Article – The Truth About Harry’s Research (And What He’s Saying Now) – By Rodney Johnson
In 1997, Prudential Securities gave Ralph Acampora a 1962 red Corvette. Two years earlier, he’d forecast the Dow would reach 7,000 by 1998, and it happened a year early, in February of 1997.
Everyone was ecstatic. I had worked at the same firm for years, but had recently left, driven away by the same Ralph Acampora.
It wasn’t personal. I’ve never met him. Instead, it was a piece of research I saw him use when backing up his famous forecast.
Ralph is a market technician – he’s self-described as “the Godfather of Technical Analysis” on Twitter – who regularly draws charts by hand. But in long-format presentations he often dove into the details of “why.”
To partially explain the market’s relentless march higher, he presented a chart of the number of 46-year-olds in the U.S., presumably at their peak in spending, overlaid with the S&P 500.
I had seen that somewhere before. After some digging, I realized it was the bedrock of someone else’s research. It belonged to Harry Dent.
I’ve now worked with Harry for more than 20 years, and had a front-row seat to some of the craziest times in financial market history.
We’ve been more right than wrong across the spectrum of economic and market predictions.
Now we’ve come to another make-or-break point.
When things unfolded as Harry forecast in 2008, governments tried to turn the tide. Now we’ve had nearly 10 years of unprecedented market intervention coordinated by central banks around the world, but those days are almost over.
With the Federal Reserve shrinking its balance sheet and the European Central Bank reducing its bond-buying program, central bank action will move from a tailwind to a headwind.
We’ll be left to rely on the real economic foundation.
Referring back to Harry’s research, it could get ugly. It’s not that Harry wants things to go south; he just follows his research, and the next chapter calls for a downdraft before we can start the long Millennial-based growth cycle.
Harry famously wrote in 1989, with the Dow at 2,500, that the market index would eclipse 6,000 to 8,000 by 2006. He noted that American consumption, driven by the Baby Boomers, was in the second inning of a long ballgame.
People called him crazy. He was just getting started…
In 1993, Harry published The Great Boom Ahead. In the updated 1995 version, with the Dow around 4,000, mortgage rates at 7.5%, and 30-year Treasury bonds at 6.5%, he laid out very specific forecasts for the next 12 to 15 years…
The Dow would surpass 8,500 by 2007. Inflation would remain below 3% because of high productivity. Oil prices would stay low. Japan’s equity markets would continue to fall. Bond yields would drop, with mortgage rates falling below 6% and variable rates in the 3% to 4% range. The U.S. and, to a lesser extent, Europe, would regain economic dominance, and China and Mexico would experience spectacular booms.
He got some things wrong.
The Dow crossed his top target before the end of the 1990s, making him reconsider the top end of the research. He expected gold to remain dormant, which it didn’t, and oil took off in the mid-2000s. Still, overall Harry’s predictable spending and demographic research led to an amazing number of correct forecasts.
But they didn’t stop there. It wasn’t all sunshine and roses. The good times would come to an end.
Relying on the same demographic and spending data, Harry estimated the economy would roll over between 2008 and 2010 as the Boomers aged and the smaller Generation X took over the top spending slot.
The equity markets would drop more than 50%. Interest rates would fall below 3%. Productivity would slow dramatically. Real asset prices, including housing, would drop, and developed nations would enter a long period of civil unrest over inequality.
Hmm. Not 100% accurate, but pretty good. And, remember, Harry made these forecasts in the 1990s.
In the years we’ve worked together, I’ve been on stage a thousand times explaining our research, what worked, and what didn’t.
The building blocks remain in place, which we know from the U.S. Consumer Expenditure Survey. Consumers spend more as they age until their late 40s. Then, with the kids gone, they focus on preparing for retirement. They don’t want the same stuff they did in their younger years, and the Fed can’t coax them with lower interest rates to take on more debt.
By measuring the number of consumers at each age and stage of life, you can estimate the general ebb and flow of the economy. It’s simple – and brilliant.
But the future is not set in stone. Americans spent like crazy in the early 2000s, as predicted, but the earnings didn’t flow to U.S. companies and drive our markets to dizzying heights. Instead, the money flowed through American firms and found its way overseas. We minted millionaires in China.
When the markets dropped in 2008 and 2009, the federal government showed up with a recovery plan, just as Harry predicted. But the Fed also showed up, with a much bigger checkbook. So did the ECB, the Bank of Japan, the People’s Bank of China, the Bank of England, and a host of others.
The coordinated efforts created a bid for just about everything. We didn’t think citizens would allow such incredible amounts of newly printed reserves and continued deficit spending. And yet, here we are.
Now things are changing again. We’ve grown tired of central bank intervention, even though, so far, we’re still numb to the effects of deficit spending. And yet, all of those efforts couldn’t push GDP growth above 2% or so. Even the Fed’s long-term forecast is 1.8% growth.
Maybe that’s a win.
Maybe, without such incredible intervention for so long, facing the stiff headwinds that Harry has forecast for so many years and that he will talk more about in a free video today, we’d be in much worse shape. As the Fed drains liquidity and other central banks step aside, we’re about to find out.
It won’t last forever.
The economy is slogging through mud today as the Boomers retire en masse, but by the mid-2020s the Millennials will be firmly in control, raising their kids and spending their money, driving us higher, just as Harry forecast in the mid-1990s.
We simply have to get there.
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