Are We Heading For A Once-In-A-Lifetime Crash?
July 30, 2021 (Investorideas.com Newswire) Predictions of a stock market apocalypse are as old as the stock markets themselves. For a long as there have been stocks, shares, and people willing to buy and trade them, there have been people predicting it's all going to end in tears. Much like a broken clock, they're occasionally right. Also like a broken clock, when they're right, it's generally down to coincidence rather than accuracy. Still, though, we're currently being told by numerous "experts" that there's a very big crash coming soon. Should we pay attention this time? Let's see where the news is coming from and make an assessment.
A few days ago, economist Harry Dent gave an interview to a website called "Think Advisor." In that interview, he predicted the total meltdown of the stock market within three months. By the end of fall 2021, he expects most equities to have lost a staggering eighty per cent of their value. Following on from there, he anticipates that 2022 will be the worst year for the stock market in anyone's lifetime, and 2023 will be the worst year on record for the US economy. These are extraordinary claims, and extraordinary claims require extraordinary evidence. The question is whether Dent has any. It's impossible to provide evidence for an event before it happens, but we can at least look at Dent's credentials.
In the past, Dent's form has been spectacular when it comes to calling market crashes. He predicted the 1989 recession in Japan long before anyone else saw it coming. He also tried to warn investors that the dot com bubble was about to burst, but nobody wanted to listen. He even demonstrated his acumen for forecasting politics when he predicted that a wave of populism would see Donald Trump elected as President of the United States of America in 2016. If we were to look only at these achievements, we should all probably start considering selling off our portfolios now before the inevitable happens. There is, however, another side to Dent's predictions.
Dent has been able to "predict" so many downfalls and crashes because he never stops doing so. He gets a lot of press coverage when he gets one right, but there's nowhere near as much noise made or attention lavished upon him when he gets things wrong. In recent years he's been calling crashes and getting it wrong more often than ever before. He's even predicted a "once in a lifetime" stock market disaster every year since 2016 when he said that Dow Jones would fall by seventeen thousand points. That obviously didn't happen, and nor was there a significant stock market crash of any kind that year. Dent's soothsayer-like forecast of a return to the economic conditions of the 1930s was a long way wide of the mark.
Having established that Dent's forecasting history is mixed, now we should take a look at what he's basing his prophecy of doom on this time. According to him, the economy is coming to the end of a very long bull market inside a bubble. He worries about the amount of stimulus it's taken to achieve economic growth of less than two per cent in the past twelve months. In fact, he worries about stimulus in general. He feels there's been too much of it. According to his figures, around twenty per cent of public companies are unable to service their debts without stimulus. Stimulus is, therefore, propping up what Dent refers to as "zombie companies," which will collapse when it's withdrawn. At that moment, he expects the crash to begin.
A big part of Dent's forecast is tied to house prices. He believes that housing plays the biggest role in the American economy and that his research indicates that sales are slowing after the initial post-covid rush. More worryingly than that, he also says that prices have started to come down by as much as 25% in some areas. Metaphorically speaking, he compares the impending doomsday scenario to an avalanche. Snow has been building on the side of a mountain for years, and now it's one snowflake away from crashing down. If he's right about the "deflationary cycle" he sees in his figures, house prices will eventually come down by fifty per cent. The domino effect would lead to defaults on everything other than triple-A and treasury bonds.
While we're dishing out bad news, Dent also foresees gloom for Bitcoin investors. The cryptocurrency is currently rallying after dropping fifty per cent of its value within the past three months, but Dent doesn't expect that rally to last for long. He thinks it'll soon drop by a disastrous 90%, bottoming out at around four thousand dollars per coin. Longer term, though, he sees it recovering to exceed one hundred thousand dollars per coin and then, within five to ten years, one million dollars per coin. As bad as things get for the traditional stock market, he sees value in cryptocurrencies.
Should we put more stock in Dent's predictions than anybody else's? There are always competing voices when it comes to predicting the stock market, and there always will be. As much as we hate to say it, the markets are usually no more predictable than the games at an online slots website like Rose Slots IE. We might like to kid ourselves that experience, insider knowledge, observation, and intuition give us a better chance of making money from the markets than our peers, but we're really just spinning those online slots reels and hoping for a big win. Sometimes we get one. When we do, we like to believe that we (or our financial advisors) are the reason that the bet paid off. That's like thinking that the way you pressed the "spin" button on your online slots game affected the outcome of the spin. Investing in stocks is a wild ride, and we have less control over that ride than we like to imagine!
Some people will listen to Dent. Others will dismiss him as a multi-time false prophet. We'll all find out whether he was right three months from now. If we really do see a history-making crash, though, maybe it will be worth listening to his cryptocurrency predictions after all.
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