Market Forecast With Harry Dent
- Harry Dent: Into early 2009 and two big crashes and people are telling me, ‘this can’t happen’, after you know 6 – 7 years of total artificial stimulus. How can you ever have a sustainable economy on free money created out of nowhere?
- We’re here with world-renown economist, Harry Dent. First of all, we both were also talking about some of the predictions you’ve made, the past, present, and future. Now just before the break, you mention that one of the things that got you to change your prediction in late 1990’s going to early 2000s, was geopolitical consideration. So could you talk just a little bit more about that for a moment, please?
- Harry Dent: Also India and that’s why India is doing well when everybody else is not.
- With a year of lackluster employment gains, weak corporate earnings, low growth in production which is measured by the G.D.P. (the Gross Domestic Product) as well as faltering global economies, there has been a long drum roll so to speak while the markets have waited for the Fed to raise interest rates for the first time in a decade, Now we may finally get what we’ve been waiting for in the middle of this month a small rise in short term interest rates but frankly I wouldn’t even bet my life savings on that.
- It isn’t just the big money on Wall Street waiting, The Income Generation, many of you, many who have retired or going to be retiring shortly who expected in their retirement plans or pre-retirement plans to earn four or five percent on bank deposits or in bank C.D.’s or other products or investments have had to tighten their belts for eight years or more.
- You expect the dollar to rise and you expect gold to drop which is kind of going to surprise all the gold bugs because most people say, I’m sure you’ve heard, this that gold does well during times of financial crisis.
- I’ve studied gold back to 1600 adjusted for inflation, it does not appreciate and it makes no income like real estate which also does not appreciate long term adjusted for inflation.
- We’re moving into a deflationary period which always follow this financial bubble and debt bubble burst because money’s destroyed, I mean literally, trillions of dollars will be destroyed.
- In the winter season when all bubbles burst except the safest bonds and principal place and also bubbles when they burst, we just saw it in China and we saw it in 1929 40 percent down 42 percent down in the first two and a half months, half the whole 80 percent move was made the first two and a half months.
- Gold went down 33 percent, silver 50 percent, commodities down, real estate down, stocks down around the world, the only thing that was up was the U.S. dollar and the highest quality bond.
- I know I have, or you paid a bill to Ma Bell, lost sleep over the Soviet Union or held a mortgage with interest rates as high as six, ten or even 18 yes 18 percent.
David Scranton: I’m David Scranton and you’re watching the very first weekly edition of a new kind of show. A show that turns its spotlight on personal finance and investment strategies, those which address the needs of The Income Generation. The question is, are you part of The Income Generation? Well, let’s find out. If you can tell me what people do when E.F. Hutton talks or have typed on your Smith Corona before you bought a COMPAQ computer, if you read Life magazine or shop at WOOLWORTHS you might, just might be part of The Income Generation. Or maybe you once forgot to return a video to Blockbuster, I know I have, or you paid a bill to Ma Bell, lost sleep over the Soviet Union or held a mortgage with interest rates as high as six, ten or even 18 yes 18 percent. If you once invested confidently in the NASDAQ, dropped off film at Fotomat, dreamt of owning that new Pontiac or Hummer, watch the McNeil Lehrer News Hour, booked a flight on T.W.A. or played with Lionel Trains there’s a pretty good chance you’re part of The Income Generation. Which means you’re either retired or want to be able to retire within the next twenty years or so. Welcome to the show designed just for you. For you my fellow Income Generation viewers who haven’t yet purchased a new Hummer or a new sweater at Gimbels or haven’t flown T.W.A. or any of the other things I’ve mentioned, your opportunity is long past. These things simply don’t exist any longer. But you shouldn’t be concerned because the world always brings unexpected change and with that change we have to accept that the things we were once able to do have now been replaced with other opportunities. So even though today toy trains are not made by Lion-El, Texas Instruments doesn’t make calculators and you can’t watch Louis Rukeyser on Wall Street Week, life’s ongoing changes have ushered in many new opportunities on what you can buy, how you can invest and ways to live. This show is about bringing you new and often simple ideas on how to adapt to the changes that affect everyone especially in the area of your personal finances including those decisions that you make on your return on investment, which social security options to take, how to manage health care costs, major expenses and even housing.
