs an ATF that tracks that. The U.S. is at 100. It's 45 percent higher than when the great recession started in January of 2008, and it bottomed. I think it's to go to at least 120. The U.S. dollar or U.S. dollar index or dollar bullish funds, highest quality, U.S. Government and AAA corporate bonds and just good old cash. There's nothing wrong with having liquid cash that every time assets go down you can buy more of them and you've got the cash to do it, because don't think anybody will lend you money to buy stocks or real estate at the bottom of this next crisis. You have to have cash or high quality stuff.

You can sell these bonds any day. These bonds could get not only to 3.5 percent yields on something safe, they appreciate when deflation brings those yields back down. The bonds appreciated from 1931 to 1941, a ten-year bull market after stocks and everything crashed. The bonds are the one bubble that have gotten a setback, now, but the one bubble that will be the last to burst many years from now.

Chris Martenson: I agree with that. Now this brings me to my final question, which is really about gold. Gold and silver are two separate words to me. I don't lump them together. Gold is a monetary asset to me. That's probably why I like it. Here's the question. As we get into this deflationary aspect, which I agree with you feels as the end stage to all of this, I know longer trust the statements of any of the major commercial banks. I think there will be an enormous crisis in banking with that.

When you say cash, if that means cash in the bank, I think we have to understand which bank matters because not all were created as equal. Some of them carry derivatives that nobody understands at this point. Gold to me is, as potentially a means to have a monetary asset outside of a system, in which frankly I've lost of faith if not all of my trust especially with the bail-in provisions, and the sneaky war-on-cash stuff that were courtesy of Summers and Rogoff and all of those other cast of slimy characters and what not.

It feels to me that people have gotten herded into a system of banking that is just like the last corral you ever want to get caught in. When you say, 'cash' what do you mean by that, and second how does gold fit into that story?

Harry Dent: Okay, first of all, very good question. You have to have your cash or your safe bonds or your dollar index or whatever in a brokerage account whether it's in a bank or a brokerage firm. I like to be with online brokerage firms because, as banks that also lend money against real estate and can get crippled and stuff, they are not. But if you have it in the bank in a checking account [begs the question] they do lend that money out into these bubbles especially into real estate, and when they lose that money, you're money will not be there as it wasn't there in the early thirties.

If you're in a brokerage account, they can't lend against that, even if it's in a bank. I'd rather have it. I have my money with Schwab or somebody such as Scottrade because they're not in the business of lending or investment banking and all of this sort stuff. That's the first thing. The second thing, gold. Gold correlates with one thing long term, and one thing only, and that's inflation. Also short term. Gold is an inflation hedge. That's why it was such a great investment in what I call the summer season of high inflation or recession or stagflation. That's a part of my eighty year cycle that works like a clock.

It's not a deflation hedge. People don't get that gold was a bigger bubble than the stock market. Gold went up eight times in ten years between 2001 and 2011. We told people to get out of silver and gold when silver retested at is 1980, previous bubble high. We said this looks like a good time to get out. Gold went a little higher into September, but basically we told people to get out. Bubbles have to burst. These things follow the commodity cycle, which is a 30-year clock.

Gold did not provide that safe haven. I look back to late 2008 when things really melted down and it look as though we would go into a great depression. Major banks had failed, and general motors could have gone under and AIG and all of this sort of stuff. Gold went down by 33 percent. Silver went down by 50 percent. They did not protect you. I don't trust gold. For gold to erase it's bubble, and I look in this book the principles of bubbles is the build up exponentially, when they burst they burst in half the time typically it took them to build, and they go back to where the bubble started.

Not the whole bull market, whatever that is. When the started to diverge from the fundamental trends and went up more exponentially. Gold has to go down to $400 to erase that bubble and it may possibly at worst retest those 2001 laws around 250. I look for gold to hit $700 give or take in the next year or so. I won't have interest in gold until it gets at least to $400. Then I, would, love it because the next commodities will have been drive by emerging countries who hugely consume gold and silver, hugely consume commodities as a percentage of their income and the biggest producers and exporters of commodities.

I think the next commodity cycle is to be a doozy, but commodities have already crashed and won't turn around until at least 2020. Then, if gold's at $400 then I'd say, you know, I'll buy this and think it may go to $4,000 over the next commodity cycle, and that commodity won't peak until 2038 to 2040. I do not like gold. It's not the safe haven in a deflationary environment. It is the safe haven in an inflationary environment. Of course, once this endless quantitative easing breaks down and all these bubbles burst--

Again real quick just to summarize here the reason you get deflation in this winter season is that when debt deleverage money disappears. Loans are written off, that money disappears. When bubbles burst like the Dow goes from 22,000 down to 4,000, 80 percent of people's wealth disappears and doesn't come back for a long time. That creates less, money chases the same goods and financial assets and everything else, and that creates deflation in prices not inflation.

Chris Martenson: Well, and certainly very much non mainstream views. We have talked with Harry Dent, author of the new book The Sale of the Lifetime. It's chock-full of just fascinating thinking and of course to whom you should listen and editor of the free newsletter "Economy and Markets" found at HarryDent.com. Harry, anything else you need to tell people about events or how they can follow you more closely.

