It takes just “one extra snowflake to start an avalanche — and boom!” Indeed, according to Harry S. Dent Jr., aka The Contrarian’s Contrarian, flurries could come in July: The ever-building market bubble is likely to “blow at the end of this month, if not September,” predicts Dent in an interview with ThinkAdvisor.
Stocks have no place in investors’ portfolios, he argues, forecasting that most equities will plummet 80% by autumn.
The economist correctly called Japan’s 1989 bubble bust and recession, the dot-com crash and the populist support that catapulted Donald Trump into the White House.
In the interview, the author of “What to Do When the Bubble Pops: Personal and Business Strategies for the Coming Economic Winter” (G&D Media-April 2020) zeroes in on a specific strategy and timing he recommends for selling equities and buying them back or acquiring new ones.
“You’ll never see an opportunity like that again,” he enthuses.
Investors remain “bullish longer term, but the economy keeps telling us things aren’t as good as they used to be.
“The economy isn’t the same, idiots! The current economic rebound won’t last,” declares Dent, who in the interview discusses what he sees as the first sign of a downturn.
He heads the research firm of HSD Publishing, which produces monthly newsletters that he and Rodney Johnson, HSD president, each write.
“It will take one more crash to convince” investors that the economy isn’t as robust as they think it is, says Dent, who publishes his insights in a free daily e-newsletter.
He isn’t entirely gloom and doom about what’s on the way. He has high hopes for Bitcoin — but after it plunges 90% to 95%.
In the interview, Dent reveals his personal investing strategy for the digital currency.
ThinkAdvisor held a phone interview with Dent on July 7. He was speaking from his base in San Juan, Puerto Rico. Upcoming: a free “Financial Prophecy Summit” webinar July 20-22, in which Dent and Robert Kiyosaki forecast the economy.
Here are highlights of our interview:
THINKADVISOR: What worries you about the market and economy right now?
HARRY S. DENT JR.: I’m not afraid or worried about what’s going to happen. It’s just the wait. I’m waiting for the economy to get back to normal and quit having central banks manipulate and stimulate it like a drug pusher with a heroin addict.
They’re going to keep stimulating and doing whatever it takes to try to keep this bubble. But you can’t just keep pumping money and pushing up financial asset prices. We now have a bigger bubble than ever.
Investors are still bullish longer-term. But the economy keeps telling us, no — things aren’t as good as they used to be. Look how much stimulus it’s taken to grow at 1.6%!
The economy isn’t the same, idiots! But people are still assuming it is. It’s going to take one more crash to convince them.
No amount of stimulus is going to cure this, and investors lose.
What’s your outlook for the stock market, then?
This is the longest bull market and the most bubbly. When this thing goes, it’s going to go big.
It will be the biggest crash of our lifetime. The central banks will lose control. The worst year for the stock market in our lifetime is likely to be around the end of 2022 and for the economy, 2023.
You told me in an interview this past March that “the biggest crash ever” would likely occur by the end of this June. What are your thoughts on why that didn’t happen?
It’s the same old story: We’ve been rebounding since COVID crashed us in March of last year. The stimulus was off the reservation! The central banks said, “We’ll triple down.” But that stresses the system: not letting the economy rebalance, not washing out zombie companies. Twenty percent of large public companies can’t meet their debt service.
So it was massive stimulus and the natural recovery — [Americans] had to hold back [spending] for months. So now we have this bounce.
We’ve been rebounding since COVID crashed us in March of last year. But I don’t think it’s going to last, and the markets don’t think it’s going to last. The bond markets are saying, “Yeah, now we’ve got 3% or 4% inflation, but it’s temporary.”
Governments will keep this bubble going no matter what. So the question is: When does it blow?
When does it blow?
I think the end of this month is one of the most likely times, if not September. It’s pretty hard to hold this thing up, and the biggest reason is home sales, which is the single most important thing that we buy.
Housing is the biggest part of the economy. If sales keep slowing, then prices get weak. That’s the type of thing that tips this thing over.
What I’m seeing No. 1 right now is that prices on home sales have gone down. Real estate is still bubbling up, but U.S. home sales have gone down 22% or 23% in just a matter of the last five or six months. That’s a sign there’s a limit to the bubble.
So that’s the beginning. But the downturn is going to be hard and fast because the economy is way overstretched, including low interest rates. People just assume this is going to last forever, but when it hits, it’s going to hit hard.
How much snow does it take for an avalanche? One snowflake — because it’s been building up and building up. One extra flake — and boom!