Tonight’s inaugural show is part of that ongoing change. Why? Because along with news that directly affects you, The Income Generation, you’re going to find a different tone in the atmosphere than most other shows that discuss your money. First of all, you’ll notice there’s no wild-eyed commentator yelling at you through the television screen. Second, you won’t be bombarded with alerts, fast talk, flashing lights, bells or bright sets. That’s my promise to you as your host, David Scranton. It’s an important promise for me because we’re all grown up now and you know that, that noise and distraction isn’t going to help you make the most of your personal finances simply not going to make it help you make better decisions with your money. I’ve been on the air over 300 times as a guest on other business news so when they asked me if I do an investment show I told them under one circumstance, only if my program could be useful and meaningful for people in my generation. Why? Because people approaching or in retirement don’t deserve an angry journalist telling them how to think politically, globally or even environmentally. You simply don’t need that.
I am a career financial analyst and author and a businessman who wants to use real insight to discuss with my guests, those who are at the top of their respective fields, new avenues to completely address some of the most perplexing questions that you are most likely experiencing. Welcome to The Income Generation. For those of you who aren’t in this age range, we’re sure you’ll find the wisdom presented in the next hour more than worthwhile. Especially tonight’s show where we welcome our guest author and fame economist, Harry Dent Jr to answer questions that are critical to people of all generations. He’s here to help us discover trends and connections that no one else unearths. I have personally been following Harry for 20 years and could say that with 100 percent conviction. Today we’re going to ask Harry point blank what he thinks is going to happen next with interest rates, with the stock market, with gold in real estate. My own understanding of what drives the major markets expands every time I’ve spoken to Harry or read one of his books over those 20 years I was discussing. His unique research lays out well-grounded common sense causes for market moves past, present, and future. Frankly, Harry Dent highlights associations that most analysts aren’t even looking at they don’t even know exists and he makes it absolutely clear to his audience how he derives his forecasts and tells them exactly what this forecast means to you. So anyone who’s working, has worked for 35 to 40 years or more deserves to be able to know that they will have a steady income to at least take care of their basic needs if not to provide for a life that takes full advantage of the free time found during retirement. I’ve been helping my clients and even my radio show listeners enjoy this portion of their lives for years now and I’m thankful for the opportunity that Newsmax has presented for all of us to get to know each other, each Sunday at this time. And I encourage you if you’re not the sole financial decision maker in your household to grab the person with whom you share this important responsibility and get ready for a fun and informative hour.
This brings us to tonight’s Income Generation Market Breakdown where we shed light on what’s going on in the economy and markets that most affect you. It’s been over a year since the Federal Open Market Committee or what’s called the FOMOC ended its so-called quantitative easing. This is a drastic move in which is designed to provide life support and stimulus to a near dead economy I call it, economic steroids. The strategy which included the Federal Reserve purchasing 3.5 trillion dollars in bonds, an amount roughly the size of the German economy, in order to inject cash into the U.S. economy and support low bowling costs. This strategy was, in addition to an earlier plan, to keep short-term interest rates around zero where they remain today. Since the beginning of the so-called quantitative easing or Q.E. as it’s called, critics have argued that these steps would fuel inflation and cause asset bubbles in markets that thrive on low-interest rates. When these quantitative easing purchases ended however in October of 2014, most expected interest rates to begin to rise almost immediately. Well so far over a year later, interest rates have not gone up and the inflation spike hasn’t materialized. For 2015, in fact, inflation is only up one-tenth of one percent. So does this prove that these many experts were wrong? Well whether asset bubbles resulted or inflation will become a problem, it still remains to be seen over the long term. The U.S. is still in unchartered territory when it comes to these new economic and monetary policies. The good news, however, for pretty much everyone, is that the economy didn’t falter after the cash injections ended as some had expected. The lesson good news however, is that the economic pace didn’t take off either. With a year of lackluster employment gains, weak corporate earnings, low growth in production which is measured by the G.D.P. (the Gross Domestic Product) as well as faltering global economies, there has been a long drum roll so to speak while the markets have waited for the Fed to raise interest rates for the first time in a decade, Now we may finally get what we’ve been waiting for in the middle of this month a small rise in short term interest rates but frankly I wouldn’t even bet my life savings on that. It isn’t just the big money on Wall Street waiting, The Income Generation, many of you, many who have retired or going to be retiring shortly who expected in their retirement plans or pre-retirement plans to earn four or five percent on bank deposits or in bank C.D.’s or other products or investments have had to tighten their belts for eight years or more. Interest rates this low, for this long, were just not part of the plan for retirees. After the last F O M C meeting in October the Fed’s state and explain that what they’ll do in terms of interest rate increases will depend upon economic data. Well up until now we really haven’t had data that screens for higher interest rates. Does this mean the drumroll may continue through the meeting on December 15th and December 16th? Well again it’s quite possible, I wouldn’t necessarily hold my breath on rates going up on December 15th and 16th. No matter how you slice it though, it is a close call. The economy is just not that strong and inflation just doesn’t seem to be a problem right now. But here’s some economic news to get you going.