Harry Dent: No. Yeah. I think the best thing get on our free newsletter, because that's the way you can get to know us. I mean I think we've got limited months, maybe six months left in this market. I want by the middle of this year you to be convinced to make some very hard decision because everybody else, including your stock broker and your best friend and the media and everybody will tell you otherwise.

You need to make some hard decisions, and you won't do that unless you were convinced. So yes. Get the book and get on our free newsletter. We also have paid newsletters where we want to give more depth, but you need to have been convinced, so get serious about this, and hey if this doesn't happen in the next couple of years, then I'm going to quit my profession and be a limo driver at the Gold Coast in Australia.

Chris Martenson: Alright, well you'll fight for fares with me at that point in time. Harry, thank you so much for your time today. Let's do this again sometimes soon.

Harry Dent: Okay. Thank you, Chris.

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54 Comments

Snydeman's picture
Snydeman
Status: Gold Member (Offline)
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Posts: 296
Zoinks

Ok, let's be clear here. If stock prices actually fall that much, is there any feasible way the bond markets don't blow, and with them the debt leveraged banking system as well as global trade? I mean, I'm a pessimist, I know, but...but...that kind of collapse of equity prices in today's circumstances strikes me as "game over, man."

Right?

If it DOES unfold this way, you can bet Hillary Clinton will look back and thank the heavens she lost the election just as much as President Trump would rue the day he won.

davefairtex's picture
davefairtex
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rue the day

I read a post somewhere that equated Trump with Hoover.  Business man with no political experience becomes President immediately before a major market top.

Instead of Hoovervilles, they'll be Trump Towers.

Cold Rain's picture
Cold Rain
Status: Bronze Member (Online)
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Posts: 68
Markets

I like disaster stories as much as the next guy, but Harry Dent calls for asset prices to crash every year.  Of course, gold is also going to $350 or whatever as well.  He had Dow 5500 all over his site last year.  Before that, it was 6000 or something.  Eventually, he may be right....especially if he predicts it long enough.

I wonder the following about the equity markets:

1)  Who's going to mass liquidate to cause a crash?  Aren't the retail investors out...at least compared to historical norms?

2a)  Will CBs even let the markets fall?

2b)  If no, how long can they hold them up?  Seems like indefinitely.

3)  If the US remains the best house in a bad neighborhood (likely), where else is capital going to go?

These are the things I think about, and they cause me a great deal of concern about the validity of any 70-90% crash ideas.  Can the markets still have a decent sized correction?  I guess so, but Number(s) 2 above make(s) me even wonder about that.

Stabu's picture
Stabu
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The Sunspot Cycle

To those who wonder, Harry Dent's fourth cycle or his "secret short term factor nobody knows about" is the sunspot cycle that lasts around 11 years. He used to call this a "10 year cycle", because the cycle seemed to last for about 10 years and he recalibrated it to 11 years in the late 1990s - 2000s. Harry Dent stopped mentioning this about 2-3 years ago after being ridiculed for looking at sunspots that no other financial forecaster cares about. I don't personally have an opinion on this one way or the other, just informing the curious.

skipr's picture
skipr
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super bubble

It's really interesting how all of these long term bubbles are coming together to produce a financial rogue wave.  There's one super bubble that will dwarf them all and it's also peaking right about now, the environmental collapse bubble.  In the next couple of years the summer arctic ice cap will finally disappear.  Ice core studies have shown that the rate of this present day heating and melting is orders of magnitude greater than those in the natural cycles.  Global warming is going to explode.  The best investment will be in one of those New Zealand bunkers.  A million bucks a square foot?

Thetallestmanonearth's picture
Thetallestmanonearth
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Posts: 315
Cash strategies

Harry mentions holding cash in brokerage accounts like Schwab and Scott Trade.  Given the bail in rules, cash under the mattress has been compelling for a couple of years, but the recent moves to ban physical cash have changed the math.  Lots of talk out of Davos on the subject this year has me thinking we're maybe 6 months away from a surprise announcement that the $50 and $100 bills are being "phased out" probably with high tax penalties for unaccounted bills being deposited. So, brokerage accounts are certainly one option, but what about local credit unions?  How do we check their financial health/exposure?  Is it smart to convert some cash to low denomination bills, or is that risky too? 

richcabot's picture
richcabot
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Bank safety

I agree that the bail-in rules change everything for cash accounts.  Your cash in a bank or any other institution is not safe when that institution has outstanding derivative bets.  Cash will be confiscated and turned into shares in the institution.  Those will likely be worth a fraction of your original account balance.

Aside from the bail-in issues, recall what happened with MF Global.  They weren't allowed to touch the cash in customer accounts but they did anyway.  Nobody would have known if their bets hadn't gone south.  How many brokerage institutions are doing that now and we don't know?

Cold Rain's picture
Cold Rain
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LDBs

@thetallestmanonearth:  Your last sentence:  Good idea.

