[PMR102] Harry Dent | People Are High On Stimulus Crack
SHOW TRANSCRIPT (EDITED)
Albert Lu: I’m joined today by economist and writer Harry Dent. The prolific writer is the publisher of Economy and Markets and also the founder of Dent Research. Mr. Dent is author of The New York Times bestseller “The Great Depression Ahead” and I’m pleased to welcome him back on the show.
Harry, thank you very much for coming back on Power and Market. How are you?
Harry Dent: It’s great to speak to you again.
AL: A lot going on. I think we’re going to have a very exciting 2020, to say the least. Got a lot of questions for you, Harry, but I just want to start by talking about coronavirus. This thing, this story, has legs. We’re starting to see the effects in the economic data and we’re also starting to see the effects in the stock market.
What are your thoughts on this? How serious is it going to get and what should investors be thinking about?
HD: Well, the fact that it’s had any effect on the stock market is something, because nothing does. The stock market is so much on crack and stimulus that it doesn’t care, but it has been affected, at first, by this. But you’re right, this is more than SARS. This thing infects, I’ve heard, for two weeks before it even has symptoms, and it’s contagious. Then there are symptoms that can be contagious. It’s already gotten bigger than SARS in a short period of time.
They’ve had to shut down major cities, not just Wuhan but 12 cities now … This could be major now. So far, you know, the Chinese markets are on a holiday for a little over a week, and then they reopen. Okay, they opened down 9%. They bounced a little from there and closed down almost 8%, and now they’re up a little today another 1%. Not terrible, but they put $174 billion. You know that’s more than the Fed’s been responding with emergency funding over our repo crisis, which we can get into, but there’s a lot of stimulus going in.
This is the first thing that the market has reacted to. No reaction to impeachment, whatsoever. No reaction to continued forecasts of a slowing economy — and around the world rather than growing — and all this other stuff. No reaction to this repo crisis.
Why is the Fed printing four to five hundred billion dollars over some little repo crisis? No reaction to all of that.
But it has reacted to this, and now it’s saying, oh maybe it’s not so bad. I don’t see this suddenly getting better, and it could get a lot worse. I’m literally following a few of my indicators. The market is staying within the bounds of my short-term indicators right now. We were expecting a small correction of 4% or 5% into February, after that run up into January for months. This was in line with our indicator, going along with [the] Fed’s stimulus. We’re very close.
So far the market’s not reacting — not just to this but to the fact that stimulus, the repo crisis, is backed off couple weeks ago, and that lags in the stock market.
But, you know, this thing is exponential and could accelerate dramatically, so we’re going to be on close watch for our subscribers. But right now the markets aren’t reacting as much as they should, and that’s no surprise to me because the markets are on crack. People are high on any drug or stimulus, don’t react sanely, and the markets haven’t been reacting sanely since 2009 when we got on this gravy train $16-17 trillion in global central bank money. It’s not going to the banks and banking system, only the corporate tax cuts, a minor amount went to corporations. This is all going in financial asset system.
Central banks buy financial assets, add money from thin air into that pool chasing financial assets, and we have the biggest financial asset bubble in history at a time when the recovery is the weakest ever, 2% growth a year, when normal recoveries are 4-5%. And normally stocks wouldn’t be valued as high. They’re valued, in that slow growth, they’re valued so highly because this money’s got nowhere to go. Stocks always end up being the best answer, you know?
AL: I guess my opinion on how bad this is depends on where we are in the cycle, in terms of coronavirus. I heard one specialist, a disease specialist, say that, look, there’s no point enacting travel bans and these sort of things — they don’t work. You just have to prepare your response. And he said, basically, prepare yourself because this thing is coming to the U.S.
If and when it does come to the U.S., what do you think the market is going to be looking for? — because it’s certainly not comfortable with all of the uncertainty right now.
What kind of certainty do you think it would take for the market to say, okay, we know that this is going to be bad, but it’s going to blow over and we’re going to move on to the next thing?
HD: I think it is two things. It is continued acceleration — already, just over the weekend you know, it went up to 17,000 from, I don’t know, 1,700 infections. Sixty deaths for … That’s exponential, to say the least, and I don’t understand why the markets are … But, you know, the next report, now they show any slowdown on that, the markets are going to feel okay.
