- Hardcover: 368 pages
- Publisher: Portfolio (January 3, 2017)
- Language: English
- ISBN-10: 9780735217744
- ISBN-13: 978-0735217744
- ASIN: 0735217742
- Product Dimensions: 5.6 x 1.2 x 8.5 inches
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- Average Customer Review: 192 customer reviews
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The Sale of a Lifetime: How the Great Bubble Burst of 2017-2019 Can Make You Rich Hardcover – January 3, 2017
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About the Author
Harry S. Dent, Jr., is the bestselling author of The Demographic Cliff, The Great Depression Ahead, and many other books. He is the founder of Dent Research, which publishes the newsletters Economy & Markets, Boom & Bust, and The Leading Edge, among many others. He has an MBA from Harvard, was a consultant for several Fortune 100 companies while at Bain & Company, and lectures widely. He lives in San Juan, Puerto Rico.
Excerpt. © Reprinted by permission. All rights reserved.
How to Identify a Bubble: Guiding Principle #1
IT'S ACTUALLY QUITE SIMPLE. You start the bubble identification process by looking at cycles. That's because a few key cycles give you the power to see what will impact your life, your business, your family, and your investments over the course of your entire life!
So I'm surprised when I hear someone say: "I don't really believe in cycles."
You mean you don't believe that the sun will rise tomorrow morning, like it did this morning?
You don't believe that the tide will peak twice a day and that we can know, down to the minute, when this will happen on every beach around the world?
You don't believe winter comes once a year?
That you were born and will die?
That your teenager will hate you when they turn 13?
Have you looked at an EKG . . . ever?
Did you know our stock market, adjusted for inflation, has peaked every 39 years in the last century, that commodity prices peak every 30 years, and boom/bust cycles peak around every 10 years?
Did you know that the average household peaked in spending at age 46 (for the baby boom generation) and that has caused predictable booms and busts that we can see decades in advance? (For Japanese households, that peak in spending is at age 47 . . . it differs from country to country, but only by a year or two on either side of 46.)
What about the 500-Year Mega Innovation Cycle, which Henry Phelps-Brown and Sheila Hopkins discovered? It shows that inflation rises and peaks every 500 years. It did so in 1154 and again in 1648. It's due to peak next around 2150.
What about the 250-Year Revolution Cycle? The Protestant Reformation . . . the American and French Revolutions . . . the Industrial Revolution. The next one is coming in the next decade or so!
What about the 165-Year East/West Cycle? Power shifts from the East to the West like clockwork! You can guess it's heading back East for the next century.
There's a 5,000-Year Civilization Cycle shifting from towns to cities to megacities . . . oh, and have we seen megacities emerge in the last century . . . the 10 million-plus club.
A 100,000-Year Glaciation Cycle, with cooling longer term, except CO2 cycles are causing man-made warming first . . .
A Billion-Year Climate Cycle . . .
Sunspot Cycles . . .
Population Cycles . . .
Ovulation Cycles . . .
Sleep/Wake Cycles . . .
I think you get my point. Everything . . . EVERYTHING . . . follows some (if not dozens) of cycles. I won't get into the details of many of the cycles-it's not in the scope of this book-but I have written about them before in The Leading Edge: Harry Dent Unplugged, my bi-monthly newsletter. Visit HarryDent.com if you're interested in learning more.
So do yourself a favor: don't trust anyone who doesn't "believe in," or denies the existence of, cycles. I certainly don't. They're either ignorant or short-sighted . . . and both conditions are extremely dangerous to you.
But while I believe Cycle Blasphemers and Cycle Atheists are asleep at the wheel, I understand their deep-seated unwillingness to accept the obvious. The truth is that many people don't want to believe in cycles because they don't like change and they especially don't like the challenging part of each cycle.
They don't want to die (who does, really?). However, I would propose that birth is actually more challenging and shocking.
Few parents welcome the puberty of their children.
We don't want to endure economic downturns, even though that's where all the great innovations happen and future prosperity is born.
Humans generally abhor change, and cycles are all about change and progress. Constant change. So many people just deny the existence of such forces because that gives them the feeling of power where they have none.
It doesn't stop the inevitable . . . but it can mutate it when the ones holding the national and global purse strings refuse to see what's right in front of them. In Chapter 7, I'll go into the details of how they did this, and the resultant damage they have done. I'll also show you the only outcome that's possible . . . but let's first truly come to grips with the nature of cycles and the bubbles they bring about.
Of course, this is a book about bubbles and how this latest one is opening up the sale of a lifetime for you as an investor and for the best businesses, including yours. But as I'm about to show you, cycles and bubbles are inextricably linked.
