Bursting Bubbles

With the wild stock market swings in recent days I thought it might be helpful to recommend a book I just finished today, The Great Depression Ahead by Harry Dent.

It is an excellent book which is simple to understand that everyone who is an investor should read with an open mind of course. Mr Dent is a long term stock market bull who predicted the technology boom and it’s demise and turned bearish a few years ago. He is predicting Dow 3500 – 3800 between now and 2014.

The premise of the book is that simple trends drive long – term growth and that changes in demographic and technology cycles are critical in predicting business and economic trends. He mentions that government intervention (QE2, stimulus etc) can sometimes delay, but won’t be able to overcome the massive baby boom generation productivity, earning and spending power that have now peaked.

He uses data going back to the mid – 1800’s to come up with three different cycles – the 80 year lifetime cycle (last peaked in 1930), the 40 year generational cycle (when generational spending was at their peak in 1930 – 1970 and 2010) and the 30 year commodity cycle (that peaked in the years 1890 – 1920 – 1950 – 1980 and 2010) all converging bubbles that are popping at approximately the same time 2010 to cause an upcoming major stock market crash.

It’s his opinion that a diversified portfolio which we are all taught to have will not be able to withstand the coming stock market crash and that only cash and high yield bonds will fair well in the near future. Mr Dent believes there will be bear market rallies until 2020 -2023 at which time a new “boom period” will emerge.

My next read is going to be Aftershock by David Wiedemer, Robert Wiedemer and Cindy Spitzer, all economists who are predicting a more radical market meltdown then what Mr Dent is predicting.

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