The Great Crash – Spring 2014

Harry S. Dent Jr – Best-selling author, founder of economics research firm HS Dent, predictor of the 1980 Japanese market bubble and the US Bull Market of the 1990s, MBA of Harvard Business School, top 5% in his graduating class… the accolade list goes on and on. When someone like Harry S. Dent Jr. speaks, people listen.

So let me ask you something; does this sound logical?GRIM REAPER

Europe’s debt crisis and a global reduction in spending due to aging baby boomers will slow down economic growth across the globe. Additionally, easy credit has led to a new real estate bubble, poised to pop at any moment.

Sure it does. Those are all logical conclusions based on current sentiments, especially with the reinforcement from someone of Harry S. Dent Jr.’s pedigree. You see, Mr. Dent has made a bold prediction; the stock market is poised for a massive crash, 50 to 70 percent according to his measure. Not only is he predicting the crash, he’s putting his money where his mouth is with his Dent Tactical exchange-traded fund (DENT).

Per Mr. Dent; “We told people to get 100 per cent out of stocks last Friday. You might miss the last 2, 3, 4, or 5 per cent, but when it falls, it can fall so rapidly.”

Does this information worry you? A Harvard MBA, economics research firm founder, predictor of past market crashes and booms is telling you the market is going to crash by over 50% in the next year or two. It certainly sounds worrisome, so let me ease your mind.

Would it make you feel better if I told you this prediction happened in January of 2012? In 2012, the Russell 3000, a broad US equity index, went on to return 16.42%.  Well, okay, maybe he missed it by a year, in fact, he even predicted he might be off by a few months; “You may get another bounce in the markets, but you just push the crash lower down the line into 2013 and 2014.”

So let’s see what 2013 had in store for investors. Surely this Master’s Degree economics professional can’t be too far off. The Russell 3000, in 2013, had a total return of…. 33.55%. Oh yes, many years ago Mr. Dent also predicted the DOW would hit 40,000 by 2009.

Now, I don’t mean to single out Harry S. Dent Jr. here, I just happened to stumble on an article relating to him recently. There are plenty of other willing participants to harangue with equally impressive resumes and similarly dubious track records. The point is that it’s easy to cherry pick predictions that came true when you make hundreds of predictions, especially when the media is so willing to celebrate your victories and brush the failures under the rug. The general populace gets the impression that people can accurately predict future market conditions because that’s all they see on TV, magazines, and the internet.

Of course, most reasonable predictions do come true, just as someone in Bellingham who says “we will have a sunny day in the future” is eventually correct. A future bear market is a reasonable prediction, as market corrections happen quite often. What value does that actually provide us? Absolutely none, other than to illustrate how ridiculous attempting to invest based on predictions about the future are. Worse actually; these predictions are devastating for any investor who uses them to time the market.

There will be future market corrections and future predictions that sound entirely logical. Someone will “call it,” like Harry S. Dent has done in the past, but it’s no more than blind luck would suggest. The implication is that stock-picking, market timing and active management simply can’t provide long-term value because future returns are based on future events, which by their very nature are unpredictable. Above-market results from these strategies are merely due to luck rather than any repeatable skill. Here is a dire prediction that will come true: if you invest based on predictions and speculation, your financial future will be in serious jeopardy.

Mr. Dent says he will be proven right. “Most of the time asset allocation works,” he says. “But when you get a major bubble burst like in the Roaring ’20s and now…if you just sit and don’t make changes, you’re going to get killed.”

Also of note in 2012, the DENT index fund was closed and liquidated. Sounds like intelligent investing and asset allocation are still working “most of the time.”

 

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