The good news is that gasoline prices, as most are aware, are down roughly 50 percent from this time last year and they’re likely to stay down as output and inventory levels for oil continue to be high and demand for oil in a weak low global economy is simply not expected to strengthen. Prices in most of the country are now just about two dollars and twenty cents a gallon or about seventy cents a gallon lower than they were a year ago. Maybe we’ll get a Santa Claus gift and have prices under two dollars a gallon by Christmas, you never know. But before you hop in that car and take that trip, stick around. Why? Because we’re all going to find out from Harry Dent what he sees over the horizon for all of us. And then we’re going to drill down and make it more personal to you as individuals. In fact, we should get really, really interesting because if you read Harry’s most recent book you’ll know that sex actually plays an important role. So I’m sure you have a lot to think about and talk about at your holiday parties.
Over the last three decades, today’s guest has been relied upon by business executives, financial advisors, and investors around the world. He’s appeared on Good Morning America, P.B.S. C N.B.C., and C.N.N. Finance. In fact, you may have read his commentary in Barron’s, Investor’s Business, Daily, Entrepreneur, Fortune, U S News and World Report, The Wall Street Journal or Omni. In fact, he’s a regular guest on FOX Businesses Nightly Scorecard and has written numerous books. In Harry Dent’s 1992 book ‘The Great Boom Ahead’, he had very little company as he accurately forecasts of the unanticipated boom at the fines that economic era. That same year he also authored two consecutive books, ‘The Roaring 2000s’ and ‘The Roaring 2000’s Investor’. If you read his 2004 book which included twenty years of forecasts called, ‘The Next Great Bubble Boom’ you may have been prepared for 2008 economic in the financial collapse. In fact, back in 1989 this week guest warned that Japan’s collapse was inevitable and in the 1990’s, he nailed the rise and fall that was the dot-com bubble. I was following his work in 2006 when he warned the housing bust was on the horizon and in 2008 those that listened may have been able to save a lot of grief by successfully positioning themselves for the credit collapse and collapse in equity values. So it’s no surprise that he was right on these forecasts because he’s a Harvard educated economist, author, and publisher and highly sought after speaker. Harry Dent also has a popular newsletter with over three hundred thousand subscribers. We’ll be grilling Harry today to better understand his methods, what he forecast for The Income Generation specifically, and hopefully have a little fun discussing what all of you individually can expect within your own household.
Harry, welcome to the show.
Harry Dent: Nice to be here.
David Scranton: Great to have you. You say that governments are fighting unprecedented demographic and debt trends. That could only be fought so long with artificial stimulus in this thing we call quantitative easing. Harry, give us an idea of the trends that you’re observing.
Harry Dent: Well first of all the baby boom generation around the world, largest generation in modern history towards the generation before it and somewhat the generation after it. So it first peaked in Japan in the late 80’s, we were the only people to saw that because we have a spending way, peak spending at age forty six we move forward the birth trends for then. And so when a generation is going to spend and no,t and it told us Japan was going to dive in the ninety’s just when people thought it was going to take over the world. And Germany has the worst trends today in Europe and nobody’s going to see that coming. But the United States peaked in 2007, we predicted that 20 years in advance: baby boomers would peak, the spending momentum would go down and we’ve had quantitative easing ever since in 2008 forward. So that’s number one, demographic trends are peaking and one country after the next around the world. Europe is the next to get hit hard and then debt, twice the debt compared to G.D.P. that we had in the roaring 20’s bubble only happens once in a lifetime and debt causes financial asset bubbles. So these things have to burst and of course the last time they did we got the 1930’s.
David Scranton: Of course. Now it’s funny you mention Germany because if that’s true then that doesn’t bode well for the euro. And then you also mention, you told me that the issue that China is facing right now could even be far worse than that. So how’s it all?