@skipr:  Climate cycles have always occured.  I don't think we're capable of knowing what the outcome of this cycle is going to be.  That said, it doesn't mean we shouldn't prepare.  This isn't to say man isn't affecting our environment.  We surely are to some debatable extent.  We also don't know the extent of Earth's healing mechanisms.  Doomsday scenarios around climate change may not occur or they may occur in ways we don't expect.  This topic is so fraught with absolutes on both sides that makes it almost impossible to debate.  All that said, it's idiotic to think we aren't affecting our planet negatively.  Given that simple fact, we should do what we can to be better stewards of our environment and do our best to be prepared for different environmental conditions in the future.

pevend's picture
pevend
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Will Gold Really Go to $450?

Interesting ideas, although I have some doubts about gold going to $450. That might be the case in a deflationary environment with a strengthening dollar, but in a full-blown global financial crisis the losses in gold due to dollar appreciation would likely be swamped by the demand for gold by non-US, non-dollar players in the market. I think that Chris wrote an article on seeking alpha about the disappearance of the marginal buyer being the cause of market crashes; the opposite is probably also true, that when everyone piles into a finite market, the marginal buyer ends up driving the price skywards.

thc0655's picture
thc0655
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Gold and dollar to rise together, at first

I've been tentatively convinced (by Charles Hugh Smith and others) that gold and the dollar will counterintuitively rise together. Then the dollar and the dollar system will collapse leaving gold as "the last man standing." I'm prepared to be wrong, though, and quickly adjust.

And if some idiot pulls a Modi and bans $50 and $100 notes I will convert all of mine into gold within 24 hours. For now I think They are going to continue to try to drive them slowly out of circulation by means of one racket or another, most of which are currently running or in the on-deck circle. What will they do about the majority of Benjamins that are held outside of the US?

robie robinson's picture
robie robinson
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All junk

we have a beautiful farm mostly out of harms way. alota redundancy with no desire for comforts of the 21st century (ok, antibiotics are nice). stacking junk silver for more than ten years. what else do we need? 

Chris M? farming is an an adaptive art, adapt to the extremes. 

NickAdams10's picture
NickAdams10
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Thetallestmanonearth wrote:

Thetallestmanonearth wrote:
So, brokerage accounts are certainly one option, but what about local credit unions?  How do we check their financial health/exposure?

I had a link to a page at Institutional Risk Analytics that rated the financial health of smaller banks and credit unions, but that appears to have disappeared behind a pay wall. You might try looking more into that, though.

The bottom line is that, although no credit union is completely safe, you can feel better about the fact that your local credit union isn't betting on derivatives with your money.

paulanders's picture
paulanders
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70-90%

Dent has been saying this for yeeeeeeears!

pat the rat's picture
pat the rat
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Posts: 82
timing

I agree with Harry Dent , but the timing is any best guess; three years good chance someday 100%. 

macro2682's picture
macro2682
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Posts: 482
I agree with "rue the day"

Trump is Hoover...

Hoover ran in an environment where technological innovation (cars and tractors) put downward pressure on crop prices (as former pasture became farmable land).  Most people were farmers, and they were mad about loosing their livelihood. So Hoover came in with protectionist promises. A massive tariff on agriculture also products to bring back farming.  That tariff worked its way through congress and after all the pork was attached it wound up being a tariff on almost ALL goods (the Smoot Hawly tariff act).  The passage of this legislation very closely marked the stock market peak. 

So here we are today. Technological innovation (automation and logistics) is killing manufacturing. Trump comes in with protectionism.  

History is cyclical. This is the bad part. 

Abandon Ship's picture
Abandon Ship
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Posts: 35
Deflation and the Banks

If we do get deflation, then the loan to asset ratios that support the Banks' balance sheets will go in the wrong direction i.e. the debts retain their value whereas the assets against which they are secured, diminish in value. A deflationary event of the scale predicted by Mr Dent will wipe out many Banks' balance sheets. If the Banks get wiped out, gold will do well because depositors will want their money out of Banks and into safe haven non-paper assets. In any case, anything that could hurt our precious Banks will be nullified with "what ever it takes" strategies - as they have been doing since 2008/9. They will inflate (also good for gold)!

q-bosty's picture
q-bosty
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Posts: 7
Bank health

....So, brokerage accounts are certainly one option, but what about local credit unions?  How do we check their financial health/exposure? 

When I read this I was reminded of a resource Chris mentioned years ago, and I still use it to this day:

http://www.bankrate.com/rates/safe-sound/bank-ratings-search.aspx
 

(Here's a tip on that site, you can arbitrarily pick an asset size on the screen, click on "See Results," and it will take you to the next screen where you can modify the results to see the banks / thrifts or CU's in your state or zip code).

You can click on each bank/CU's name and get a wealth of info about their finances.  All that data turns into info-overload, you have to use your best judgment on what really matters.

I also recall someone recommending spreading your accounts around, and not putting all your eggs into one basket.  If I recall, they mentioned something like diversifying the "ecosystems" of your banks, but I'm not clear on exactly what that means.

Hope this helps.

