This is the second part of our interview with Harry Dent. Last week, Harry and Bruce talked about the threat to the economy, which is according to Harry’s prediction- the financial asset bubble.
Harry S. Dent Jr. studied economics in college in the 1970s, receiving his MBA from Harvard Business School where he was a Baker Scholar and was elected to the Century Club for leadership excellence. After Harvard he became a management consultant, helping businesses understand where they were, what obstacles they faced, and how to succeed. He did this by weaving together research on people, technology, and markets.
Since then, he’s spoken to executives, financial advisors, and investors around the world. He’s appeared on “Good Morning America,” PBS, CNBC, and CNN/Fox News. He’s been featured in Barron’s, Investor’s Business Daily, Entrepreneur, Fortune, Success, U.S. News and World Report, Business Week, The Wall Street Journal, American Demographics, and Omni.
Harry has written numerous books over the years. In his book The Great Boom Ahead, published in 1992, he stood virtually alone in accurately forecasting the unanticipated boom of the U.S. economy in the 1990s, as well as the multi-decade decline of the Japanese economy. In 2016, Harry published, The Sale of a Lifetime, where he reveals the secret behind many of the largest (and fastest!) fortunes in history out of great crashes that can create a profit windfall that will last you generations.
Today, he uses the tools he developed from decades of research and hands-on business experience to offer readers a positive, easy-to-understand view of the economic future.
Episode Notes:
Narrator This is The Norris Group’s real estate investor radio show, the award-winning show dedicated to thought leaders shaping the real estate industry and local experts revealing their insider tips to succeed in an ever-changing real estate market hosted by author, investor and hard money lender, Bruce Norris.
Bruce Norris Thanks for joining us. Once again, we have Harry Dent, as our special guest, we’ll be talking about what he thinks is going to happen to asset prices, including real estate. Now, by the way, how, are stocks typically leveraged, or they owned cash?
Harry S. Dent Jr. No, real estate is more leveraged. So, real estate is much more a problem, the 2008 crisis had a lot more to do with the real estate, real estate went down 34%, Bruce, on average in the United States, that was higher than the Great Depression at 26%. Because the roaring 20 is the Great Depression, people couldn’t borrow money easy and most people couldn’t buy and finance a house easily and leverage it up and speculate. It was a stock bubble. Not a real estate bubble. But the real estate going down is the worst because people, real estate is backed by high debt. And those debts default, as in 2008, that’s when the problem and stocks go down. But it’s more risk people that don’t stop people do not tend to leverage outside of traders to buy stocks. So, I look at stocks more as the trigger for a, another real estate crash that goes down 40 to 50% this time and really stressing the financial system.
Bruce Norris Alright, let’s talk about that. Because that’s what, that’s what I feel like I understand. And so can we bat that around a little bit?
Harry S. Dent Jr. Sure.
Bruce Norris Okay. So, that’s a, that’s a hit that’s equivalent to 2008. But what’s, what’s different is what’s in place. Low-interest rates, fixed-rate loans, not, not pretend loans, people have to qualify, they have payments that are manageable. And they have the biggest equity position ever. So, I’m just, I want to bat it around with you because I’m looking at the, you know, the history of what I pay attention to. And for you to have price damage in real estate. The market has to be dominated by foreclosures. That’s how you have price damage.
Harry S. Dent Jr. Okay, here’s the difference between this time and your right, real estate was more overvalued, relatively okay. But baby boomers were close to their top in the real estate cycle, we are way down the real estate, you know, what I would have predicted for real estate without all this stimulus? First of all real estate would have been down for the last 10 years from lack of buying versus supply, okay? So, all of this has been built up lower interest rates, government’s giving people money, fake earnings, fake GDP, of course, people spend more on real estate or maybe buy a vacation house, they would’ve or trade up to a bigger house. It’s all fake, okay? It’s fake, fake fake. The problem is this recession comes with a much more fake economy. Ofcourse people have a little more equity in real estate, the government gave everybody a free gift okay? If Uncle Sam came and walked into your house and gave you $200,000, would you feel richer? Did you earn it? Is it real? No. But you would feel richer, and you might act differently for a while until you did what? Oh, bought, even more, leveraged up even more, even though you’re older, and you can afford it less, I’m moving towards retirement and interest rates are going down, which means you can’t get the same return. This is a total BS economy since 2008. That’s the problem This time we come in. Yes, real estate is adjusted for inflation only a little bit high, okay? But compared to the natural demand, it’s 40%. And I’ve got indicated for this, Bruce.