You remember the market’s on crack. They’re not as rational as they should be. They’re not on cue, but if this thing keeps accelerating like it has, how do the markets not become concerned?
Of course, it’s going to affect China the most. This affects business and things in China way more than here. It is going to come to the U.S., but it’s going to hit other Asian countries. It’s already hit the Philippines and Japan — they’re trading parties; it’s going to hit them more. But you got to realize — and this is what I said in an update to our newsletter the other day, Albert — all this does, unfortunately, is give central banks [the] excuse to print more money. Oh, we have the repo crisis, now this is another reason for the Fed to not back off.
They’re not printing money on the repo crisis anymore as they started. This is pure quantitative easing. They don’t feel comfortable with the repo prices; they don’t feel comfortable with this. And the Chinese government just printed 174 billion, and their economy’s not as big as ours. So that’s even bigger. That’s a lot compared to what we printed, over 400 billion in the last three or four months.
So, this is pushing both ways. So my continued view of this market, after studying this crazy bubble for the past year, is that the market … so, it’ll go up. It’ll look for any excuse to go up as long as this money is chasing it. It’ll keep discounting bad news. But there is a point when you can’t. So the Iran crisis was something that could have accelerated. I warned our subscribers about it, but I said, look, what happened in Iran crisis was very unusual. Trump, you know this thing happened — he took out this general but then suddenly Iraq, in reaction to that, they didn’t like it [and] voted to boot the U.S. out of Iraq. That was a huge victory for Iraq.
I said to my subscribers, I think Iran is going to take this victory and run. So they threw some big missiles. Oh, we tried to hit something. Oh, we missed, gosh darn. And they, kind of like, blinked. And so that went on. That could have accelerated, and this is much more likely. So, this isn’t just politics. This is damn hard to stop [as] you’ve been saying, and we’re going to be watching this day by day. And I’m watching the Fed; we get updated on everything the Fed does every week now [on] Thursday afternoon. So I’m going to be looking at if the Fed keeps [easing]. Last week we did they did no repos, but they did $22 billion of quantitative easing, buying Treasury bills — injecting money in the system. That’s 88 billion a month, way higher than the 60 billion peak at the top of quantitative easing back in 2014, before they stopped doing it too much.
So this is like they’re pumping harder than ever. China’s pumping harder than ever. Boy, China’s going to really … So that’s the problem. This is a war between now, in this case, genuine bad news that’s hard for China to control. Hard like you said, yeah, you can do all this stuff. But, how much, I mean, I need to say I’m glad I’m in Puerto Rico. I mean, I’m about as far away from this as you can get, but you can’t control it that much. So we have to see how it goes. What I hate to say, that the good part of this, in the reality side, is this is something central banks can’t … control. Yeah, they can pump more money, make people feel a little bit [better]. Pumping money isn’t going to stop this virus. It’s just going to make the economy feel a little better about it at first. It’s not going to stop this virus like it could stop a depression from unfolding like in 2008.
So the central banks may have met their match here. So this is an important issue for us right now. But the other thing is, too, everybody is stepping up stimulus. So, we’ll see who wins this war. In the end reality wins, but I’ve been waiting a long time for that. First, Trump came in and, you know, pumped up the big fat ugly bubble, and now the Fed has been doing more. And now China is pumping more than ever.
So this is a war, reality versus craziness, and reality is going to win, but crazy usually wins first. The markets can stay crazy longer than you can stay, you know, liquid — like what they say. And Jesse Livermore was the guy that almost forecast the 1929 bubble peak, but he was six months early and damn went bankrupt in that six months shorting it before he finally turned around, raised more money and made a bundle.
But this is tough stuff. But these are the big two issues right now.
The other big issue — we’re right into the top of the most important long-term cycle and the stock market. If you look back from late 1700 [to] now, every 90 years we get a super bubble. It’s a double technology cycle, one of our key cycles every 45 years. Every other cycle builds on [the last] like steam ships and railroads and then electricity, electric appliances and computers and the internet – all electrical things – and creates a big bubble. We’re right due for that to peak between late 2019 or 2020. Right on the anniversary of the 1929-30 crash. So that’s the bigger, the long-term thing, coming in to play.