Harry Dent: China is the only emerging country because they have all the demographics in the decades ahead, all the demographic growth. China is the only emerging country that actually their workforce is already shrinking slowly since 2012 and after 2025 falls off a cliff, like Japan. And China has the greatest bubble I’ve ever seen in modern history. They have over built twenty seven percent condos empty in major cities, whole cities of a million plus, nobody in them you know railways, roadways, bridges to nowhere, and the biggest mall in the world is empty and they turned it into a tourist attraction. So they’ve overbuilt everything move people massively. China is the greatest bubble I’ve ever seen, if it doesn’t burst in the next four to five years I will move to Australia, become a limo driver and quit economics. It’s that obvious to me.
David Scranton: Interesting, interesting one. How about the dollar in gold? You expect the dollar to rise and you expect gold to drop which is kind of going to surprise all the gold bugs because most people say, I’m sure you’ve heard, this that gold does well during times of financial crisis. So tell me your view on that
Harry Dent: The biggest financial crisis we had recently was in the second half of 2008 when the whole system blew up. Gold went down 33 percent, silver 50 percent, commodities down, real estate down, stocks down around the world, the only thing that was up was the U.S. dollar and the highest quality bond. So the gold bugs are all wrong. I’ve studied gold back to 1600 adjusted for inflation, it does not appreciate and it makes no income like real estate which also does not appreciate long term adjusted for inflation. So gold is an inflation hedge correlates beautifully with inflation, so the 70’s was a time to own gold. We’re moving into a deflationary period which always follow these financial bubble and debt bubble burst because money’s destroyed, I mean literally trillions of dollars will be destroyed. And so deflation does not favor gold. So that’s why I have more bets with gold bugs and you can imagine I’m winning all of them at this point.
David Scranton: You and I definitely agree with all those terms: deflation, over inflation, looking forward and so on. Now another place we agree, which is very interesting, is and I’m sure we agree but for different reasons as is normally the case between us, is you predict that we can very see a Dow Jones Industrial Average down around 6 thousand or so and I’d like to hear your side of this and why you believe so strongly that that’s likely to happen probably by 2017 I think you said.
Harry Dent: Yeah, yeah. I mean, there is a pattern that is so obvious nobody has seen it, nobody wants to see it. I call it the megaphone pattern and we had stocks peaked in ’65,’68 and ’72, three peaks higher and three crashes lower in the horrible ’73 to ’74 crash. So the Dow peaked in 2000 then it peaked higher in 2007 and now higher in 2015. But each crash has taken us to lower lows. This pattern says its peak the final, you only get three of these, and then this final peak will take us in the next year or two down to about 55 hundred to 6 thousand so that’s just a really good guess. You can only guess in the short term, I can make incredible long term predictions that’s easy. But that’s my most likely scenario, a bigger crash and people always say oh Harry that’s too much, I said we just saw sixty four hundred
David Scranton: Of course
Harry Dent: Into early 2009 and two big crashes and people are telling me, ‘this can’t happen’, after you know 6 – 7 years of total artificial stimulus. How can you ever have a sustainable economy on free money created out of nowhere?
David Scranton: And isn’t also true that in every one of these long term bear markets we’ve ever had we’ve always had at least three major drops, we’ve never had one with just two?
Harry Dent: That has been more typical in the Great Depression we had two major drops. Actually when you go all the way to early ’40’s through. That is typical and when you see, after bubbles the typical bear market is 80 percent not 50 or 60. In Japan, their peak to bottom is 80 percent. And again I keep telling people look at Japan, their baby boom they had a real estate bubble a stock bubble way before the U.S. and Europe because their baby boom peak just before and after World War 2 so way ahead. Now the U.S. is following and people say ‘oh real estate will come bouncing back’. No it hasn’t balanced back in twenty four years in Japan and it went down sixty percent and commercial went down eighty percent. Real estate will never be the same when the next generation does not replace the baby boomers in size and numbers of people. The net demand is going to go down for decades, so real estate’s not going to come roaring back.
David Scranton: Of course. Now what’s interesting is you and I as you well know have agreed with each other over the years on most topics. And the one place that I disagreed one time and was back in the very, very late 1990’s. I was predicting myself that we’d be slipping into a bear market cycle and at that point you’re talking about a Dow possibly it thirty or forty thousand and I know shortly after that you must have gotten some intelligence some research that got you to change your prediction and be more in line with mine. Tell me what made you change it that time?