Bruce Norris Okay.
Harry S. Dent Jr. 47% of value instead of 20. And I’m telling you, it’s going to go down 40 to 50%. This time instead of 34%. And that doesn’t cause havoc in the bank. It’s ‘Oh, yeah, people have a little more equity, sure.’ Yeah, try dealing with a 40, 50%. I tell people right now, anybody in this audience? What was your house worth? At the bottom of the last real estate recession of 2011-12. That’s number one reality, could you take that decline and would it hurt you? And the real, the bigger reality what was it worth before the real estate bubble start in the first place in early 2000? Look at those two figures and if you’re not scared to death, then you’re bought in Omaha and don’t have to worry much. That’s what I’m saying.
Bruce Norris What…
Harry S. Dent Jr. …this is, this is going to be a big shock.
Bruce Norris Okay, the trigger, the trigger point for 2008 had a lot to do with real estate financing which is over the bond world. So, what’s the trigger here? Because it doesn’t seem like it’s the frontline is real estate, it’s going to be down the stream gets damaged because of what’s the event that’s that goes, goes…
Harry S. Dent Jr. The trigger is a stock market and all financial assets, including real estate, that are going straight up at the fastest rate in all of history, while demographic trends in the fundamentals, the economy goes straight down a huge does A JAW, JAWS okay? That’s the trick, it’s not going to take much of a trigger, I don’t think there’s gonna be a giant trigger right now, except that stocks start falling, and they don’t stop. I have a megaphone pattern stock since 2008, January 2018. higher highs, lower lows, megaphone patterns, only come at the end of long term booms because the momentum and investors and consumers and business minds is, ‘Oh, we’ve gone up forever.’ And so, they’ll… the people are still bullish. But what happens is you get slightly higher highs, but every crash takes you to more substantial lower low. So, we’ve had since January 2018. Actually, we’ve had it in a broader level, on my broader cycles from 2000 to 2021. So, this is the thing, it’s the overvaluation of financial assets, which was the cure for the debt crisis and the demographic crisis of 2008. That’s going to cause this bus, which means, oh, people don’t have to spend less, because they’ve already been they the demographics, peaked the 2007. You know, housing doesn’t have to be more overvalued than last time relative to income just coming out. Because everything else is the stock market, I think is going to be the biggest trigger. I think the next crash on my megaphone pattern, that’s one of the most reliable, it’s not- nothing, no pattern, short term is reliable. But the megaphone pattern in the stock market said next bottom for the 2000- for the S&P 500 is 2100. It’s sitting at 4209 or something today. That’s a 50%. crash. And Bruce, let me tell you how long that’ll take to happen two to four months. Now, this may not happen, that’s my most likely scenario, that alone will give such a shock to this stupid, overstimulated, over-bloated economy, that it will not recover, we will not see a new high and no stand, nobody will blame if they just stimulated 55% of GDP in the last year and a half, and that didn’t work? Who’s going to believe ‘Oh, we’re gonna now, now we’re going to print 20 trillion,’ no. Government loses credibility, economy loses credibility, and people go back down to me, like me, I’m 68 years old. Why am I buying a second vacation house? What’s wrong with me? Charlie Dell wrote in a book called ABCs of investment, this is 1890 says, ‘you can always tell where you are, in any cycle by the emotion of the participant.’ Yeah, the stupidity and delusion of the participant.