Snydeman's picture
Snydeman
Status: Gold Member (Offline)
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Posts: 296
The pessimist

is going to insert, again, his basic pessimism. IF we have a bank and asset price collapse of that magnitude, the US dollar as we know it will have essentially no value. Gold will, but only in a functioning post-financial-collapse marketplace where gold is held in value. So, I agree with the premise that gold would do well if the Dollar loses its inherent value or is simply done away with.

Where I diverge from some people's thinking is that I highly doubt the social upheaval and unraveling that would certainly result from such an epic financial collapse will leave any marketplace standing. There's a reason the central banks are doing what they are doing - desperately trying to keep equity prices afloat, and with them the illusion that Everything is Awesome - and while many here on PP believe the Fed is filled with idiots, I'm not one of them. I suspect they are smart enough to know just how serious a predicament they are inbut they lack the intellect (or wisdom) to know how to get out of it, if such a thing is even possible now. Equity markets and market confidence are the last lines of defense, which is why the CBs are throwing everything they have into holding them. When confidence starts breaking, which it seems to be, it's game over. In this sense, Trump's injection of chaos and uncertainty into the system seems to be pushing us ever closer to that breaking point.

Ergo, while gold is a great hedge against a post-collapse scenario in which non-essential metals are still valued and traded, if you are not also taking steps to prepare for a world in which anything that can't be eaten or utilized for basic survival is worthless, you are hobbling yourself.  I could be wrong, of course, but this seems to be the trumpet I toot most around here. You can't eat gold, and flashing the stuff in public in an anarchic world provides its own dangers. So hedge away, but get down to basic prepping too. It's all fine to say "may the odds ever be in our favor," but everything you can do to sway those odds TO your favor isn't wasted money or energy.

Snydeman's picture
Snydeman
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Posts: 296
amendment

I would amend what I said above "many here at PP seem to believe the Fed is full of idiots" to "some here at PP..." 

Luke Moffat's picture
Luke Moffat
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Joined: Jan 25 2014
Posts: 288
Gods of our Time?

I certainly get the sense that the Fed are frightened but I'm not sure they know which beast is howling. If they want the economy to keep chugging along they need cheap energy. What their policies appear to have done is boost asset prices. I'm not sure how that helps. Same with BoE/ECB/BoJ. It just means discretionary income gets eaten by 'overheads'.

I believe that the only thing that comes remotely close to salvation is a complete overhaul of our debt-growth economy. For me that begins with a conversation. I'm yet to see anyone in the higher echelons of power even begin to 'go there'. I think it works to the benefit of their private accounts that they don't 'go there'. I equate people like Yellen, Kuroda, Draghi and Carney to the High Priests of the Aztec Religion sacrificing the young to keep the sun rising and the sky from falling. It would seem then, just like now, people need to believe that those in power really do have the ear of the gods. And that they can thwart disaster with enough voodoo.

Perhaps, from their perspective, they just want to keep lines of credit open to enable global trade to continue. The idea being that they just want people working with no real goal other than the extension of debt-serfdom. 

If this did have a macro solution I suspect it'd look something like a world-wide program to bring as much energy online as possible (I guess that'd be nuclear) through government (central bank) loans (gifts). I think it'd have to be a global initiative given both the rates of consumption and streamlining of processes required. Then we'd have to go about finding fertilisers for plant growth in the absence of natural gas (I've heard the Chinese also use coal to produce fertiliser but I'm unsure of the details).

I'm guessing most here don't believe that option is viable (myself included). I think that the solution becomes localised both in terms of food production and services (i.e. medical/security/mediation/repair). If I had the platform of the Fed I'd request that people focus on developing a skill-set in keeping with our 'new normal'. I don't think that people believing the Fed is King Canute (and the Fed failing to correct anyone) resolves anything. But I might be wrong, it might be buying time.

All the best,

Luke

pat the rat's picture
pat the rat
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Posts: 82
check this out

check this out, make money great again patition at https://www.mmga.org/ this is about returning gold and silver back to money.

darcieg76's picture
darcieg76
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Posts: 44
I just looked up wells Fargo.

I just looked up wells Fargo. Didn't dig into specifics, but it had 5 stars.

dmger14's picture
dmger14
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I encourage EVERYONE to read this

It is the best explanation I have read on our dire situation and imminent collapse. It is LONG, but well worth the read:

https://medium.com/deepconnections/prevailing-gray-swans-7-september-30-...

sand_puppy's picture
sand_puppy
Status: Diamond Member (Offline)
Joined: Apr 13 2011
Posts: 1367
That WAS good, dmger14

I agree with dmger14 that the post above is exceptionally well done and has LOTS of graphs.  The author explains a lot of economic forces, much of which I was able to follow because of my years here on PP.

You will recognize a bunch of the diagrams and graphs Chris, Charles and DaveF have used.

His style is clear and direct and I was able to follow it even though I have little financial training.  A strong recommendation for clarity.  It is long though.  Poor a beer and sit in a comfortable chair.