Harry Dent: Yeah you know we have an 80 cycle, 2 booms, 2 bust and an inflationary crisis and a deflationary crisis. I call it spring, summer, fall, winter. And so we look back at the last Fall season which was in the early 1900’s into the roaring 20’s. And there was a first tech bubble and then it crashed massively just like in the early 2000’s and then there was a second one that was even stronger. So I was expecting that to happen again and then so we got into that. We told people to buy stocks again in October 2002 right at the bottom, literally right at the bottom. But I thought stocks were going to bubble up even more and what I had to do about halfway up that I said you know something’s wrong here we’re not seeing it’s still a bubble stock bubble but we’re not seeing that strong bubble. What was different in the roaring 20’s? I came up with two new cycles a 30-year commodity cycle – killer accurate and a geopolitical cycle which is so important today because this said ’83 to 2000 great geopolitical environment. Nothing went wrong in the world but from 2001 to now and for the next four years, horribly.
David Scranton: and Harry we need to take a quick break but as soon as we get back from that break, we’ll ask Harry more questions about his predictions almost all of which has come through. So don’t go anywhere, we’ll be right back.
We’re here with world-renown economist, Harry Dent. First of all, we both were also talking about some of the predictions you’ve made, the past, present, and future. Now just before the break, you mention that one of the things that got you to change your prediction in late 1990’s going to early 2000’s, was geo political consideration. So could you talk just a little bit more about that for a moment, please?
Harry Dent: Yeah, there is a geo political cycle that I’ve now tracked back two hundred years and its seventeen eighteen years positive. Example, 1983 to 2000, nothing went wrong in the world of any significance. 2001, 9/11 to now everything’s gone wrong and we’ve got four more years in this down cycle. Stocks are valued at fifty percent less in the down cycle of this. So if I have this cycle in the late 90’s I would have been predicting a down sixteen to twenty thousand I would’ve cut that in half because of this one cycle. It’s a very powerful cycle and it continues the Middle East and everything we’re seeing today is not going to get better for at least four more years until at least early 2020.
David Scranton: I have to agree with that. Of course that sixteen to twenty thousand dollars twenty thousand point Dow range is exactly where we are today, which makes sense to me. You also mention the 30 commodity cycle with something else that you discovered as a result of the tech bubble bursting before you had thought it would happen. Tell us about that?
Harry Dent: Yeah in the roaring 20’s, that final bubble that I was kind of looking at commodity prices were falling. In the 2000 to 2007 bubble commodity prices are rising, in fact, very strongly. So rising commodity prices are not good for earnings and not good for the economies of developed countries. And the collapse of this commodity cycle, again it’s right on thirty years, 1920, 1949 to 1951, 1980 and then now a double top 2011 right on thirty years. Emerging countries are greatly underperforming the global markets because commodities are collapsing and that’s the business there and they are commodity exports.
David Scranton: Interesting very differently.
Harry Dent: Also India and that’s why India is doing well when everybody else is not.
David Scranton: That’s awesome, I love that. I learned so much from you over the years which makes this really, makes it enjoyable having you here today as a guest. Now I know that most of what you do tends to be based around demographic trends. The question I have is really simple: How do you see that being affected by immigration, by refugees into the United States, how is that going to make things different?
Harry Dent: Well immigration is huge for countries like the United States and even more so for Canada, Australia, Singapore and countries like Switzerland. These are some of the smaller countries the only ones that have a larger eco boom than the baby boom. So I actually calculate in my birth index which I moved forward 46 years for the peak in spending, I calculate in all the legal and illegal immigrants past and future forecasts because I can take computer model and say this is when they were born, so they are in that index. Immigration has a huge impact on demographics just like birth. In fact, even better because immigrants come in working-age ready to go. Kids you have to raise for 20 years before they enter the workforce an average.
David Scranton: Got it
Harry Dent: So they’re a cost, not an asset.
David Scranton: It actually makes sense. It’s funny, usually I watch all the talking heads on television they’re spouting out numbers and what you say to me is just common sense. It just makes sense to the average person who’s listening. Now let’s talk about your book, ‘The Demographic Cliff’. You speak about spending patterns at different ages stages of our lives. What are some of the key times and turning points that you find as we grow throughout the years?