Bruce Norris So…
Harry S. Dent Jr. People are most delusional, you know, every time, I’m telling you, the smartest, this is different from me in the past. Now, when I give my forecast the smartest and the dumbest people say, ‘Harry, there’s no way the government will let that happen.’ Well, you know, I was in UAE, you know, and the most booming country back then in 2007 I think it was right before they went down. I gave my forecast real estate, particularly there, you know, real estate’s been pumped up, it’s overvalued, and it’s going to crash 50% or more. And people said, ‘Harry, they’ve got to remember, they won’t let it happen. They will buy when consumers in business don’t.’ I said, ‘Well, now I’m even more worried’ the next year, real estate there went down 50% in one year, real estate does not go down as much as stocks or as fast. That was one of the most extreme real estate bubbles back then. I was sitting there talking to people in that country. And everybody in the audience said ‘Cannot happen.’ Today, Harry, I had a guy wanting me debate on radios. I’m sorry, I’m not willing to debate Damascus anymore. If you say I’m just saying a 40% crash. In the next few months, we’ll hire people. That cannot happen. How fast is the Fed? Do they prevent the last crash in 2020? No, it happened before they even could react. This one’s going to be bigger. Everyone’s going to be bigger. So, people are delusional if they think number one, the worst thing, the one thing I’ve learned in, in my entire lifetime and I’ve studied everything, I’ve studied back to the Big Bang, okay, everything you don’t get something, for nothing number one, and number two, things grow, everything grows long term, short term, in cycles. Every balloon has a bust. Every inflation has a deflation, okay? Men and women play in opposites. You don’t have a boom like this without a bust. You don’t even have to have a trigger right now things are so overvalued compared to the fundamentals. It just have something go wrong in stocks, claps, enough tha, that the Smart Money started to say it’s over. And it doesn’t matter what everyday people think. But the Smart Money starts shorting this thing with 20 times leverage. It doesn’t matter if Homer Simpson is still buying stocks, because they’re in delusion about the boom will never end. And Janet Yellen says we’ll never have a recession the rest of our lifetime. That’s the stupidest thing I’ve ever heard from an economist ever. And she’s the Secretary of Treasury, who was the Fed Chairman before that. These are the people running our monetary policy. They don’t know anything about anything. Never had sex, never run a business….I don’t believe it.
Bruce Norris Let’s talk about a couple of other asset types. So, gold, for instance, is that somehow going to be a safe haven for, for this?
Harry S. Dent Jr. In the 70s? Yes. Now, no. Now, I will give an exception. I’m putting out a thing today in my newsletter, gold in the 2008 downturn went up at first they saw the economy waiting. So, investors say, well, they’re gonna have to print money. Gold likes printing money, you know because they think it’s going to cause inflation down the road. Well, it didn’t cause inflation because the economy tanked. And when Lehman Brothers went down, gold collapse 33% in two to three months, okay. Oh, seem to be the safe haven coming early stages, when the, you know, what hit the fan gold went down now, but gold did not go down as much as stocks, okay. What was the safe haven, which I still stress today, And every gold bug will say, ‘Oh, the US dollar and treasury bonds are the epitome of the whole global money for anything?’ No, we’re the best house in a bad neighborhood, we have less, way less money printing than you’re way, way less than Japan. And China doesn’t even print money, they just print condos. They just build stuff for nobody the worst type of stimulus history. We’re the best house in the global neighborhood, even though we’re going to have a big downturn, our currency, the US dollar will hold up better. And the US Treasury bonds will hold up the best mark my words on this. And it happened in 2008. When gold went down 33% in mid to late 2008, treasury bonds went up 30 to 40%. So, that’s the safe haven beacuse cash is good because things go down relative to cash. But the treasury bonds make you money because they’ve locked in, let’s say a pitiful 2.3% yield on a 30 year treasury today. And watch that treasury goes down to near zero, which is what I’m predicting. That treasury bond will go up 40% and forget your 2.3% by locking in a 2.3% high quality return forever. When they go down to near zero, that treasury