Editor’s Note: Thought I would pass along this piece by analyst Frank Koster. While this forecast of a market crash may seem outlandish, you may find his predictions about the markets and the world economy, particularly the impact of an aging U.S. population, to be interesting and useful.
By Frank Koster, Special Correspondent
He’s a New York Times best-selling author who has made some shockingly accurate predictions over the last several decades.
In fact, using an indicator he and his team developed called a “Spending Wave,” he not only correctly predicted the bursting of the Japanese bubble . . . he predicted the 2008 financial crisis at the exact same time all the way back in 1988.
Now he says we will see a 40% stock market crash by April that takes years to recover from.
In fact, he says that what could happen to the U.S. is nearly identical to what happened in Japan 30 years ago.
But let’s look at what did happen . . .
Japan, Dec. 25, 1989
It had been ten years of unprecedented growth for the small island nation whose post-WWII manufacturing domination had swept the world.
Most people in the U.S. drove a Toyota . . . Suzuki . . . Nissan . . . Honda . . . Mazda . . . Subaru . . . Mitsubishi . . . Kawasaki . . . Yamaha . . .
Hardly a “cheap” American-made Ford, GM, or Chevy could be seen on America’s interstates.
Nearly every electronic device Americans used was a Japanese brand – Sony, Panasonic, Hitachi, Toshiba, or Canon.
Americans shot Fuji Film to take family photos and children gathered around to play the newest Nintendo game.
At construction sites in U.S. cities – Komatsu bulldozers and cranes moved the earth and buildings were constructed out of Nippon Steel.
Japanese Real Estate was so valuable that the Imperial Palace in Tokyo was worth more than the entire state of California and the general property market in the country was 4x as valuable as the US.
But then the bubble burst . . .
- The Nikkei 250 index proceeded to drop by 63% over just the next two years.
- By March 2009 – it was down over 80% from its 1989 highs.
- Right now, it is still 30% away from its 1989 highs… over 30 years later.
So what happened?
Main Street Rules Wall Street
Well – for a man like Harry Dent, the crushing blow to Japan’s equity market, real estate market, and economy as a whole was easily predictable.
You see, Harry wasn’t looking at graphs, charts, currencies, inflation, macroeconomic events or boom-and-bust cycles.
In fact, he wasn’t looking at any of the “traditional” metrics one might use to predict a market crash.
Instead – he was looking at people.
Particular demographics and how they spend their money as they age.
Something economists don’t know much about.
And according to him, it’s the most predictable thing in the economy: the spending of households.
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You see, from about the age of 25 to 47, people go on a “spending spree” . . .
That is . . . until their kids leave the nest, and then they spend less the rest of their lives.
Dent used this generational spending cycle to look back over literal centuries of economic data, eventually developing a tool called The Spending Wave in 1988.
He realized at that time Japan was at the top of their generational spending wave.
Meanwhile, the U.S. and Europe were just getting started!
He estimated that Japan’s equity markets were about to collapse and that it would be around 2007 – 2008 that the U.S. reached a similar peak.
This is why Dent says he can predict spending in any country in the world, and how he was able to call the future.
Now, perhaps you’re thinking, “If we peaked in 2008, it wasn’t that bad because we’ve had the longest bull run in history since then!”
However, Dent thinks this is misleading . . .
He says that – since that time – we’ve been living off quantitative easing.
The U.S. has essentially printed $24 trillion globally to keep the economy chugging along at a measly 2% growth rate while allowing people to borrow ever more money at zero interest rates.
He believes that, in 2008, people were ALREADY over-borrowed.
All it took is a “trigger” like COVID to show people the reality of the situation – we’re weaker than we thought.
And the stimulus isn’t helping . . . it’s just making things WORSE.
In Harry Dent’s words:
“This COVID thing hit early this year . . . I give that a 9- to 12-month lag before you really feel the small business and zombie companies [fail]. They don’t go down overnight . . .
“We will see strong weakness in the economy by mid 2021 showing that all this stimulus is not enough to put Humpty Dumpty back together.”
Market Crash in April
He believes that stocks will crash by 40% in April, essentially continuing the selloff that started in March 2020.
Except, this time it, will take YEARS to recover – similar to what’s happened in Japan.
He also says that it will not be until the end of 2023 when Millennial spending kick-starts a new period of growth after Baby Boomers reached their spending peak in 2008.
Now – am I saying he’s right?
By nature I’m cautiously optimistic.
But when I start hearing people say, “What happened in Japan can’t happen here.”
Or . . . “That was then, this is now.”
Or my favorite famous last words, “This time it’s different.”
Then I start to worry that people are becoming detached from reality – that they are optimistic but NOT cautiously so.
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- Park your money into high-growth, high-yield assets impervious to broad market selloffs.
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