Prevailing Gray Swans: The Clear and Present Danger

List for the Week Ending January 13, 2017

Bursting of the global sovereign bond bubble and the interconnected financial derivatives network

robertenrico's picture
robertenrico
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Posts: 3
sunspot cycles

Charles Nenner is a proponent of sunspot cycles ... I didn't know Dent was but I'm not a follower of Dent ... especially after this interview it reinforces my conviction to ignore him ... Dent does not believe that gold is money, he thinks it is only a commodity ... and declaring Trump is certifiably crazy and uncontrollably impulsive confirms to me that Dent is brainwashed by The Matrix of Main Stream Media ... I question his reasoning now ...there are other better economists/cyclists to follow ... Chris being one ... Michael Pento ... Dr Paul Craig Roberts ... David Stockman ... Nenner ... 

davefairtex's picture
davefairtex
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Posts: 4010
what's a safe haven

So rather than asking what's money and what's not, to understand what Dent believes, we have to think the same way he does.  He looks at what happens in the past, and from that, he extrapolates the future.  At least some of the time anyway.  [I don't agree with him that gold is an inflation hedge, for instance, although I do agree it tends to rally with the overall commodity index]

Anyhow.  We can ask the question, "what acted as a safe haven during the 2008 market crash?"  The answer is, it depends on the timeframe and from what point you take your observation.

The two charts below are "index" calculations; I set the price of each item to be 100 at the start of 2008.  Then, I display them on the chart with the last day being (roughly) the SPX low for 2008 - October 20.  On that day, USD is up 10%, gold is down 8%, and silver is off a big 37%.  The move down for gold in 2008 involved a huge amount of deleveraging; there was a massive liquidation of paper gold at COMEX, and this certainly drove price lower.  In a financial crisis, leveraged paper gets liquidated, and any item whose price is tied to the paper drops.  I think this is quite likely to happen in any future financial crisis.  Paper will get thrown right out the window, and that will take down the related prices.  Likewise, all assets will be sold in order to meet margin calls.  The only thing immune to this effect is currency in which the money was borrowed: demand for currency during a time of deleveraging will rise.

So after the deleveraging was over, at the 2009 SPX low, we see USD +17%, gold at +10%, and even poor silver had come back, down only -14%.  SPX was off -50%.  Ouch.  Crude was off -55%.

Interestingly the low point for gold (down about -19%) was about two weeks before the Fed announced the initial QE program.  Low was Nov 13 @ 705, and QE was announced Nov 25.

Is gold a safe haven?  During 2008, it really wasn't.  We can blame paper, or manipulation, or whatever, but my sense is, if there is another panic like 2008, gold will probably drop in price, especially if the buck rallies 10% the way it did last time.

If we assume that the Fed will execute some reflationary policy in response to a market collapse, and assuming that doesn't cause the buck to sink precipitously, then at that point, its probably a reasonable time to buy gold.  But given history, I'd expect a 20% drawdown in the price of gold during a market crash, just based on what happened in 2008.  That doesn't suggest gold 450; seems more like gold $950 or $1000.  Silver, on the other hand, could drop down to $10.  But, good luck buying physical silver for $10; if it did drop that low, I'd back up the truck on PSLV because I do not think I would be able to buy eagles at that price - I suspect they'd all be bought out.

Premiums at Shanghai would probably also scream higher.

Poor oil would probably drop into the 20s.  Again.

Rector's picture
Rector
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Posts: 451
That would be fabulous

If Au went to $450 - I would buy the $h*t out of it.  So would everyone else holding cash and so it won't happen.

Rector

charleshughsmith's picture
charleshughsmith
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Posts: 565
a future diet of good old boiled frog

Darn it, Dave, I was about to pen a data-free rant, and there you go again, introducing hard data! :-)

One thing John Hussman said at Mish's conference in Sonoma a few year ago has stuck with me, and it's relevant to this discussion: every share of stock and every bond is owned by somebody (or some entity) all the way down the slippery slope. When a panicky speculator with a margin call sells an asset, somebody buys it.

So who/what entity will be buying that doesn't have a margin call or any fear of further declines? A central bank, of course. As John Rubino discussed in his recent podcast with Chris, central bank buying of stocks, bonds, quatloos, bat guano futures, etc. has a certain aroma of inevitability, given that central banks have experimented for 8 years with creating trillions and using that free money to buy bonds. In their view, the QE experiment was successful: meltdown avoided, illusion of "prosperity" maintained.

So why wouldn't central banks become the marginal buyer of last resort? 

The "fix" from central planners' POV is to heat the water the frog is enjoying slowly--in other words, bleed the system of losses incrementally so nobody gets upset enough to pursue social /political upheaval.

Currency devaluation is a great way to channel the losses into the system as a whole.

IMO Dave's analysis of 2008 supports my thesis that gold and the USD can both gain purchasing power in crisis. The debt denominated in USD exceeds the sum of USD created, hence demand for USD rises in liquidation phases.

I have made the case here for bitcoin and cryptocurrencies as beneficiaries of a loss of faith in the system. Dave has made the case for a crash in bitcoin once the Chinese institute capital controls on it, I see any Chinese action as a temporary going-on-sale opportunity, as I see institutional ownership of BTC as inevitable.

