Productivity | Strategy | Profitability
Productivity | Strategy | Profitability
Harry S. Dent Jr., MBA - Harvard Business School
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Harry S. Dent Jr.
President & Founder, Dent Research
An interview with Harry S. Dent Jr. President & Founder, Dent Research
Our exclusive interview charting how Deflation Manifests Globally with HARRY DENT, CEO of Dent Research, and New York Times Best Selling author, investigates the possibility of an upcoming economic crisis as Executive Global explore the potential effects of generational spending, demographic trends, business cycles, and Central Bank policy. Analysing how a deflationary downturn in the greater macroeconomy may impact worldwide financial markets, we sit down with one of America’s pre-eminent financial prognosticators, highlighting salient themes investors and high net worth individuals should consider to mitigate risk.
Harry S. Dent Jr.
South Carolina, United States
Harvard Business School
1977 Harvard Business School
1981 Strategy consultant to new
1989 Started first financial newsletter,
HS Dent forecast
1989 Started speaking to business
executives and investors around the
1992 First published book The Great
1999 Launched major mutual fund with
2012 Chairman of Krystal
2013 Merged with Sovereign Society
to form Dent Research
Graduated Harvard Business School at top of class as Baker Scholar and Century Club.
Sold 800,000 copies globally of The Roaring 2000s in 1998.
Gave 280 speeches worldwide in 1998.
330,000 and rising newsletter subscribers currently.
Launched mutual fund to $2 Billion in 1999-2000.
One of Top 5 speakers at TEC, global CEO network, 1992.
Graduated #1 in class University of South Carolina, 1975.
CEO of 4 Companies in 1980s as turnaround specialist.
Published 11 books since 1989.
Deflation Manifests Globally
EG: It would appear that by the will of Central Banks and the Federal Reserve, such factors as quantitative easing and negative interest rates constitute the reasons for the bubble. Were they simply being shortsighted or was there something to gain for them in it?
Harry Dent: There was everything to gain for them in the near term. They were able to push an inevitable financial crisis down the road to the next Fed chairman or President. Who would want the next great depression to occur on your watch? We were seeing a massive debt and bubble deleveraging occurred in the early 1930s and they were able to flood the banking system and economy with free money and keep longer term interest rates lower than normally in such a crisis where defaults rise and raise such rates. That allowed an artificial rebound that no longer followed the rising demographic and technology trends of the 1983 – 2007 boom. This became about consumers getting much lower mortgage payments and car loans – a free lunch. Businesses could borrow cheap and buy back their stock and finance mergers and acquisitions that didn’t grow the pie or create new productive capacity.
EG: Printing money and increasing debt does not seem sustainable. Is there a strategy to prevent a similar crisis from happening again in the future, or is the crisis simply a necessary part of this
financial system that is bound to happen over and over?
HD: There is no way to prevent this crisis after a third and larger debt and financial asset bubble has stretched so far for 8 years now. Consumers and businesses are still at peak debt or worse now. Government debt is much higher. There is only more debt and bubbles to deleverage and “detox” (debt and bubbles are like a drug – they make you feel high and better than normal – and why they are so addictive). Hence, the crisis around the corner will only be worse than 2008 – 2009, and more like 1929 – 1933. Glass-Steagall was created in the 1930s to prevent another collusion of the banks to create such bubbles, but Bill Clinton repealed it just in time for the tech bubble and many more to follow. Massive debt and bubbles have to be purged from our economy or we will stay addicted until we die. And we need a stronger version of Glass-Steagall/Dodd-Frank.
EG: The stimulative measures of Central Banks, their attempts to restart the economy by addressing symptoms rather than long-term causes, are hinting at the terminal flaws of these institutions. Would it make sense to do away with an institution like the Federal Reserve and its interventionist policies, or is there perhaps still a way to make it work despite its previous shortcomings?
HD: Absolutely. The Fed should be a part-time institution that does not try to manage the economy (and kill the golden goose of free market capitalism and democracy), but simply provide temporary only emergency liquidity in crises like 1930 – 1933 and 2008 – 2009 to keep the banking system from totally breaking down. But it shouldn’t prevent the natural rebalancing of debt, over-expansion, bubbles, inefficiency and bad investment that come with any boom. It also should not stimulate during the boom which only makes such bubbles worse. And the Fed has done just that since the first 1987 crash.
EG: For all the signs pointing towards a brutal burst, the average stock broker is likely to deny the full extent of the upcoming collapse and claim that diversification will protect us from the fall. Why is the mainstream denial of the ultimate collapse such a widespread view?
HD: Major bubbles like this come only once in a lifetime and when they burst there is no diversification strategy to protect you as almost everything goes into bubbles and crashes – as in 2008 – 2009. Stock brokers don’t make money when you move into cash. They, like politicians and economists don’t want you to panic and sell. They have made unprecedented profits from this bubble as have their companies. This is not the time to listen to them – or Warren Buffet for that matter!
Deflation and The Next Crisis
EG: Considering the fact that a massive bubble burst is a once-in-a-lifetime event that is hard to foresee for the majority, where does the quality of financial education in the US stand in relation to this? Have we simply not learned from history?