This is the final blow off bubble, started in early October, because of repo and now this thing may goose it up more. But this thing, this virus, may be also the thing that particularly bursts China’s bubble, because China — I’ve always said, all my books, all my newsletters with us several years, I sell the best in Korea [because] I’m bashing China, frankly. And saying their bubble is going to burst, and that’s why my books do well over there. This may be the thing that pricks the China bubble because they have the most control. We only have this quantitative easing. The Chinese government can build condos for nobody, and they can do all types of stuff, even though it makes them a bigger bubble and a bigger burst. They have more control. This is the Chinese Achilles heel.
AL: I want to talk about the consumer a little bit, Harry, and talk about if the consumer is going to be a catalyst. There’s a lot of people observing this economy, concerned. Certainly, you’ve been sounding the alarm very recently, very strongly. I’m wondering about the Chinese consumer, because most of the time when we think of China, we think about factories — people making stuff, electronics, iPhones, all for export. But what’s happened over the last decade or so is that the Chinese consumer has become more significant — if you look at travel patterns, if you look at spending, especially on luxury items. You follow demographics very closely. You’re an expert on consumer behavior and choice.
Talk about how the Chinese consumer fits into this, and whether that could be a possible catalyst for the downturn.
HD: Albert there’s pros and cons to that as well. The thing that nobody understands [is that] this is similar to what I saw in Japan in [the] late ‘80s; this is a demographic trend for China. China is the first emerging country to see their demographic spending trend peak in 2011. That’s when their workforce peaked, and it is slowing. And migration from rural to cities is not only slowing it, [but it] is [also] going backwards to a small degree. These are two things that are stopping the demographic trends that the Chinese government has been leveraging by pushing urbanization faster. The way they do that, they keep building stuff for nobody. They keep building empty condos, empty cities, empty railways and empty this and empty malls — the greatest mall in the world is empty and had to be turned into a tourist attraction but there’s no store signed. I mean that; that’s what they’re doing. That never turns out well. So the demographics are negative for the Chinese economy going forward.
Now, [the] other thing that’s important to every emerging country and why China’s been so strong and pushing organization by urbanizing [is that] most emerging countries move people from rural to urban areas at a three times GDP per capita dividend, you know starting in it, and down the road. It’s a huge bonus. So they’ve been doing that, but China has been overdoing it. Now, you have the urban migrants now actually starting to go back because the real estate is so expensive, the traffic is so bad, the smog [is] so bad. They’d rather go back to the boring rice paddies. And they’ve over built that, all this debt build-up and all this stimulus which is going to eventually blow. But right now you’ve got this thing, the urbanization, is still paying off.
Yes, the Chinese consumers have been growing enough to offset the slowdown in exports. I mean, they used to be 50% of GDP, exports, now it’s 35. It’s falling, but as the Chinese government did want to see, consumers [have] been stepping up. Why? Because, urban consumers do make more money, do spend more money because it cost more to live in cities. You get paid more in cities; that’s why people move there. But that’s, I’ve already seen, that’s already starting to go the other way.
Urbanization, if urbanization was still growing, but it’s not. So, when people realize around the world, and investors and even the Chinese government did that urbanization thing — they pushed it so hard that it’s no longer working. It did work for the last 10 years. They’ve been urbanizing, adding 1% of the population to cities every year on average for over 30 years. That’s huge. And that’s what’s … damn near eradicated poverty, their wealth — polluting the country to death on the negative side. So all these things work both ways.
But the demographics are, yes, consumers are still good. But this virus, I mean, [if] you think it’s starting [to] affect American consumers a little, imagine what Chinese consumers are thinking. But I tell you here’s the real Achilles heel: that stock market drop. In China, 9% on Monday morning, that is mostly retail investors. In the U.S., it’s mostly traders and institutional investors. This is everyday Chinese losing money. And in 2015, when that second bubble burst that the Chinese government pumped up, because they wanted to take focus off the real estate, and at first, everyday people were losing money. They had speculated. They let everyday people borrow on margin to speculate on stocks, for crying out loud, to try to distract from the real estate bubble.