As the rules change, it's hard to beat tangible productive assets like farms, orchards, housing, tools, small enterprises etc. The rules governing these assets are harder to change than those governing "money". 

treebeard's picture
treebeard
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cognitive dissonance

Anybody else having this problem?  Am I going to step over the dead burnt bodies of my neighbors with gold in my pockets to pick up his on the market for pennies on the dollar?  Isn't financialization, a commodified view of "natural resources", which are indeed the living systems that sustain us, the problem?  Flipping between articles that have everybody pondering the collapse of civilization and detailed charts of commodity prices has my head spinning.

davefairtex's picture
davefairtex
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outcomes

treebeard-

Anybody else having this problem?  Am I going to step over the dead burnt bodies of my neighbors with gold in my pockets to pick up his on the market for pennies on the dollar?

In that scenario, probably not.

Fortunately, that's not the only possible outcome.

And I have to point out - this isn't the "dead burnt bodies" thread, its the "Harry Dent talks about demographics and $450 gold" thread.  Isn't it great that Peak Prosperity has something for everyone?  :)

davefairtex's picture
davefairtex
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$450 gold

Rector-

Yes, I suspect we'd all back up the truck for $450 gold.

Unless, of course, all our bank accounts were frozen, or bailed in, and the only purchasing power we had were the crisp green FRNs we'd managed to squirrel away.

And at that point, we might be more concerned with buying food than thinking about picking up gold bars on the cheap.

Sosodef's picture
Sosodef
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Brokerage Accounts

...One consideration is that brokerage accounts are not FDIC insured. Of course, brokerage accounts are at much lower risk but if they do go bust there will be no payout. Then again, in the sort of economic situation where mass insurance payouts occur, inflation could be so out of control as to render the money worthless...(sigh- protecting wealth is stressful)frown

Eannao's picture
Eannao
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Hot Head Harry

It's funny listening to Chris interview Harry Dent. They're such opposites! Dent gets super worked up and passionate in his stream of consciousness, and then Chris chimes in with calm, reasoned analysis!

One point Dent made resonated with me about the importance of having cash: that in a deflationary crash nobody will lend you money, so you need your cash to hand. Just as it was in 2008 - 2009

chipshot's picture
chipshot
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Posts: 24
Why Have Any $ in a Bank?

With zero interest being paid, and the risk of deposits being frozen, why have any significant amount of money in a bank  (other than funds to pay bills) ?

While I'm as pessimistic as anyone about the financial future  (economic and ecological as well), is there a better true life example of "the boy who cried wolf" than Harry Dent?

davefairtex's picture
davefairtex
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Posts: 4010
crying wolf

I'm sympathetic to the charges of wolf-crying, but also to the people who focus on very long term mega trends like Dent.  They are wrong for quite a while, until they are right.  Demographics really is destiny, but I suspect the central bank games have held off the disaster for longer than he expected.

Unfortunately, I don't have access to his formulae, or I'd for sure plug them in and see what they said.  Its a fascinating subject for me because it makes logical sense, and like the tide, it seems like it will win, irresistably in the end.  Kind of like gravity.  Or EROEI.  Or private debt.

I know also that crime tends to follow demographics patterns; the fall in crime we've had over the past 20 years hasn't been about better policing, its been demographic driven.  Older people just don't commit crimes at the same rate the younger people do.

Likewise, once the "radical islam" nations stop having the average age be 18-20, there will (probably) be a lot fewer suicide bombers.

All that said - when he says things are going to happen this year, I think he is a trifle more enthusiastic than his data would (probably) permit him to be.  I'm guessing that he can't possibly know the month (or even the year) when the force of the 46-year megatrend will eventually overwhelm the shorter term cycles and all that money printing.

We all know the debt bubble will eventually have to pop.  But I'm not ... brave/silly enough to say that its going to happen this year.  After all, there is the effect of all the international drama, such as an EU breakup, or a Chinese banking crisis, which probably would overwhelm the demographic trends.

cmartenson's picture
cmartenson
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And let's not forget...

davefairtex wrote:

All that said - when he says things are going to happen this year, I think he is a trifle more enthusiastic than his data would (probably) permit him to be.  I'm guessing that he can't possibly know the month (or even the year) when the force of the 46-year megatrend will eventually overwhelm the shorter term cycles and all that money printing.

And let's not forget that beyond the inertia of money printing and mega-trends is that what's really driving all of this, under it all, is human psychology and the very ordinary inability of most individuals, let alone collections of people, to finally submit to reality and end their delusions.

Nobody really ever wants to have to face reality if they've got a comforting delusion running.

We've been living beyond our energy, ecological and budgetary means since the 1970's.  And so all we see today are continued efforts to prop, ignore, jam, print, and otherwise pretend that everything can be awesome.

It's as embarrassing as watching a 55 year-old on the court trying to keep up with a squad of 19 year-old varsity players.   

Janet Yellen is the current head mistress of that tribe of self-deluded people and she's got a LOT of support all throughout the ranks.  Practically nobody is even capable of psychologically managing even a brief peek in the mirror yet to see that they are not, and will never again be, that 19 year-old they imagine themselves to be.