bond will go up at least 40%. And you’ve magnified your money while stocks and real estate and lower quality bonds are going down. And then at the bottom, you’d be like Joseph Kennedy, and you buy everything at 50 to 80% off saleable lifetime, that’s a secret. While Joseph Kennedy is the class-, to classic examples. One private Joseph Kennedy got, he was not a sophisticated guy in the terms of economics. He just knew that the shoeshine boys were telling him what stocks to buy. He said, ‘Oh shit, I gotta get out. I gotta get out of this. This is wrong’. Reinvested at the bottom, and went from being a multimillionaire to a billionaire in today’s dollars. The other great example is, Ford had beat General Motors for most of the great race of leadership into the late 20s. I chart out these things too. There’s a time when these happen on an S curve, or General Motors’ only path forward in the downturn because General Motors had better financial controls and was less overconfident. And Ford went down harder and General Motors passed them forever, you know, the value of the difference between 29 and 33 a passing Ford forever? Zillions of dollars, a couple years determine that difference. And once you get that advantage, Ford never caught up again. Ford still a big company, great. Now, General Motors still dominates. And a beautiful General Motors stocks in 1932 or 29, by the way, versus Ford you to make way, way more money. So, so, business can benefit from this downturn and investors but you have to get out of the way. You have to hunker down as a business or as an investor, you have to get in safe-haven assets. And it’s not gold, although gold is not the worst place to be.
Bruce Norris Right.
Harry S. Dent Jr. Safe-haven assets and simply reinvest when things go down 40 to 50% in real estate and 60 to 90% in stock.
Bruce Norris Okay. We got only a few minutes left. How about the impact of the tax policy said, policies that are being discussed. So, let’s talk about first wealth tax. So, taxing your net worth every year, what, do you think that’ll come about? And what’s the impact of that?
Harry S. Dent Jr. Oh, I’ve been warning about this for decades, in the winter season, which is 2008 to 23, and 1930 to 42. In the past, governments always raise taxes, the economy is weaker deflation sets in, and in the boom, before that, I call it the fall bubble boom, like the roaring 20s, are this incredible bubble, the rich get richer, so people hate the rich, they tax the rich and taxes go up. You have not seen the beginning of taxes, I’m sitting in Puerto Rico, thing, almost no time I moved here to finish my vacation home, because I like Puerto Rico, knowing I might qualify or not for the tax thing. I didn’t know I moved here anyway, I’m telling you, people are going to be rushing into this country in the next few years. And I’m worried about the tax status in Puerto Rico because too many gringos are going to come here, and then they’re going to cut it off. So, so saving tax, taxes are going to go up, they are only going to raise marginal rates and taxes, they have to tax the wealthy, you can’t tax the everyday person.
Bruce Norris That’s right.
Harry S. Dent Jr. When an economy like this goes down, and they’re out of the job, wealthy people will lose a lot of their wealth. I’m telling you, I mainly speak to wealthy people you can imagine. Okay, financial advisors and wealthy clients, I tell people, look, the everyday person is going to be in a bad shape and lose a job, I would rather be them than you. Because wealthy people like you and Ted Turner in 2000, could lose 90% of you all. Ted Turner lost 90% of as wealth, when, when AOL or whatever time warner went down that he sold to and he was crying on TV, Jane Fonda won’t make love to me anymore. You know, I mean, if 90% he went from 10 billion to 1 billion people they can What are you worried about, you’re still a billionaire, no 90% cut in your wealth. That’s the extreme, wealthy people should fear this downturn more than every day. That’s my unique message. I can’t save everyday people. Because I’m not known in that realm. I can say some small percentage of more affluent people who’ve worked hard and build up a business or their financial assets, and not think that it’s okay to keep buying stocks and financial assets or over expanding your business. I tell people you got a business now that has done well, and your kids don’t want to take it over, I would sell it now. Not three or four years from now, when you retire, whatever the financial cycle is everything, and wealthy people are going to lose the most wealth by far in this downturn, by far than everyday people.
