The Crash of the Millenium: Surviving the Coming Inflationary Depression

Overview

It's remarkable how often the predictions of economics professor Ravi Batra have proven prescient. Years in advance he predicted the rise of fundamentalism in Iran, the fall of the Berlin Wall, the decline of communism, the stock market crash of 1987, and the September market slump of 1998. The one time Batra seemed to get it wrong was with the prediction of his best-selling book, The Great Depression of 1990. As it turned out, that depression was postponed by massive borrowing from abroad, and what we now face ...
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Overview

It's remarkable how often the predictions of economics professor Ravi Batra have proven prescient. Years in advance he predicted the rise of fundamentalism in Iran, the fall of the Berlin Wall, the decline of communism, the stock market crash of 1987, and the September market slump of 1998. The one time Batra seemed to get it wrong was with the prediction of his best-selling book, The Great Depression of 1990. As it turned out, that depression was postponed by massive borrowing from abroad, and what we now face will be all the worse for the delay.
        
The premise of this book is as simple—and as powerful—as the law of supply and demand. In the United States, as in many other countries, we've been producing more and more goods, but wages have not kept pace. That disparity has been papered over by credit cards, easy loans and a huge speculative bubble in the stock market, but cracks are appearing in the walls. Russia, the "Tiger" economies of Asia, and Latin America have been hit hard recently, and Batra predicts similar tough times ahead for the United States. It will begin with a stock market crash in the fall of 1999, followed by a depression made doubly damaging by rising inflation. Its effects will reverberate through the early part of the coming decade.
        
In The Crash of the Millennium, Professor Batra describes how individuals, businesses, and governments can prepare for the hardships that lie ahead. And he tells us how, for those who survive, the future beyond the dark horizon holds decades of prosperity and peace.

The author of five internationalbest-sellers, Batra is known for successfully predicting:
  • the stock market crash of 1987
  • the fall 1998 U.S. stock market slump
  • the current market turmoil in Asia and Latin America
  • a fundamentalist revolution in Iran in 1979
  • the decline of communism
  • the fall of the Berlin Wall
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Editorial Reviews

Industry Standard
Battle of the Shock Stock-Pickers

Dow 36,000: The New Strategy for Profiting From the Coming Rise in the Stock Market by James K. Glassman and Kevin A. Hassett (Times Books, $25)

The Crash of the Millennium: Surviving the Coming Inflationary Depression by Ravi Batra (Harmony Books, $24)

Dow 36,000: The New Strategy for Profiting From the Coming Rise in the Stock Market and The Crash of the Millennium arrive, and the critic, shivering in his attic, greets them with a sigh. Internet stocks are hovering in the stratosphere, all his friends are getting rich on IPOs, and he must wade through a pair of works with diametrically opposed theories about what the stock market will do. How can he even pretend to assess them?

Then again, who is the ideal reviewer of such disparate works? An economist? A professional stock-picker? A psychic?

Maybe a wrestling promoter. Ladies and gentlemen, in this corner we have the fearsome wonk tag team of James K. Glassman and Kevin A. Hassett, a couple of smooth-talking heavyweights who, one suspects, could make eating asphalt sound sensible. In the other corner, resplendent in his Merlin's cap and magic wand, is the flamboyant Cassandra of Crash, the economist Ravi Batra, whose latest meandering jeremiad says right on the cover, albeit in small print, that he is "author of the #1 best-seller The Great Depression of 1990."

In truth, the matchup is no contest, and not just because Glassman and Hassett have Batra outnumbered. The former have written a literate, cogently argued treatise in support of an outlandish conclusion, while the latter provides a surreal excursus across financial history that wraps with a utopian appeal for a wacky new financial system. Dow 36,000 is a good book, worth reading even if you don't buy the authors' entire argument. The Crash of the Millennium is nonsense, even if such a crash does occur.

The central message of Dow 36,000: The New Strategy for Profiting From the Coming Rise in the Stock Market is really very simple. The authors, like so many other Americans, have noticed that stocks tend to rise strongly over time, far outpacing inflation and any other investments. Not only that, but held by long-term investors (say, those with a time horizon of 10 years or more), stocks aren't even risky. Defining risk as volatility, the authors declare them to be no more dangerous in the long run than bonds. They profess that even if you bought stocks only at the worst possible times (as in 1929), you'd make out very nicely indeed.

The authors add that small-time investors -- abetted by mutual funds, financial pundits and the Internet -- are catching on to the stock market racket, which was once a playground largely for the rich. In their view, this discovery accounts for the greatest bull market in American history.

So far, so good. But Glassman, a former financial columnist for the Washington Post, and Hassett, an economist, go much further. They note that dividends paid by public companies tend to grow, beating inflation by perhaps 2 percent to 3 percent annually. Stocks pay historically low dividends now, but when you count anticipated dividend growth (and there's no reason not to, given more than 100 years of history), they look wildly underpriced compared with 30-year Treasuries.