HD: Financial education is terrible for two reasons: First, economists don’t understand cycles and how the free market system actually works, hence they try to manipulate it to become a machine for generating constant growth with no recessions, whereas the play of opposites and cycles in things like inflation and deflation and boom and bust are what actually create the greatest innovation and progress in our standard of living. The economy is a more complex biological system, not a machine. From my view, economists don’t understand it at all, so they only end up treating symptoms. Yes, we don’t learn from history which is crystal clear on these principles. Second, our education system for our youth teaches almost nothing about basic finance, not even balancing a checkbook. They don’t value basic living skills, just jobs skills – big mistake!
EG: Has the crisis already begun? And if so, why do we hear so little about it?
HD: Yes, it began in 2008 as I predicted from peaking baby boom generation spending back in the late 1980s (as well as the collapse of Japan in the 1990s). But central banks around the world short-circuited the deleveraging and rebalancing and only created greater bubbles in more areas. Again, no one in politics wants people to realise a bubble is bursting and panic as that only makes it worse near term. But the bursting and deleveraging is the best thing that can happen longer term to reset the economy back to normal so it can grow again.
EG: To protect one's holdings, cashing out now seems to be the most sound manoeuvre. Speaking of cash, considering the questionable future of the dollar, how will the stability of the dollar be affected by the burst?
HD: The dollar surged 27% in the worst of the late 2008 crisis and is up over 40% from its bottom in early 2008 and breaking out to new highs. We keep warning that the dollar is the safe haven as we are the “best house in a bad neighbourhood.” The dollar is likely to surge at least another 20% in the next year or so and be a catalyst for deflation and contraction of credit around the world as it raises the cost of borrowing outside the U.S. It is a safe haven for investors (through ETFs like UUP and gold bull funds), but conversely a wrecking ball for the global economy as it rises.
EG: What is the most important thing to do right now, in order to not only survive the great deflation, but to increase its profitability in the optimal way?
HD: Simply protect your capital and gains from the great bubble and look to reinvest in one crash bottom after the next starting with high quality bonds (2017) to emerging country stocks and commodities (late 2017 – early 2020) to U.S. stocks and junk bonds (early 2020 – late 2022) to real estate which will tend to bottom last (2023+) – as I outline in my new book: The Sale of a Lifetime.
Organize into human front-line customer-focused browsers and back-line specialist servers.
Get lean and mean and only focus on businesses and sectors you can dominate.
Make every front- and back-line team accountable including bottom line profit measurements.
Harry S. Dent Jr.
The Serial Entreprenenur
Dent, born in Columbia, South Carolina, is the son of politician Harry S. Dent Sr.
Dent is the Founder of HS Dent Investment Management, an investment firm based in Tampa, Florida that advises, and markets, the Dent Strategic Portfolio Fund mutual fund. Dent is also the president and founder of the Dent Research and H.S. Dent Publishing.
Dent writes and markets an economic newsletter that reviews the economy in the US and around the world by focusing on generational consumer spending patterns, as well as financial markets. He has written eleven books, two recent ones being bestsellers. His most recent book, The Sale of a Lifetime, was released in September 2016.
The basis of Dent's investment thesis, spending wave theory, is that consumer spending related to the generational formation of families has a profound effect on the market value of investments such as financial securities, real estate, and gold. Dent's spending wave theory posits that young adults spend little within the greater economy, and spending increases while they rear children. It peaks as children leave home and then slows during the last 15 years of working life (48-63).
Real Estate, Equities, and Markets
EG: Technology, for instance, seems like a sound sector to invest in. Will this be true in the scenario of the upcoming bubble burst and what other sectors should we be on the
HD: Tech stocks have been the strongest and now are weakening in the last stage of this bubble since the Trump election. Tech stocks are one of the worst places to be now and will see larger declines than most, likely into at least early 2020.
EG: As of today, when do you anticipate will be the best time to acquire stocks at their lowest?
HD: The combination of my models suggest early 2020 as the best time to see a bottom in stocks, or at least most of the damage. The latest is late 2002.
EG: While the deflation wipes out a lot of debt from businesses, how will that affect the average person's life and assets?
HD: The little understood upside to such a severe deflation and debt deleveraging crisis is that consumers and businesses get a lot of debt written down to free up cash flow and the overall cost of living – especially in the most inflationary areas of education, childcare and health care as they go down. Unrealistic entitlement promises and low retirement standards vs. our much higher life expectancies will also be restructured, only when we realise they are not even remotely possible to be paid in a deep financial crisis. All of these changes will most favour the new, younger generation that is severely hampered by present bubble and debt trends.
EG: How will the deflation affect real estate and is there a possibility to profit from it like there is in the stock market?
HD: Real estate will not go down as much as stocks, but its impact will be much more devastating as in the last financial crisis as it is highly mortgaged. There is a big difference in real estate. It lasts forever. As the next generation is not of the magnitude and only retests the highs in peak spending and home buying of the baby boom, there will be more diers (sellers) than buyers into 2039 – and I can project that as accurately as peak spending and booms 46 years – like 2007. Real estate will not rebound in most sectors as well as stocks in the next global boom –
except in emerging countries like India. EG
Harry S. Dent Jr., is the Founder of HS Dent Investment Management, an investment firm based in Tampa, Florida that advises, and markets, the Dent Strategic Portfolio Fund mutual fund. Dent is also the president and founder of the Dent Research and H.S. Dent Publishing. Dent writes and markets an economic newsletter that reviews the economy in the US and around the world by focusing on generational ones being bestsellers.
To find out more information about Harry Dent, please visit www.economyandmarkets.com