Tuesday, February 10, 2009

Book: The Great Depression Ahead: How to Prosper in the Crash Following the Greatest Boom in History

The Great Depression Ahead: How to Prosper in the Crash Following the Greatest Boom in History
By Harry S. Dent

Harry Dent was born in 1950 so he's a couple of years younger than my age. He was born in Berkeley but received his B.A. from the University of South Carolina and later an M.B.A. from Harvard Business School.

He wrote his first book in 1969. It was titled "Our Power to Predict." And predicting is pretty much what he's been doing since with 6 more books, consulting, speaking, newsletters, and what not.

Predicting the future is fraught with problems as most of us have also experienced first hand. Predicting future economic trends is certainly no less susceptible. And several of my readers will remember that my political predicting success rate is as low as it is possible to achieve - or not achieve that is.

Iin 1998 Dent wrote this book called "The Roaring 2000s" and in 1999 another called "The Roaring 2000s Investor." You know like "the roaring 20's." He predicted a DOW of 32,000 back then and later revised that to 16,000. Well the DOW managed to get to 14,000 finally.

So because of that prediction and because now he's predicting a major deflationary depression, Mr. Dent is not very popular with stock broker and investment adviser type folks. Nor is he popular with folks who depend on the investment community. That's a pretty big population.

Dent's most basic underlying principle is that economies are comprised of people spending money and the most important facts about those people are: 1) how many of them there are; 2) how old they are; 3) what they buy; and, 4) where they live.

By way of example he writes that the age when adults buy the most potato chips is 42. He further analyzes this by stating that the average age of marriage is 26 and the average age of having the first child is 28 and 14 years later that child is at the peak food consumption age. And that coincides (but not coincidentally) with the peak in buying potato chips.

Since it is possible to predict some of these macro patterns of human behavior he concludes that it is therefore possible to predict economic consequences of that behavior.

In addition to this he believes he has discovered several great cyclical patterns over long periods of time and associated with large groups of humans. He believes there is a civilization cycle and a technological cycle and a geopolitical cycle and a few others.

What I find interesting is that he was able to predict the occurrence of a technological boom that roughly coincided with the Internet boom. He did that without knowing or even trying to predict what would drive the boom. Or in other words he had no idea bout the Internet. He just predicted there would be some kind of new or improved technology that would drive economic production.

That's a pretty amazing idea to me when I stop and think about it. So I can sit here in Starbucks and think that in the next 20 or 30 or 50 or whatever years there is going to occur another technological boom. I don't know what it is going to be but it is going to drive human productivity.

I think I've always had a kind of nebulous idea about something like this happening. But what is different and new is the idea that this is actually cyclical and predictable.

Do I believe that? I don't know. At first I dismissed it entirely. But the more I think about it and the more I read Dent's thoughts about it the more I am willing to consider the idea.

On the other hand sometimes coincidences are just coincidences, too.

Mr. Dent makes it sound like he was very accurate in predicting recent events. That's recent in the past 20 years or so. His critics make it seem he was not accurate at all. My conclusion is that Mr. Dent makes his own case seem better. But would we expect anything else from someone who makes his living on predicting? On the other hand his critics hardly are objective and have their own problems with the advice they've handed out.

Let's face facts. Everyone who is in the financial business is making some kind of prediction. That's even if it is the idea that one should invest in good companies for the very long haul as Mr. Buffett. And he's 78.

I think Dent raises very good points about the changing demographics in the United States, i.e., the changing age of that potato chip buyer. I further think he is probably correct about certain things he predicts even though he may miss some numbers and some dates.

If you can predict numbers, dates, and events then you are a prophet. He doesn't pretend to be a prophet either.

I'm going to write more about Dent over the next few days.


Lori1955 said...

Interesting. There is no doubt that the stock market is cyclical but I don't think the housing market has ever seen anything like this before. Everything that is happening now though has happened before but if I could predict that, I would certainly be a very rich woman.

~Betsy said...

I have my own theories about the current state of the economy. The whole mess has been created out of greed. Greed is predictable - it happens with every generation. Thanks for making me think.