Bruce Norris If that, if that doesn’t happen, and let’s just play out what the Fed will try to do to prevent it or to nip it in the bud what what tools do they have left? And what would they attempt?
Harry S. Dent Jr. Well, they’ve already, the monetary policy started fizzling out. That’s why the government had to go to fiscal policies and literally inject money monthly into consumers, I would have done that from the beginning.
Bruce Norris Right?
Harry S. Dent Jr. If you’re going to help the economy, at least give it to consumers and businesses, rather than just pump up financial assets, which monetary, so monetary stimulus is really stupid, but, but they’ve already done that. I mean, really, three, four, or $5 trillion and more proposed? No, wait. Okay, so that looks scary now, oh, we just ran a $3 trillion deficit the first time and okay economy, wait till the economy goes down and see what when the government revenues go down and they’re stimulating, even more, you’re going to see like, what $5 trillion a year…. Only on a simple indicator for 10 or 15 years, then by 2026, we would have a $40 trillion government debt instead of the 20. We’ve had recently in the 10 before that, and because it’s been doubling every two administrations since the first Bush.
Bruce Norris You’ll appreciate the cover that we wrote a report on 2018. The cover said 2% mortgage rates and 40 trillion in debt. So, and you take a lot of hits for stuff like that until it happens.
Harry S. Dent Jr. Well, people don’t want to come and kick when you’re high on a drug. Do you want somebody to tell you you’re high that you got a drug problem? No, I’m happy. Don’t talk to me, people, well everybody’s I mean, I hate to say this, but everybody’s high on this bubble. Everybody has a 3% mortgage instead of what might be a five or 6%. Everybody, I looked last time I bought a car, I’m like were lending money at 2%, I used to pay six to 7%. You know, your house goes up and your net worth goes up. Houses go up with the inflation rate, historically, two to 3% a year recently, people’s houses going up 10, 20% a year, their stocks are going up 20, 30% a year, we’re high. When I tell people this, they’re like, I don’t know, they have every answer. Well, Harry, this can’t happen. I can’t have that. I’m like, have you studied history or me, you’re wrong. I just tell people, you’re wrong. If you think this bubble can continue to diverge from reality at the race they have which is easy to measure like you say you just look at the numbers. Look at the numbers, the real economy, and the stock economy, I actually have that my spending way goes way back. And in the future. am I spending way in DC a good time, let’s say the stock market should be the Dow, should be 12,000 a day, and it’s pushing on 34. Now, if it has a big crash is not going to get a 12 it’s going to go boy just like it went above, it’s going to go below, I think the Dow could go to somewhere between five and 15,000 the next few years, that alone is going to be a shock to the economy and people because more and more people, I’ve read today 41% of people have had exposure to the stock market. Now normally, it’s more like 20, most people don’t have everyday people don’t have a lot of money in stock. You know, the rich people do but, but everybody’s in the stock market. Everybody’s in the real estate market. And the difference between stocks and real estate is when stocks go down you can sell on the way down when real estate goes down, you can’t even sell it freezes up. Nobody wants it because it’s got that big thing a debt behind it and blah, blah, blah. It’s a big investment. So, real estate is what I’m the most scared of for people not stock.
Bruce Norris Okay, Harry, a I’ve enjoyed this a lot. I really have, let me have you give your information out for your website. And I know you have a newsletter which I just signed up for yesterday.