So this hurts them more. The biggest Achilles heel of the Chinese economy, other than the greatest debt bubble and excess capacity in infrastructure and investment capacity of any country’s expansion history, is that 75% — the highest of any country I’ve studied, only Australia is close — 75% of the net worth of Chinese, everyday and rich, is in real estate. It’s 28 to 30% in the U.S. The next highest country is Australia with their incredible real estate bubble. Theirs is the second most overvalued, only to China and Hong Kong, for most.
So the real estate bubble has been built up by the government, with all this stimulus and forced urbanization, and that’s where the net worth is. Chinese didn’t even own real estate broadly until decades ago. They’re kind of naive about real estate — they don’t think real estate can go down and they’re holding. Here’s the thing: outside of the house they live in, I think, like 60 to 70% of homes bought in the last year are second or third homes, which means even everyday people are speculating on housing, which means they’re buying empty houses, because there is almost no rental market in China — because 89% of real estate, residential real estate, is owned. That’s the Achilles heel.
That real estate bubble bursts, even [with] the Chinese government printing, nothing else will stop that. Those consumers will get so negative, and they will see their wealth disappearing faster than it did for the Japanese in the early ‘90s when their real estate bubble, from the same policies of China today — over urbanizing, over pushing, over stimulating, but not as much as the Chinese. When that bubble burst, the Japanese consumers contracted, when demographics were also starting to slow down and point down, which I identified in the late ‘80s before it happened. That’s going to happen in China.
Their demographics are negative. The big wake-up call for the Chinese consumers [is] going to be when their real estate starts going down. Holy crap, what did we do? Oh, and the other one or two condos we have are empty, making no money. And they’re going, yeah.
AL: It’s a pessimistic view. It’s certainly warranted, Harry. Let’s assume that central banks are going to continue this accommodation, hundreds of billions per year if not more. And let’s also assume that the market is going to crash anyway at some point because of some of the things that you’ve been saying. There are always winners and losers in every situation.
So, who are going to be the big losers when this happens and who are going to be the winners?
HD: Well, you know, the biggest losers [will be] the everyday person, like in the Great Depression. They lose their job for maybe six months or a year or two. And that’s tough. I mean, nothing worse than losing your job and living in your car, whatever. That’s happened before. But what people [don’t] realize [is], the rich people own most [of] these financial assets. In the U.S., 88% of the financial assets are owned by the top 20%, 40-some % [are] owned by the top 1%. And half of that, 22%, owned by the top 0.1%, one out of a 1,000 households. These people are going to lose the most money.
My biggest thing when I go out and give speeches today, I’m sitting there warning my audiences, which are high net worth — you’re the big losers. If you don’t get out of the way of this, and you know one of the biggest illusions of the richest people I come across [is] they don’t think stocks go down. They don’t think high-end real estate in Manhattan, San Francisco, Sydney Australia, Shanghai, London and Vancouver can go down, because they’re the best places. They don’t realize, the rich people [are] going to lose the most money in this bubble and those places are going to collapse the most.
Our number one principle in every bubble we’ve studied — real estate, commodity stocks, the bigger the bubble the bigger the burst. It’s the best places, the best stocks — like Apple today or General Motors and Ford and RCA in the 1929 top — that bubble the most, the best real estate, and that’s why they burst the most. It doesn’t mean they’re still not the best down the road. So the biggest opportunity, Albert, is very simple — you sell, especially the best stuff.
Sell your best real estate. If you own a home, a condo in Manhattan, and you own a house in Nebraska down the street from Warren Buffett, sell the Manhattan condo and keep the one in Nebraska that’s not as overvalued, and probably won’t go down much. And then you buy the best stuff when it goes down the most. So this is the huge, the biggest, opportunity you see.
I always use the simple two examples between 1929-32. Joseph Kennedy was an individual investor. He was already a multi-millionaire bootlegging, by the way, semi-illegal business. Got out of stocks when the shoeshine boys were telling him to buy, and he bought back when they were down 89%, for the best blue-chip stocks, more than that for some of them. Bought at the bottom and became a billionaire, in those days’ terms, and a political dynasty, and just most of that in a couple of years.
