Are You Ready For the Next Market Boom and Bust?

By Alice Hill
RealTechNews

I’m not a fan of stock analysts. In the crazy days of the dot com boom, they ran up the stock prices of awful stock that eventually collapsed the whole thing. Today, you don’t have to be tuned to Bloomberg News 24/7 to hear quotes about Google stock shooting to 600 (which of course means it will.) But now here is an economist named Harry S. Dent who correctly predicted the last boom and bust with some chilling new news. The next boom is going to be even bigger, but the bust to follow in about 2010 will be nearly as bad as the great depression with 15% unemployment. Glass half full or half empty? You be the judge:

Wired News: Won’t memories of the dot-com bust of 2000 temper investor enthusiasm for another tech bubble?

Dent: No it won’t. People say, “Oh, how could we have another bull market with so many people pessimistic and hurting and wounded?” But the truth is that bull markets don’t start with the everyday investor. It’s an S curve like anything else. The smart money starts buying in. The markets start going up. The more the markets go up, the more people get drawn into it over time. And the bubble ends when everybody’s in. So all of these people who got hurt the most and say, “I’ll never buy stocks again” or “I’ll never touch tech stocks” … let the market go up 30 (percent) or 40 percent a year, year after year, and see how many change their minds. It’s like the housing thing. Everybody says it’s nuts. It doesn’t make sense. But it just keeps going up and up. The next thing you know, everybody has bought a condo. Everybody has bought a second home because they think, “Hey, this is a good investment.”

WN: You predict this new stock-market bubble will burst in late 2010, followed by a long decline. Are we talking about something like the 1970s or more of a cataclysmic downturn like the Great Depression?

Dent: I’d say it’s going to be in between. It won’t be as extreme as the Great Depression. But it will be worse than the ’70s downturn, and I think it will be worse than what Japan saw from 1990 to 2003. Maybe we’ll see unemployment at 15 percent, give or take. The worst part of it is you’re going to see deflationary trends in prices from a shrinking work force. Deflation is the enemy of asset prices. You’ve got to remember that in the ’70s, while the Bob Hope generation was declining in their spending, you had a bigger generation coming behind them entering the work force and picking up some of the slack. Now you’ve got a smaller generation following the largest generation in history. So it makes the downward trend even more pronounced.

Read the Complete Wired News Q & A Here
Source: Wired News