Harry S. Dent Jr. Yeah, okay, I now I have a free weekly newsletter, HarryDent.com anybody can get on that’s the way, I know I’m weird. I know we got to do all these outlandish forecasts. This is the way you can get to know us and see that we’re actually extremely logical and database-like, but also hsdent.com the on my, my paid newsletter, I be put in Dent,D-E-N-Tcash25. You can get 25% off that I think comes out $108 bucks. I used to sell this newsletter for four to 500, okay, marketers convinced me to bring it down. This is a deal because the, in I mean, if I was never right about anything, just the information or research you would get compared to other people. I mean, it’s off the charts. So, hsn.com for the paid newsletter. But you know what, you can’t go wrong, HarryDent.com, just get on a free weekly newsletter. I and my partner will talk to you two or three times a week.
Bruce Norris I appreciate that, I appreciate the methodology that you have undertaken as a life’s work. I’m just curious, do you have people that, that you take their input? In other words you’re not under… I understand you make up your own opinion as I do. But I certainly pay attention to other people’s opinion. Years ago, I’ll tell you just a brief story. There was a gentleman that wrote a book, bad years ahead for I’m trying to think of his name. I read it, I was about 20 years old, and I had two kids already, scared me. So, he said, ‘You ought to buy 200 pounds a week and have water supplies.’ I mean, it was gonna be a bad thing. So, I did all that. Well, I moved that wheat for 30 years. And we finally used it all. But it taught me a lesson, to, take input and make up your own mind. And that’s what I’ve always done. I’ve never stopped taking input in but always trying to, you know, use my own brain because I want to be responsible. You know, that’s the one thing about predicting is you’re in a blame seat sometimes where people just blindly do something. And you don’t want that you want people to, A. You study what I’m saying. See if it makes sense land on the same square or different square whatever you want, you know, but do you have anybody’s input that you pay attention to because you want to see what they’re thinking?
Harry S. Dent Jr. Tons of people, all of my research has been built on other people’s research.
Bruce Norris Okay.
Harry S. Dent Jr. I started off not coming from economics, not having any preconceived notion. And just like, I can, I read 10,000 pages of the history of Western civilization from some poor academic that wrote that 100 years ago, okay? The difference between me and other people. I know, I credit people when I get something from Robert Kiyosaki or this person or that I credit them. When I got an idea from somebody else. I craved them. people steal my stuff all the time. And don’t credit me. So, I know I have original ideas. But it’s only come from looking at the great research historically of other people and putting it together in a way that, oh, I can add this twist to it, or I can research it farther and extended. None of this stuff is totally original. I’m not original. I just started looking for answers for my entrepreneurial clients in their lives. I wasn’t aspiring to be an economist, I stumbled onto it like any great innovation. So, no, I build on the research of tons of people and you look at my books, I got charts, everybody gets credited. And when I when, I get something from somebody, um, there’s just I mean, Lacy Hunt, Dr. Lacy, if I visit one modern-day economist today, Dr. Lacy Hunt in Austin, Texas, would be my number one person, he speaks at every conference I put on. He has arrived at the same conclusions as me from traditional economics. And I came from nontraditional economics. So, of course, he borrows indicators from me, and I borrowed indicators from him, but I’m just, kidding. But again, all of my research has come from somebody. Where did I read this stuff?
Bruce Norris Okay.
Harry S. Dent Jr. I find it out. You know, I didn’t create this in a dream.
Bruce Norris Yeah, I thank you very much for your time. And enjoy your tax free environment.
Harry S. Dent Jr. I’m enjoying here, my, my number one thing is just keep my wife here. I would stay here till I die. I mean, I love Puerto Rico without the tax thing and with the tax thing, I don’t understand why everybody hasn’t moved in here. Im serious.
Bruce Norris Harry, thanks so much for your time.
Narrator For more information on hard money, loans and upcoming events with The Norris Group, check out thenorrisgroup.com. For information on passive investing with trust deeds, visit tngtrustdeeds.com.
Aaron Norris The Norris Group originates and services loans in California and Florida under California DRE License 01219911, Florida Mortgage Lender License 1577, and NMLS License 1623669. For more information on hard money lending, go www.thenorrisgroup.com and click the Hard Money tab.