General Motors had fought with Ford. Ford had beat them almost all the way. They were just starting to catch up in the late ‘20s with some new marketing policies … and then, in 1932-33, they passed Ford forever. First to become the number one, for a long time, car company in the U.S. and they became the number one corporation in the entire world. The biggest impact and leverage of that came from the bubble crash [in] 1932-33. They hunkered down. They gained market share, and Ford lost and never caught up.
Joseph Kennedy turned a small fortune into a big fortune by realizing it was a bubble, getting out and then also having the guts to buy back in. I already can tell you — the best real estate to buy, to get out now, … and the stuff that’s done better, even after two bubbles, to get back in. Those places will do the best, same for stocks. This whole cryptocurrency and blockchain, these things are in a hype bubble like the internet in 1999 and early 2000. They’re going to crash down 90-95%, and then they’re going to have a boom like the internet for the whole next boom into 2036-37 cycle — fortunes to be made. People don’t realize, you could have bought Amazon after it went to $161 in the internet bubble, in just a year and a half, … bought it at $6 in 2001, and watched it go up to $2000 plus, over the next 15 years or so. That’s how you make extreme wealth. It takes a lot of guts, and it takes a lot of facing reality.
All I do, Albert, is try to get people real. I’m not a bearish person. I was [calling] the most bullish economy in the world for the entire, you know, late ‘90s, and late ‘80s and ‘90s when people thought [the] U.S. was gone and Japan was going to take over the world, like they’re saying China does take over the world. Yeah, let’s see about that in five years. China’s not going to be number one for a long time. They will be eventually, by sheer might and urbanization. But they’re not going to be number one as soon as people think. U.S. is going to come back stronger than most other Western countries, but none of us is going to come back that strong. Our demographics are not strong. So we know it — where in the world to invest. And you get out of the best bubbles now, and you get back into the best stuff, in the best countries, and companies, in real estate … it’s not hard to calculate, and that’s what we do for our subscribers.
That’s not the hard part. Having the guts to realize this is a bubble, in fact, the greatest bubble in history, and to act accordingly and not listen to the news that keep saying, oh, it’s not a bubble because of this … This is all baloney.
These are all people in the bubble saying it’s not a bubble because if it bursts, they’re the rich people. They are the people [and] they’re going to lose the most money. So they’re trying to convince everybody else it’s not a bubble. It walks like a bubble, looks like a bubble, quacks like a bubble — it’s a bubble. This is the biggest bubble. This is bigger than 1929, which was the biggest bubble in U.S. history. This is bigger and it’s more global, and it’s stocks, it’s real estate and guess what? To the people who tell me, Harry, stocks can’t go down 70 or 80%. That just can’t happen. Commodities have already gone down that much. That’s the one bubble that did burst, that quantitative easing doesn’t counter like it does bonds, stocks and real estate. It’s already burst 70% or worse, and iron ore has been down 80% or worse, and they’re going to go lower.
When bubbles burst, it’s never a normal downturn. They crash and burn and they burst twice as fast as they build, and this is going to be a shocker when it happens. I say it happens, at the very latest, peaks by early next year. I think it’s going to peak between late May and September or close to election. I think this thing goes down. Silicon Valley is planning the biggest IPO rush in history for this year — a lot of smaller companies because they’re all convinced that after the election, we go into a recession. Ninety-seven percent of CFOs in a recent survey said we get a recession by the end of this year. So, the smart money is betting on a recession. I’m telling people, don’t be the dumb money and think this bubble is going to go on. It does not last past this year, from my view.
I’m still telling my subscribers, it’s not over yet because I’m watching my Fed balance sheet indicator, and if it continues to go up like it has, stocks … like what you started this saying, governments will continue to print a ton of money because they’re all scared now. It’s not just the U.S. Europe, now China, is more scared than anybody and they have the most leeway. They don’t just print money, they print condos. So they’re going to go start doing that stuff. So I think this thing goes till it blows. I don’t think it’s over yet, but I think it’s months, no longer years.
