An aging world is a deflationary one, according to “The Demographic Cliff” author Harry Dent. In this interview with The Gold Report, he predicts a major, painful crash in the next two years based on population statistics and historic patterns. He has some positive short-term predictions for gold, and investment suggestions for how to be one of the ones still standing after the dust settles.
The Gold Report: Your book, “The Demographic Cliff: How to Survive and Prosper During the Great Deflation of 2014–2019,” predicted a great deflation based on demographic trends. Were you surprised by the strong stock market over the last year?
Harry Dent: Yes, I was. I'm always surprised. Bubbles go and go until they suck everybody in. It's been this way all throughout history. This is a bubble. It looks like a bubble, quacks like a bubble and tracks every bubble in history. It's going to burst, but we continue to have outside influences propping it up. The federal reserve announced tapering of quantitative easing, but then the Bank of Japan and the European Central Bank stepped up their bond buying, and the markets are eating it up.
I actually think we're probably not going to peak until early next year, perhaps around March, with the Dow Jones Industrial Average as high as 19,000. There are certain indicators we look for at a top. One we have already seen is small caps underperforming large caps without making new highs. That is one classic indicator. Another one is selling pressure increasing in a final rally, which shows you the smart money is leaving. That did not happen in this recent rally, as sharp as it was and as crazy as it looked. I call this the “markets on crack.”
Bubbles act like grains of sands dropped on the floor. They form a mound that gets steeper and steeper until at some point one grain of sand causes an avalanche. Something is going to happen here that governments can't respond to and control. Germany keeps weakening. China is showing signs of unraveling and cracking, but it hasn't totally burst. . .yet.
This market is not going to crash 10% or 20%. It's going to crash worse than it did in 2008 and 2001 and 1930 and 1973. This is going to be the biggest crash ever.
TGR: What are the indicators that are warning you about this crash?
HD: We always look at demographics. The demographics for spending in Japan peaked in 1989 and pointed down in the 1990s. That was the indicator that Japan was going to have a tough decade. Germany is in an even worse predicament. It underperformed this year and will keep underperforming. That country has the steepest downtrend in demographic spending patterns of any country in the world, especially between 2014 and 2022. It is the second fastest aging country in the world. To make it worse, Germany is holding up Europe's economy at the moment. What happens to bailout efforts of the already weak countries if Germany keeps declining? China's housing bubble is cracking. Developers are discounting and the government is still encouraging overbuilding.
We are also looking at demographics in the U.S. The average age of 46 for peak baby boomer spending occurred in 2007. That plateaus until the average age of 53 and causes demographic headwinds. We're hitting that final plateau this year, 2014. That's why the governments are stimulating at such unprecedented rates, just to get 2% growth on average. I am predicting that car sales are going to start to plummet next year, and the more affluent people who peak later are going to start spending less. Next year, 2015, will be a weaker year than the markets are expecting.