The growth of the high net energy days is over.  We need to have a different pace of life now.  Species are disappearing at alarming rates and we need to take that quite seriously because nobody even knows what happens to the space station if we remove random components from the life support systems.  

But day after day, it's pretty much one long repeated mantra of "higher markets!" and "growth!"  as if the media were our own family standing court side yelling encouragement and feeding our delusions of youth.

AaronMcKeon's picture
AaronMcKeon
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Posts: 63
Thanks

Can I just say - I found this to be a great podcast.  So much information packed in there that gave me some nice confirmation bias in some areas but also challenged my thoughts in other areas.  Love it when the thought process gets challenged and really makes me think through things.

treebeard's picture
treebeard
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Posts: 563
Controlling the narrative

Isn't what it is all about? With such a small percentage of the population in the market, you don't have to do a lot of favors to keep the apple cart upright, with the rest of the population living on a diet of fabrications. How are "market forces" going to assert themselves. Is that still the mechanism that is going to correct all this, even though I keep hearing that we don't have free markets?

Like in our political discourse, that range of acceptable opinions keeps shrinking. As absurd as the explanations get (ie the Russians stole the elections), no complaints, life goes on as usual.  Suppose all these pension funds "fail" and people retire with pennies on the dollar and the ranks of the impoverished continue to swell.  But in our blame the victim society, will anything happen? Current between 1 in 4 or five children in this country lives with food insecurity.  Is anybody out in the streets over this.

Government statistics are now all fabrications, no revolution caused there.  Suppose debt quietly starts disappearing off the fed balance sheet, they'll invent some mechanism, would the "markets" respond.  What everybody thought was impossible has happened, years ago.

If we keep waiting for the "markets" to respond, we will have a very long wait.  When "they" lose control of the narrative and people actually get off their couches, now that will be something to watch.

eb_riesling's picture
eb_riesling
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Posts: 52
Dent

Chris what a thoroughly disappointing interview, both your guest and the way you interacted with him.  I thought you and your site stood for something and you had the courage to call someone out on their disillusions.

I have no issue with letting someone spew stupidities (Dent) but I expect you to call him on those same stupidities.

Dent talks about the need for growth to end our dept problems yet you gave a weekly YouTube world summary where you say growth is bad, it provides no benefit any longer and you personally don't need or want it?

The fact that you did not push back on him really is disappointing and seems like you and this site are talking out of both sides of your mouth.

E

Belmontl's picture
Belmontl
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Posts: 12
Grey swans

James is a close friend of mine-- staggeringly brilliant man (also renowned expert on fitness- on medium check out worlds fittest human.... free 700 page book), all of grey swans worth reading (they take 2-3 weeks to research and write), his longest piece on historyof propaganda, military, pAst elections, ai,robtics..is a transfortransformative read

zoedog's picture
zoedog
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Posts: 11
Disappointed

This person, Harry Dent, first called for the crash scenario that he describes here to begin in "2009 to 2012".  When it didn't, his next book called for the crash between "2012 to 2015".  Whoops.  Now it's this year, or up to 2019.  When you go to his website, you are inundated with offers to subscribe to his service (so you can know when it's time to bail), buy his papers, and buy his book.  This man gives the impression of being one of a great number of people making their living by selling subscription services, either as trading tips, or stock trading methods and gimmicks, or in his case, how to duck when the sky falls.  Which it will any minute, of course.  I'm disappointed in Peak Prosperity for giving him a platform like this.  The arguments are well reasoned and convincing, but they always are, and it didn't happen in 2009, or 10, or 11, or 12, or 13 or 14 or 15 or 16.  (But now ...)  Really Mr. Martenson, this doesn't seem up to your usual standard of guests.

Tapio Mäkinen's picture
Tapio Mäkinen
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Posts: 1
I registered just to give

I registered just to give your comment the thumbs up.

Adam Taggart's picture
Adam Taggart
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Posts: 2480
Dent Criticism

To those critical of Harry Dent appearing on the podcast:

Your opinion of Dent's positions is, of course, yours to hold. We're not making any attempt to change it. And personally, we may share it (I won't speak for Chris, but I certainly don't ascribe to everything Dent claims in this interview).

But we extended the invitation for Harry to come on the program due to listener demand. Believe it or not, we've received more unsolicited requests from the PP audience over the past year to interview him than nearly anyone else.

Given Dent's somewhat polarizing nature, I thought for a while about whether or not to invite him, but then decided to go ahead for the following reasons:

  • We listen to and respect the PP community. If folks express a clear preference, we do our best to deliver on it.
  • Many times on this site, listeners have requested that we book guests who don't share our exact views, to avoid the "echo chamber" effect. Dent certainly fits that mold in certain areas (such as his prediction for $400 gold or his belief that "growth" is the answer).
  • We trust that our listeners have the maturity to hear different perspectives and accept or reject the wheat and chaff within

One commenter asked why Chris didn't push Dent harder on growth. I'll leave it to Chris to clarify his decision, but I want to make it clear that our job as interviewers is not to force our guests into our way of thinking. As the guy responsible for finding and booking our guests, I'd have a heck of a lot less success landing the folks we want if PP developed a reputation for bullying them.

