Review of The Great Depression Ahead by Harry S. Dent Jr.
I happen to be an optimistic person. So when I see a book about the next big depression, I'm a bit skeptical. It wasn't all that long ago that I remember seeing books like: The Great Boom Ahead and The Roaring 2000s. Turns out that those two books were written by the same author. So what's changed? The short answer is that this author uses historical cycles to predict future trends and we happen to be entering a period where a number of cycles are all heading in a downward trend.
The idea that you can predict future trends based on historical cycles has some merit. The author uses a myriad of cycles to explain his reasoning for his pessimistic outlook. Here are just a few: the terrorism cycle, innovation cycle, immigration cycle, geopolitical cycle, demographic cycle, real estate cycle, various stock market cycles, commodities cycle, and the emerging markets cycle. The cycles range in time from as little as eight or nine years, such as the terrorism cycle, to as long as 5,000 years for the civilization cycle. A lot of what he has to say makes sense, especially his references to the demographic cycle. According to the author, our most recent boom time - 2002 to 2008 - was the result of a majority of baby boomers reaching their peak spending years. The children of the baby boomers, which he calls the echo boomers, won't be reaching their peak spending years for another ten to fifteen years.
History has shown us that there can be long term downturns lasting decades. Japan's stock market is a perfect recent example. But I don't agree with everything the author says. For example, he predicts that the biggest opportunities in the years ahead will be in emerging markets such as India and Africa. His whole thesis is tied to population. China, Russia, Europe, and North America are all in a period of declining and aging population. But does that really make sense? If population was the deciding factor for future growth, then how is it that a handful of conquistadors managed to wipe out an entire civilization of Incas and Mayans? I'll take a lean and technologically smart country over an overpopulated poor country any day.
The author predicts that we will see a rally in the stock market to as high as DOW 12,000. And this will be followed by a drastic downturn to as low as DOW 3,800 sometime between 2010 and 2012. He sees oil dropping to as low as $10 a barrel. He predicts a major terrorist attack this year or next. He expects unemployment to reach as high as 12 %. And these are just a few of his dire predictions. I personally can't see the DOW dropping as low as he is claiming. For it to do so we would have to see stock valuations lower than what we saw in the Great Depression. I also don't agree that innovation is limited to just twenty somethings. The author claims that since there will be fewer people in their twenties that we are entering a period of limited innovation. So if I'm thirty of forty years old I can't be innovative?
While the book is full of pessimistic predictions, I had trouble following the author's suggestions on how to prosper in this downturn as the subtitle of the book suggests. He'll make one statement about the timing of one type of investment, such as emerging markets, and then a few pages later contradict himself because another of his cycles suggests something entirely different. I know one person who plans to prosper in the years ahead and that is the author himself through book sales and subscriptions to his newsletter, which promises to provide you with the most up to date predictions. Remember the book the Roaring 2000s, also by this author? In that book the author predicted DOW 40,000. Let's hope that his latest predictions are equally off base.