AL: Harry, I’m not an expert on central bank behavior, but I think they’re going to keep easing straight into it. If what you’re saying does, in fact, happen — that there’s a giant collapse — you have to think that the response to that is going to be even more stimulus, unprecedented central bank assistance.
Do you like gold in that situation if we have, at the end of the fourth quarter of this year or early next year, this unprecedented central bank intervention? Do you like gold in that situation?
HD: I’ll tell you what I like better. I like high-quality long-term bonds. This is just a replay of 2008-9, only [it] hits harder because we took the easy way out — more debt, more stimulus. So, we’re going to have to go down harder, and the demographics are even weaker. What happened in 2008 was simple. Stocks peaked in early October, real estate actually peaked before then, gold continued to go up into mid-2008 as the economy went into recession, but when things really got bad in the financial crisis — that’s when big banks started failing — gold went down 33%, silver down 50%, stocks crashed almost to their bottom in October or November before bottoming in March of 2009. Most of the bad stuff happened in the second half of 2009. Gold and silver did not protect you, but they did do better. They did go up in the early stages.
So I think gold is still in, what I call, a strong bear market rally. I don’t see new highs above the 2011 high of $1,934. I do think we could go as high as $1,800 on gold. I think gold might go up for some months after stocks start to crash, and then when they start to see the deflation and the global downturn, then demand for gold goes down and gold is ultimately, Albert, an inflation hedge. If you look back at even hundreds of years, it correlates with one thing, way more than crises, inflation. And gold sees deflation … it’s going to go down like it did in 2008.
I think gold’s good coming into this bubble; it’s a good place to be that could go up with a bubble and keep going up for a while. But the ultimate hedge is high-quality Treasury and triple-A corporate bonds, the safe haven, especially denominated in the US dollars. The US dollar was also the only major currency — out of the euro, the Japanese yen and all that sort of stuff and Chinese yuan — that went up in the second half of 2009 when the crap really hit the fan. So that’s the ultimate hedge, and I think Bitcoin bubbles up with this as well. We could see a new high. You know how fast that can move in any crash, and that’ll be the biggest crash of all. When I lecture to Bitcoin people, and that group, they think it’s going to go up with the crisis and people are going to lose confidence in currencies. What happened last time was they gained confidence in the best house in a bad neighborhood called the US dollar. We have 19% of our balance sheet of our GDP; Europe’s is 42%; Japan’s at 103%. They’re way worse than us.
China has created so much more debt compared to the economy than the U.S. We’re the best house in a bad neighborhood, and we got a bunch of aircraft carriers and the reserve currency and all that. So I say the US dollar’s the place to be, but I don’t want to be in cash. Why not be in high-quality bonds? The only major asset class that did well in the 1930s depression, and likes deflation, is high-quality bonds — not low-quality bonds because they default. High-quality government bonds and triple-A corporates, the best corporations like Microsoft, or whoever, and Apple are not going to default on their bonds, even in this downturn. Their stocks may crash 90%, but they’re not going to default on their bonds because they’re still growth companies, just like General Motors, Ford and RCA were at the top of the last bubble.
AL: Harry we’re almost out of time here, but I want to get your thoughts on what’s going on in politics, this being an election year. We started the interview. You said, look, this market is not afraid of anything; even impeachment can’t stop this market. It looks like it is, maybe, the other way around. Maybe this market saved an impeached president, kind of the tail wagging the dog there.
What do you think about impeachment and Trump’s chances for re-election?
HD: I mean, the market is the only thing. People are against almost all of Trump’s policies, the broad public, except they think the economy’s better. They know the economy’s better than it would have been. It was really weak and the recovery was really weak. Well, Trump came in and cut corporate taxes, and he’s been beating on the Fed to stimulate. They don’t want to look like they’re kowtowing to him, but this repo crisis gave them a reason to do that. So they don’t look like they’re just, you know, kowtowing to him. And so, yeah, this thing definitely, and I tell you the biggest threat to Trump is the first crash in a bubble like this, from 1929 to the early 2000s tech bubble, is 30-50% in the first two to two-and-a-half months. It was 49% in the 1929 bubble. The tech bubble was 41-42% in the first crash. Nikkei was the least in 1990 because it was the only bubble crashing, not the whole world. [It’ll] knock the Fed off its … and lose credibility.