The Ultimate Economic Model
Like it or not, everything in life is cyclical. And all cycles have four seasons. Our annual weather cycle is the most obvious example: spring, summer, fall, and winter. Not so different are the four stages of our life: youth (spring), adulthood (summer), midlife (fall), and retirement (winter). There are four stages of the business cycle, too: innovation, growth, shakeout, and maturity.
Just as there are four weeks in a month and four phases of the moon, I've found that the economic cycle evolves through four seasons as well, only over the approximate duration of a human lifetime, currently about 80 years.
The first credible economic cycle I studied in the early 1980s was the Kondratieff Wave, revealed by the Russian economist Nikolai Kondratieff in 1925. Back then this was a 50- to 60-year cycle (we didn't live as long) that saw peaks in inflation rates in 1814, 1864, 1920, and more recently, in 1980.
This cycle of inflation and deflation was characterized as having four seasons:
A spring boom with mildly rising inflation.
A summer recession with inflation rising to a long-term peak and major wars.
A fall boom with declining inflation, powerful new technologies moving into the mainstream, and a credit bubble that leads to high speculation and financial bubbles.
And a winter deflation, during which time bubbles burst, debt deleverages, prices deflate, and depression takes hold (and wars can follow such upheaval as well, like it did with World War II).
Note that the great resets I showed you in Figure I-1 on page 6 in the Introduction all tend to come during this economic winter season, which indeed resets the economy from all of its excesses and imbalances so it can grow again. And it happens once in a lifetime!
But Kondratieff's original cycle seemed to lose its power to predict a couple of decades ago when the winter deflationary season was expected in the 1990s. I believe there are two reasons the cycle failed: we saw the first middle class generation to emerge after World War II, and the massive baby boom generation followed!
When the Bob Hope generation, born between 1897 and 1924, entered the workforce after winning World War II, they were the first middle class generation that could afford to broadly buy homes using longer term mortgages. They made the everyday person more important to the economy than ever before. They put demographic cycles to the forefront and such cycles have dominated ever since.
The Bob Hope generation's family cycle and spending boom dominated and stretched beyond the 30-Year Boom/Bust cycles, which were based on commodities and innovation, to nearly 40 years! The generation's boom stretched from 1942 to 1968, followed by its bust from 1969 through 1982.
Then the largest generation in 250 years hit. The massive baby boom took place from 1934 to 1961.
When they entered the workforce en masse during the economic summer season of the '70s, the economy saw massively higher inflation trends. The cost of incorporating young people into the workforce is high. Until they become productive, they drive up inflation.
And their impact on the economic fall season was also outsized, extending that greatest and inevitable boom to grander heights, and, again, for longer than Kondratieff's original cycle allowed for. So when his cycle showed it was time for the economic winter season to set in, we got the greatest boom in history instead.
That's why there was a rash of books in the late 1980s and early 1990s calling for a great depression: Ravi Batra, Robert Prechter, James Dale Davidson, and Harry Figgie wrote them, and they all sold boatloads of copies. I respect most of these authors and read their books because they have a much greater perspective of history and cycles than most clueless economists who aspired to be accountants but didn't have the personality. Of course, their forecasts were wrong because Kondratieff's cycle no longer "seemed" to work.
They lacked the insight into the demographic impact of the new generation cycle of middle class spending and the massive baby boom . . . and how it altered the economic cycle.
From the research I was working on at the time, I understood that there was no way we could have a great depression when the largest generation by far was in its sweet spot for spending, house buying, and borrowing in the 1990s.
So I wrote my second book in late 1992, called The Great Boom Ahead (my first book, self-published in 1989, was Our Power to Predict). I presented my thoughts on a new four-season economic cycle that spanned roughly 80 years with two 40-year boom and bust cycles.
I saw that the baby boom had exaggerated the Kondratieff cycle in terms of the magnitude of inflation and booms.
Besides, our life expectancies took a big leap between the 1930s and 1960s, extending all human-related cycles, including the length of the booms and busts.
The Kondratieff four-season cycle is still valid, but it has been stretched and magnified. Just by projecting cycles in spending and inflation through demographics, we can more accurately time this powerful and overarching, four-season economic cycle into the future.
That's why it's important to be able to accurately project the fundamental trends rather than just following historical, clockwork-like cycles (although many are still very clockwork-like and I will look at those later).
The deeper explanation for the shift from a 60-year to an 80-year cycle is that our economy changed dramatically in the last century.
Up until the late 1800s, the United States (and even most of Europe) was still an agrarian nation with 80% of its population involved in agriculture, mining, and trapping. Even in the early 1900s, it was still 60% rural. Of course, agrarian consumers don't have nearly the effect on the economy that the urban, affluent, middle-class consumers have today.