Instead, our job is to surface perspective which enhances or challenges (ideally, we try to do both) our collective view of the future ahead.

And if there's a thinker you particularly want to hear on this podcast, just email us. I'm always on the lookout for good future guests.

davefairtex's picture
davefairtex
Status: Diamond Member (Offline)
Joined: Sep 3 2008
Posts: 4010
savaging the guests

Lets see if I have it straight.  First of all, from first principles, "The customer is always right."  So given this, your task is as follows:

  1. make sure that PP isn't just an echo chamber - invite guests who have points of view that sometimes diverge from the "PP mainstream thinking"
  2. somehow convince guests to come here and participate
  3. respond to member requests to bring specific guests here to interview
  4. and whatever you do, don't let the guests get away with saying things that diverge from the PP mainstream thinking.

I believe the last item, #4, happens in the discussion section following the interview.  In other words, that's the job of the membership.  No guest wants to be savaged in real time in an interview.  However if they are subsequently savaged in the comment section by an unruly member-mob, there's not much that the friendly staff at PP can really do about it, now is there?  Plus - how often do the guests really look at the comment section?  Who has the time?

Everyone wins.

zoedog's picture
zoedog
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Posts: 11
Tapio

Gosh, thank you. ♥

treebeard's picture
treebeard
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Joined: Apr 18 2010
Posts: 563
MIddle Ground

I was happy that Chris interviewed Dent, he did have some interesting things to contribute to our understanding of how the macro economy functions, even if we believe he is leaving major factors out of his analysis.  I also see his perceptions as somewhat limited, but in the context of the reality that he lives in, he seems sincere and intelligent.  The fact he is trying to make a living selling his services, don't see how we can hold that up as a fault.

It is important for the interviewer to bring out the what the guest has to offer as fully as possible, and Chris did a good job of that.  However it is also possible to bring up issues without "savaging" your guests. Like, "In your macro economic analysis, how do figure in environmental degradation and resource depletion in your model, do you think liquid fuel depletion will be an issue?"  That's not really savaging a guest or forcing them to the PP point of view.  But I will not second guess Chris.  Many times when talking with people, you can get an immediate sense of there limitations, and tailor your interaction with them accordingly.

That is how I function here on planet earth, a very strange community of beings indeed we are, with what I think of as generally a very distorted view of reality.  There is only one religious heresy, that is forcing someone to pray.  If things are not given with an open heart, they have no value.  The goal of the universe is the individuation of consciousness after all.  To that end free will is one of the highest goals, to achieve that end, all manner of horrors are permitted by the human race.  So when we engage in respectful discourse, we are doing the highest good.  To ground ourselves, we must broaden our perspective as wide as possible, not get caught in the fear of the moment.  Fear is after all what disconnects us form reality.

Uncletommy's picture
Uncletommy
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Posts: 307
Google definition
 
fo·rum
ˈ
noun
 
  1. 1.
    a place, meeting, or medium where ideas and views on a particular issue can be exchanged.
    "it will be a forum for consumers to exchange their views on medical research"
    synonyms: meetingassemblygatheringrallyconferenceseminarconventionsymposiumcolloquiumcaucusMore
     
     
     
     
     
     
    •  
  2. 2.
    NORTH AMERICAN
    a court or tribunal.
     
     
     
    Where else can one find a more varied and inclusive opportunity to practice this. Hats off to PP.
Time2help's picture
Time2help
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Posts: 2454
"Creating the buying opportunity of a lifetime"

Perhaps Harry should consider The Thing. This buying opportunity comes with a cost. 

CrLaan's picture
CrLaan
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Posts: 50
robertenrico wrote:Charles

robertenrico wrote:

Charles Nenner is a proponent of sunspot cycles ... I didn't know Dent was but I'm not a follower of Dent ... especially after this interview it reinforces my conviction to ignore him ... Dent does not believe that gold is money, he thinks it is only a commodity ... and declaring Trump is certifiably crazy and uncontrollably impulsive confirms to me that Dent is brainwashed by The Matrix of Main Stream Media ... I question his reasoning now ...there are other better economists/cyclists to follow ... Chris being one ... Michael Pento ... Dr Paul Craig Roberts ... David Stockman ... Nenner ... 

Charly Nenner. In 2009 on dutch radio: gold will crash in februari 2010. 

zoedog's picture
zoedog
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Posts: 11
Harry Dent criticism

Adam, you're right, and I'm sorry I implied a criticism of you for having Harry Dent on the podcast.  I think for me it was a bit personal, I've fallen for this kind of message before, done what the person said, and of course whatever was predicted didn't happen and I lost money.  What can I say, I'm gullible, and susceptible to a good story.  When I saw the list of Harry Dent's book titles on Amazon, I felt hoodwinked again for believing him.  He still could be right, but a big part of his message is in the timing prediction, and he was wrong on that every time before.  Anyway, I wanted to say that I think the podcasts are brilliantly done, and they always expand my view of the world.  I'm grateful to have them, thank you.

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