Harry Dent: Well workforce century age twenty on average somebody eighteen some at twenty to college but twenty on average that’s when inflation the cost of raising these kids that’s the biggest factor in inflation is people not monetary policy Milton Friedman was wrong on that one. And so then they start this great spending and they have gotten married, have kids and stuff. And you know so they’ll spend the most money on child care thirty three,, but they’ll buy their first home thirty one they’ll buy their biggest home forty one, they spend the most money at forty six, that’s the next big turning point. But for the affluent who are still spending after 2007 when we said overall economy would peak, the most affluent twenty percent, drive fifty percent of consumer spending now and they don’t peak until fifty four they go to school later their kids go to school later their whole family cycle is later and because of the high income inequality because Q.E. is raising stocks these people are doing very well. But my big surprise, other than Germany as we said in China following. The US affluent sector is going to take a dive in 2016 as are auto sales which have been the strongest sector. Auto sales peak at age fifty four and then drop like a rock nobody’s going to see this coming one.
David Scranton: I’m glad to hear I’m past my peak spending years that’s good news. It’ll be a little easier on me for this point forward. You know, tell our viewers for just a moment in ‘The Demographic Cliff’, tell them two or three things that they are going to get, that they are going to learn that they can take home to manage their own personal finances in what you and I both perceive to be a much wiser way?
Harry Dent: Well again what we say is we can tell people the key economic trends can impact their life their business their family their investments over the rest of your life time. Long term trends are easy to predict what the stock market’s going to do next week or month is very difficult and I can only guess and I’m really good like October 2002 I say buy stocks here. I can be right maybe two out of three times but long term is different. So demographics is key. We predict inflation on demographics not on monetary, who knows what the Fed’s going to do five-ten years? I know when people are going to enter the workforce and that correlates with inflation by any indicator. We predict the spending: when generations are going to spend more and not any country in the world four to five decades in advance. So we can tell you for example, 1983 to 2007 was the baby boom, boom and we always said this will be the greatest boom any of us will see in our lifetimes because the next generation is nowhere near as steep or does not go as high. The next great boom in the world we look at the merging world. India is the next big thing almost guaranteed unless they just totally screw it up politically and they’re moving in the right direction for once. China is not going to see the same boom they saw. India’s going to be the one large country it’s going to grow and Southeast Asia and India and that part of the world is going to be the center of the world for the next decade
David Scranton: So when I look at this just in the last sixty seconds or so we have today you know first of all it sounds like you’re saying, don’t run out in and buy the new home by things today because we’re in a deflationary cycle. Cash might very well be king at some point down the road, correct? Great, and sounds like you’re also saying that as far as the stock market is concerned be careful. At least that bare minimum have one finger on the trigger because there is another major drop whether 2016, ’17 or ’18. We don’t want to get pinned down you’re too smart for that I get that on the time frame. But at bare minimum, to warn our viewers of the fact that you need to be careful about the stocks you hold and especially it seems to me if you need your money in the next ten years or so you want to be really cautious and have one finger on the trigger and not get greedy because the old saying: ‘pigs get fat and hogs get slaughtered’, right?
Harry Dent: Exactly cash and cash flow are kings and what I call the winner deflationary season. None of us has seen that. The last one was the 30’s, so people don’t understand. Asset allocation doesn’t work. In the winter season when all bubbles burst except the safest bonds and principal place and also bubbles when they burst, we just saw it in China and we saw it in 1929 40 percent down 42 percent down in the first two and a half months, half the whole 80 percent move was made the first two and a half months. You’re better to get out a little early and give up that last five percent than to wait until it’s obvious because bubbles burst that much faster than they build.
David Scranton: That’s perfect. You heard it straight from the mouth of Harry Dent the author of ‘The Demographic Cliff’. We’ll be right back.
Marti Johnson: Well Dave, we’ve heard a good deal today about how The Income Generation and everyone for that matter has been affected by low interest rates. And we’ve heard from economist, Harry Dent with his forecast of the stock market and shifts in spending patterns. I’m going to share an in-depth look at the stock market overall and include important lessons of stock market history. I found that although people talk about stocks as investments and the television dial is full of talk about where stocks are trading right now, and as Harry Dent just explained, where they think they’re going and why? But I’d like to back up and fill in a possible gap, explaining how the stock market began. And then the two hundred years of American history to explore what brought us to where we are today and what we can learn from history and the history of this powerful market.