That’s going to cause people to start panicking and worrying and thinking, oh. I mean people don’t worry when they see this bubble and the markets go down 5 or 10%, and they stimulate and it comes back. When they see a 40% crash in a couple months, I think everybody starts worrying, especially what I call the smart money — people who trade big on leverage. When they leave the market, and they have not been buying in so much, but they haven’t been outright shorting it yet.
When they start shorting this market seriously, it’s dead … so, I think, at some point, bubbles will defeat themselves. There was no big trigger in early 2000 for the tech bubble to peak. There was no trigger in 1987 — the first bubble we saw in this whole long boom. There was no recession, no slow down in economy. There’s no unemployment … no geopolitical crisis. The market just got overvalued and the smart money said, OK, this is over. Well, I think it won’t take much more for the smart money to start running from this one. I don’t see it yet. I’m not telling people to get out yet. But you’d be better to get out a teeny early than late. And, you know, history says the first crash is going to be about 42%.
AL: Harry, last question here. If the market were to turn around, and this were to happen this year, before the election, that would obviously create a lot of trouble for Trump. But even if it doesn’t, if it happens a year after, or a couple years after, we could be looking at a Democrat in the White House. And with all this talk now from Sanders and the like about possibly implementing a wealth tax — going after the ultra-wealthy — how concerned are you about that?
It may not come this cycle, but what about next cycle? How concerned are you?
HD: I’ve been forecasting … this is exactly what happens [in] what I call the winter season — after the fall bubble boom season, that peaked in 1929, led to the Great Depression and 1932-42. That’s exactly what happened. The rich make the most money in the bubble. They lose the most money in the crash, and then they get marginal tax rates risen and capital gains taken away and all the, sort of … This is predictable. This is going to happen, and it’s just going to happen faster. And I tell you the biggest thing that would cause this market to crash — other than this virus going out of control and affecting the whole world economy, in especially China, the second largest and fastest growing economy up — would just be that the market starts to say, wait a minute, Bernie or Elizabeth Warren might actually be nominated and might actually win? Bubble over.
If Bernie, or anybody but a very centrist Bloomberg or Biden Democrat, wins this election or even looks like they are coming into the final run, this market is going to get scared because that is — bubble, game over. Democrats take over, raise corporate taxes again, raise taxes on the wealthy — that is shooting right at the heart of the bubble — and it’s going to happen anyway, but it just means the bubble bursts sooner.
So there are a lot of things that could burst this. We’re just going to keep monitoring and see what’s more likely. Let me put [forward] my worst scenario. Let’s say in late May, the earliest I see this bubble …, it does burst and we do go down 40% into, like, July or something [in] early August. This market, the history would also say, you can have a strong bounce back to that 50-60% retracement. I could see Donald Trump, he’s good at blaming it first on the Fed — I told them they didn’t stimulate enough and there’s the market — and the second thing he does he’ll say the markets are crashing because they think the Democrats might win and they know the economy is toast without me.
I think he could talk his way out of it as long as the market is still going up into the election, even if it crashes first. The timing of that would be very important, but I could see that being a scenario: market does crash, which is the worst thing for Trump, but it’s zooming straight back up. And he’s going to come out with sending people $5,000 checks in the mail that have to be spent by the election. I mean, he’s already planning to get the consumers now a tax cut, instead of corporation[s]. I don’t see why he wouldn’t get that passed, especially if the economy weakens, especially if the virus …
So, there’s a lot in play here, and I do not count Trump from getting reelected, even if this starts to burst, but he will wish he hadn’t if it does, because he will be blamed wholly [for] this. At some point, this thing will melt down, and he’ll look worse than Herbert Hoover, because Herbert Hoover walked into it, he [Trump] walked into it four years before it happened. No way they say it’s not his fault.
AL: I’ve been speaking with Harry Dent, the founder of Dent Research and publisher of Economy and Markets. I like to follow him on Twitter @economymarkets, and you can also check him out at https://economyandmarkets.com.