Even today in China and India, rural consumers have lower economic impact because they're mostly self-sufficient farmers (I'm not talking about commercial farmers here).
But after the Roaring '20s, we saw the first mass affluent middle-class society in history. Their spending cycles started dominating the economy instead of the 30-Year Commodity Cycle. This stretched the boom and bust cycle to 40 years each, so a full four-season cycle is now 80 years long.
All of this explains why most Kondratieff proponents were wrong about a depression in the 1990s. On the extended, 80-year cycle, that depression was due only 20 years later . . . and that's what we're seeing now.
Figure 1-1 below shows you what this new 80-Year Economic Cycle looks like:
This 80-Year Economic Cycle perfectly summarizes what started in 1942, after the Great Depression that marked the end of the last winter season with deflation in prices and massive bank and business failures that generated 25%-plus unemployment.
The inflation index (the gray line) in Figure 1-1 follows the traditional pattern of the Kondratieff Wave: moderate and rising inflation in spring, high and peaking inflation in summer, falling inflation in fall, and deflation (falling prices) in winter.
Think of inflation like temperatures in our annual weather cycle. High temperatures are like high inflation and low temperatures are like deflation. Both are uncomfortable and present challenges for the economy and stock markets, which paradoxically are the greatest drivers of breakthrough innovations that make us wealthier and live longer over time.
The black line in Figure 1-1 is the Generational Spending Wave. The Bob Hope generation's Spending Wave rose from 1942 into 1968, which is also when we saw a great bull market in stocks. When adjusted for inflation, the S&P 500 peaked in 1968. This was the economic spring.
Then there was an on-and-off recession from 1969 through 1982, as the Bob Hope generation slowed in its spending-the economy kept going into recession after recession. But that time period saw the emergence of the massive baby boom into the workforce that paradoxically created high inflation along with a series of wars (as is typical in the summer season).
Then the baby boom started up on its Spending Wave from 1983 to 2007, and again we saw the greatest stock market boom in history, from August 1982 to October 2007.
This was the economic fall and bubble boom season, paradoxically with falling inflation and interest rates as that generation and its new computer technologies created much higher productivity.
In 2008, the baby boomers' spending began its slowdown, and so started the great recession. That spending slowdown accelerates to around 2020, then flattens out and doesn't turn up with the echo boom or millennial generations until around 2023 forward. That is the winter economic season.
This economic winter will see deflation in prices from massive debt and financial bubbles deleveraging, just like what happened in the 1930s. And we'll see a depression, not a recession.
But governments around the world have pulled out all the stops to prevent this . . . good luck fighting Mother Nature on this one!
Everything I just described to you is how I was able to forecast, back in the late 1980s, that we'd see trouble after 2007! I understood how the Kondratieff economic cycle had changed and when I lagged the baby boom birth index by 46 years to see their predictable peak in spending, I had a very clear view of the future.
And this is Guiding Principle #1 of bubbles: they occur in the fall economic season, which consumer spending now predictably drives. The combination of a strong boom and falling inflation will always create bubbles. They're cyclical . . . which means they're unavoidable and more easily predictable!
Incidentally, this is how I also successfully forecasted, in 1989, that Japan would collapse.
My claims didn't make me very popular because, back then, everyone was saying that Japan would become a superpower. Today, the country is the poster child for how demographics drive the economy and market . . . and what NOT to do when these inevitable busts roll in.
Why every economist, central banker, and government official isn't studying Japan is a mystery to me. They absolutely should be because we're seeing one country after the next go over the demographic cliff . . . and one bubble after the next reaching their limits. But, they seem to live in a world of their own, untethered from reality, where bubbles don't happen and they think they can control consumer spending like puppets on a string.
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Dent made his name on demographics and his spending cycle, which are good tools for directionality but fail to match actual events. He tried to cover this by adding more cycles which stretches reality too far. I have a real problem with his supposed geopolitical cycle and his argument in the book is very poorly done. He has multiple pages of current negative events, but blows off the period of 1983 to 2000 by saying nothing bad happened; ignoring Beirut, Chernobyl, Columbine, Iraq invasion, Tinammen Square, etc. His innovation cycle is supported by some slight of hand that just shows the weakness of the basic argument. All he seems to have left is the sun spot cycle, with such a large time variation to negate its value and no real reason for it to have any effect. His long term cycles are even less credible.
A recession is likely coming, but this book doesn't really present anything new for discussion. I expected so much more.
I like his writing style and his level of confidence. I also like all the data he provides. I would take this book as "one more bit of data for your knowledge base" and not as the Bible as to where to put your money.