Although historic returns of the stock market can be calculated over different periods with different baskets of stocks, the numbers generally fall between seven and ten percent. In fact, a sound income strategies analysts calculated the S&P from 1900 to year end 2015, to have returned a staggering nine point seventy seven percent. This summer by itself, far exceeds inflation during that period would be considered great today but there’s more to it than that. Now let me give you an example. If for instance, I was talking with Dave about both our busy schedules, our out of town food choices, our exercise routines and what we found out is that Dave and I together run an average of ten miles a week. That sounds great but it might not be the real story, not the full story. This is only partial disclosure. To tell the entire story the fact is, what we actually do is I run twenty miles a week and David doesn’t run at all. I mention this because statistics can be deceiving. The picture you may have drawn is that, we both run ten miles a week and not that I’m lacing up my running shoes and running out the door three times a week to jog six or seven miles while David has his nose buried in the Financial Times. All this ties in nicely to our stock market discussion because there are the same mistaken perceptions by many when they hear the stock market returns nine point seventy seven percent. In fact, there are investment salespeople who practice similar partial disclosure when they allow people to believe that market returns are reliable or consistent. The truth is much more challenging for investors especially those looking to live off their income. The truth, is you don’t have to be a stock market analyst to recognize that there are extended periods over time and in our lives when the stock market tracks upward well above the nine plus percent pace and periods when it tracks down or oscillates with no gain at all. For investors looking to live off their investment income in the near future this can be a recipe for disaster. So let’s see why. The chart you’re looking at, represents the period from1899 to 1921 in US stock market prices in history. This was a twenty two year period of what’s commonly referred to as a bear cycle or one which does not grow. Unlike a hibernating barrel however, you can see that this zero growth period experienced periods of large games and periods of large losses within but in the end they cancel out each other and they all return to zero. The good and bad years negated each other no value gained and many investment opportunities lost.
The following eight year stretch from 1921 to 1929, was the second best period the US has ever seen by increase stock market valuations. That period of storing higher returns ended abruptly in 1929, with the stock market crashed and the beginning of the Great Depression. From 1929 through 1954 stocks followed a pattern much like the1899 to 1921 period. Volatility that included prices rising and then falling. The result was, investors in the market during that period endured rollercoaster like conditions at a ride that left them right where they started price wise. We then entered another long period of stock market growth and what David likes to refer to as anticipated and repeated cycles. Now that period was 1954 to 1966, a one dollar investment in1954 would have grown to five dollars by 1966. For investors who decided to jump in at this point1966 to try to get almost ten percent average growth they bought in, while the Dow industrials were at one thousand. Time passed and in 1982 they were still at one thousand.
During this period there were some steep sell offs followed by periods of growth because as other bearish periods there were periods of growth and decline within the bear cycle. The good and bad years again negated each other resulting in zero growth. The longer cycles are referred to as secular bull and bear cycles within the secular cycles the volatility includes the rallies and the sell offs or bullish and bearish periods. In 1982 after almost seventeen years of zero growth a long pattern gave investors eighteen years of growth in U.S. stock markets through the turn of the century. This is the best bull market we’ve ever had from1982 to 2000, the Dow went from one thousand to almost twelve thousand which brought us of course through the 1990’s when it seemed like everyone invested. And if you weren’t invested you were sometimes shamed for being too conservative. This period was the new champion, in terms of market growth the best Bull Run for America occurred right up to the end of the century. Well that was fifteen years ago and since 2000, we’ve had significant volatility including the market cutting itself in half twice and then recovering each time. Toward the end of these periods’ bull or bear many investors became convinced this time it’s different this time the current direction is going to hold. So the question investors are faced with is, is it possible? This is the first time in nearly two hundred years of history that the stock market has already completely recovered and can keep marching upward. Of course, anything is possible. Kansas City was able to win the World Series but I wouldn’t bet they’ll do it year after year now that would be highly unlikely.
