In 1989 (yep, 21 years ago), Harry Dent wrote his first book entitled “Our Power To Predict.” In it (page 22) he points out that there is reason to fear a depression after 2007 because of the drop off in demand from the shift of baby boomers from savings mode to spending mode.In “The Great Boom Ahead,” which was published in 1993 and then republished in late 1994, Harry reiterated his forecast, stating (page 16) that the next depression would be from 2008 to 2023.In both books, using a simple overlay of 46-year-olds to the historic move of the Dow, he called for a Dow of 7,000 to 10,000 by the end of the boom.Please understand what we do. We forecast growth or contraction of developed economies based on personal choices of consumers, which we believe to be, in aggregate, very predictable based on age. The outcomes of this growth/contraction are numerous – rising/falling equity markets, real estate markets, business valuations, employment opportunities, etc.In the late 1990s the Dow crossed 7,000 (1997) and then 10,000 (1999). That created a problem. According to our research, there were 8-10 more years of spending by boomers to come! So we tried to figure out what we did wrong. If boomers were indeed going to keep spending, which meant that companies would keep adding earnings, then it seemed apparent the markets would go higher.We revisited our research. What we came up with was a combination of a basic channel of growth of the Dow from the beginning of this economic season (1982) that we projected out to 2008-2010, as we believed the trend would continued that long. We did this on a logarithmic scale to adjust for constant percentage growth, which seemed appropriate because an extra $1 of earnings for a company does not add $1 to stock price, it adds it’s P/E multiple. Using this approach, we estimated the market to be within 18,000-40,000 by the end of the 2000s. We updated the spending wave to a logarithmic chart as well, which is why in later books and in our presentations it shows a potential top of the market to be in the 35,000-40,000 range as well.Of course, 18,000 doesn’t make for as good of copy as 40,000. We put ourselves out there forecasting that at the end of the historic run of spending by consumers and speculation by investors, we could have a final bubble in equities that would reach 40,000 on the Dow.
We were wrong. We knew that we were wrong back in late 2005. We told our readers in early 2005 that the demographic window of higher spending was quickly closing, so if the year of 2005 was not exceptional in strength in the equity markets, then we would have to revise our forecast significantly. In the Spring of 06, we took the top possible number down to 20,000, and subsequently lowered it to 18,000 and then 15,000 as we got closer and closer to 2008/2009.
All of this is detailed in our last book, “The Great Depression Ahead,” in the Prologue, pages 11-12.
In “The Next Great Bubble Boom” we extended out the possible growth of the economy to 2009-2010, noting that there had been a gradual shift of educated, high-earners to put off children until later in life, which was slowly pushing out spending.
It was NOT, I repeat NOT, a slowing of spending that caused the massive crisis and selloff in 2008-2009, it was the credit crisis. The huge explosion of debt that was used to fuel the consumption we had correctly forecast finally collapsed on itself. But the slowing of consumption has shown itself, and it will be with us for many years.
So, the explosion in consumption happened, just as we forecast. It lasted for roughly the length of time we forecast, within a year. Now the lack of demand is persisting, just as we forecast.
The equity markets did not explode as we had thought, instead the asset bubbles formed in other areas – real estate, commodities, and foreign markets. But they definitely existed, and now we are dealing with the aftermath.
We take our research seriously, and we believe that following the trends we do can assist business owners, investors, and general consumers make better financial decisions.