Please elaborate on your inflation forecast.
Everyone is wrong on this. We have inflation up maybe [3%-4%] temporarily, and that’s mostly because of COVID recovery, not real core inflation. Hyperinflation isn’t going to happen.
We’re not in an inflationary era like the 1970s. We’re in a deflationary era like the 1930s. My cycles have said that forever.
The deflationary cycle means that consumer prices, including home prices, will go back down to reality. Homes are 50% overvalued. Financial assets of all kinds — real estate, stocks, bonds — will all go down except for the highest quality bonds.
Bonds go down but not because of inflation. There will be lower rates on a downturn — lower inflation, lower interest rates — but the risk goes up. Bonds start to default, even B, B-plus and A-minus bonds default; municipals default.
Which bonds will be safe?
Treasury bonds and triple-A corporates, the highest quality bonds. You’re not buying them for the yield; you’re buying them because they’re the safe haven, the safest place to go.
They’ll get bid up; their yields will go down with the deflationary process. They’re not going to default.
So, have these bonds replaced gold as the safe haven?
No. they’re the safe haven in a deflationary crisis, like the 1930s. Gold is the haven in an inflationary crisis, like the 1970s.
Do equities have a place in investors’ portfolios now?
No — they just don’t. All financial assets are going down. Absolutely sell your stocks. Stocks will go down 80% by September or October, though maybe defensive stocks like utilities and staples will go down 50%.
Sell your stocks, and then buy the same ones back or buy better ones. You’ll be able to buy those back at the best time in our entire lifetime. You’ll never see an opportunity like that again. This is [just like] 1982 and 1932.
When should investors sell their stocks?
I wouldn’t be selling until we break that bottom trendline I see because at present, the momentum still looks up [rising].
Here’s a great strategy: Sell half the last week in July — which is the next likely peak. I’m targeting 4,500 on the S&P. If the trendline breaks at about 4,220, sell the other half and look for a buy target down the road.
Wait till at least 2,100 to start buying. As long as we stay above about 4,250, we’ll keep going up and get to 4,500.
What leads you to believe this is a great strategy?
We have the megaphone pattern, which only tends to happen at the top of big bull markets like the late 60s, early 70s and now.
There are three peaks, and we’re in the third peak. The pattern projects that after the peak, the trendline falls and then crashes.
This market has gone up for so long and governments have been so supportive that investors just assume it will always go up.
What’s the biggest threat to the market?
Overvaluation. Everything is overvalued; everything is overstretched. It just takes a big-enough pin to burst this to make it go down.
How significant a factor is the coronavirus in this scenario?
I think the stimulus was overdone. That’s why people are bat—- crazy now spending money. I look at COVID like a stock chart and a bubble that just burst.
This thing is down 98%. You don’t have a new bubble after that. I think it’s been knocked out enough.
What’s your thinking about Bitcoin?
I’ve been tracking bitcoin. Bitcoin is the bubble of all bubbles. Bubbles can crash 50%, and that’s what it did.
One chart I saw showed that Bitcoin was the most overvalued since mid-2017 and late 2010. Both those points were followed by the steepest rallies. So I’m thinking that Bitcoin is going to go to 85-115, probably closer to 115.
I know some of the biggest Bitcoin players, especially those who have [relocated] to Florida, and they see what I see.
But I tell them that Bitcoin is just like the dot-coms: You’re going to be the biggest thing on earth 15 years from now, but you’ll go down 90% to 95% first. And there’ll be a shakeout.
The dot-coms were the bubbles of all the tech stocks. They were the last thing in the first tech bubble. This is the second and final tech bubble. Blockchain, cryptocurrency, Bitcoin will go down the most.
Do you own Bitcoin now?
I bought Bitcoin in one brief rally. I’m waiting to buy it again if and when it has the sort of crash [I mentioned]. If that happens and it’s still alive and a lot of other [stupid] coins go under, then I would buy Bitcoin.
If you buy Bitcoin at $4,000, the projection from the smart money — including the players in Florida and Cathie Wood [founder and CEO] of Ark [Investment Management] — is $1 million.
The best people say that $100,000 is fair value now. My target is $115,000. Then it crashes, and five to 10 years after that, the next thing you know, it’s at $1 million. So if you’ve bought it at $4,000 and it goes to $1 million, how are you going to beat that run!
The industry is huge. It’s the next internet — the internet of money and financial assets, rather than the internet of information. It’s a big thing.