David Scranton: Since 2008 most people have had the sense that economy, both here and abroad, has not quite gotten back to full acceleration yet. Although most people feel a bit more comfortable about their personal situations and the economic reports on jobs and consumer confidence confirm that we’re in better shape now than we were then. Closer to home, our neighbor or possibly our son or daughter who’s been unemployed for a long time now were back to work. Although they probably don’t have the income or benefits that they’re used to. There still seems to be this feeling of overall sluggishness in the economy. In fact, I like in today’s economy and that over the last few years to the cars of the mid 1970’s. You might recall the Ford Mustang2 came out in the 1974 and it was supposed to be the next generation of Ford’s popular pony car. But somehow it was just a shadow of its predecessor. Rather than continue on the path of glory, the Mustang two was described as a Pinto only heavier. The car was in fact built on the frame of the Pinto and even came with the same eighty horsepower four cylinder engine but it weighed much more than the Pinto itself. Ford eventually gave it more engine options and became available with some stickers and decals to dress it up a bit. But underneath it all a few more horsepower and some fast looking pictures of snakes and such didn’t really make up for what was under the hood. In fact, the same could be said today about the U.S. economy. We’ve had a lot of economic and answers and add-ons over the last few years. Some of these include interest rates that approximated zero as well as quantitative easing worth trillions. These were quickly bolted on to what still feels like an underpowered economy encumbered by its own weight. Janet Yellen and those before her, have tried all they could do to add spark but most still feel that around every corner we just may stall. Now she shouldn’t feel bad about this simply because just like that second generation Mustang, even the cast of Charlie’s Angels and Farrah Fawcett, couldn’t do much to breathe life into this poor design one with an insurmountable drag.
And it may not be the Fed’s fault. We heard from Harry Dent tonight and he suggests that there isn’t much that can be done to alter today’s economic pace. In fact, we all got a lot of great insight from Harry. Overall, he says cash and cash flow are king today in this what he calls the winter deflationary season. Economy is fighting both demographic trends which it has very little say about and debt trends which will quickly unwind. As long as the current direction is maintained the Fed and the rest of Washington can supercharge the economy all they want it just can’t go much faster than it is going right now.
So I want to take this opportunity to thank Harry Dent for coming on and sharing his insights. To get your copy of his book ‘The Demographic Cliff: how to survive and prosper in the great deflation’, go to Harry Dent.com. It’s a great read one you want to keep handy as you consider your portfolio as well as other assets. Now after you’ve finished on Harry’s site, head over to theincomegeneration.com. Tell us a bit more about yourself and how you liked the program. We’re going to be selecting one of our viewers to receive this die cast 1976 Cobra 2, a scale model of the car driven by Farrah Fawcett on the popular T.V. show, Charlie’s Angels. That’s right we’re giving away a model car, eat your heart out Oprah. Next week we’ll be welcoming to The Income Generation market analyst, Tobin Smith.
Tobin Smith: Because they were in a transformational event this whole fracking world the United States and people who have visions of sugarplums in their head and said: My gosh we’re going to be going from nine million barrels a day to twenty million barrels in the United States we’ve got to build every pipeline we possibly can. Well guess what? It’s a fickle business the factor something transforms too fast. And the faster something saturates So whether.
David Scranton: Now you may remember Tobin from his thirteen years as anchor and contributor to the Fox News Channel and Fox Business Network. Now Tobin is C.E.O. of a unique investor relations organization called The Next Big Thing. Together we’ll explore industries that are set to take off and change the way things are being done today. Tobin is always full of surprises so there’s no telling if he’ll be talking to us about microsatellites, three D. Printing, smokeless cigarettes or smart fabrics for men’s underwear. I promise it will be in enlightening. We’re also going to call upon his background as an analyst to discuss the perils of continued low interest rates in the economy. Finally, I’d like to thank Marti Johnson for her insightful report. We look forward to hearing from you again next week. You know we’re all shaped by what surrounds us and sometimes it’s difficult to step back and to see where we are what path we’re following and whether or not it still makes sense or if it ever makes sense at all. This includes investing strategies throughout our lives. I put together a special report for you, The Income Generation, to help you evaluate which path you’re on where you should be heading and whether your current direction could safely get you there. The report is being given away to my viewers. So go to theincomegeneration.com now and sign up for your special report written help you invest for retirement with your purpose in mind. I’m David Scranton, you’ve been watching The Income Generation and we’ll see you all again next week.
Right now log on to theincomegeneration.com. That’s the incomegeneration.com then download your free special report detailing why mutual funds actually hurt investors, where to invest now that best suits your purpose, what Wall Street wants you to believe and how to give yourself a raise. And while you’re there, don’t forget to enter for a chance to win the Mustang as well, that’s the model car that was featured on today’s show. Why cross your fingers and hope for growth when you can read this insightful three reports from Sound Income Strategies? Simply log on to theincomegeneration.com. That’s theincomegeneration.com and then download your free report right now.