Of course, many modern companies, especially technology firms, don't even pay dividends. (Heck, many Internet companies don't even have earnings.) The authors know this and focus instead on the money that a stock puts in your pocket, in whatever form. This includes money in the company's pocket, since you own that, too, as long as it isn't being consumed by the business merely to run in place. This approach is far more conservative than looking just at net income, which includes capital investments businesses make to stay even.

The numbers are impressive. The authors figure that, for the market as a whole, the free-cash "yield" in 1998 was 3.3 percent, vs. a 1.5 percent dividend yield. Better yet, this free-cash flow has been growing 10 percent per year since World War II.

Through compounding and some elegant arithmetic, Glassman and Hassett argue that their data point to one thing: a sharply higher stock market. They claim not to know when the Dow will hit 36,000 (which they regard as conservative), but suggest it might be around 2005. And they give plenty of investment advice. For good companies, they aver, price-earnings ratios below 100 are probably fine.

What the authors foresee is a historic, one-time run-up in equities resulting from recognition of a longstanding truth -- that stocks have been undervalued for years. As precedent, they cite the acceptance of the idea, popularized by Michael Milken in the 1980s, that junk bonds were grossly underpriced in relation to the risks posed in a diversified portfolio of them. Since then, the premium paid to investors for accepting the risks of high-yield debt appears to be permanently lower.

As for Internet stocks, Glassman and Hassett sound a note of agnosticism.... say the authors, "we don't believe there is an Internet bubble in the sense that investors have puffed up prices out of all contact with reality. ... The Internet will definitely make many investors very rich; it already has. But picking winners and losers is difficult with companies that have little or no track record in profits." They suggest keeping Internet holdings to less than 15 percent of your portfolio, ignoring price and considering a mutual fund, "since there will be a few winners and lots of losers."

Glassman and Hassett write well, and their ideas make a lot of sense, even if their conclusion doesn't entirely. For one thing, their calculations are highly dependent on interest rates. After all, if bond yields rise sharply, returns on equities would have to do likewise to support a sky-high Dow. But stock prices would probably fall instead. Based on their assumptions, that fall would be precipitous indeed.

Also, investors might not have the fortitude to ride out what could be years of depressed stock prices. And long-term investors might not be able to overcome the effects of short-term traders, who might exercise more pricing influence.

Batra doesn't have any such worries. Judging by the evidence of his latest gloom-and-doom meal ticket, he plans to invest his royalties in gold, except of course for the cash he plans to stash in a safe-deposit box. Who can blame him? He's positive we're in for some kind of strange inflationary depression of unprecedented magnitude.

As with James Grant and other constant wolf-criers, sooner or later something even vaguely resembling what they predict is bound to occur (although it's hard to foresee a shattering depression accompanied by inflation). The question is, in whose lifetime? More important, how much profit do we have to forgo while waiting for the world to end?

—Daniel Akst writes frequently about money and investing.

Publishers Weekly - Publisher's Weekly
Remember the Great Depression of 1990? If not, it's because it didn't happen. That year ushered in a decade of prosperity for the United States. Ravi Batra, the author of not one but two bestsellers predicting that depression, is back with The Crash of the Millennium. Why do so many readers listen to Professor Batra when the economy ignores him? One reason is that he is a serious professional economist with well-reasoned arguments for his positions. His combination of demand-side neoclassical market theory with neutral interventionist government is old-fashioned but respectable. He is also a gifted writer, which makes the dense mathematical parts of his discussion painless and the apocalyptic crescendos breathtaking. Finally, he has the breadth of vision to incorporate history and spirituality into his analysis, and the market savvy to add a happy ending to his most calamitous forecasts. His analyses are perfect, except that they're so often wrong. Taken in that spirit, this is a valuable book. Readers will learn a lot of economics. They will find ammunition to deflate the popular "the stock market only goes up" theories of their friends. And they can have the thrill of a summer disaster thriller while learning something about economics. (Sept.) Copyright 1999 Cahners Business Information.
Library Journal
Here, Batra (economy, Southern Methodist Univ.), best-selling author of Surviving the Great Depression of 1990, again predicts global economic demise. He bases his argument on an analysis of historical trends that reveals ten-year cycles culminating in inflation and economic downturn as each decade closes. At the end of 1999, predicts Batra, the world economy will suffer a catastrophic setback. Strategies are provided for protecting individual investments, and the author also outlines humanistic reforms to real wages, healthcare services, and debt structure that will promote global economic stability. A very intriguing and thoughtful book; highly recommended for academic and public libraries.--Robert L. Balliot Jr., Middletown P.L., RI Copyright 1999 Cahners Business Information.
Kirkus Reviews
Batra's second attempt to explain why the economic sky is falling, and when. Batra (Economics/Southern Methodist Univ.) received widespread attention for his prediction of The Great Depression of 1990 (1987). In his new book, he repeats some of his previous arguments, many based on mainstream economic theories and sound investment guidelines. He argues, for example, that the present state of the stock market is a "speculative bubble" and, like get-rich-quick investment fads in the past, is due for a major comeuppance. Another serious danger theme is the impending Y2K crisis, which will coincide with an economic crash in the fall of 1999. The author is not fearful of combining predictions with dates and typically presents his arguments with historical examples and his major weapon, an almost religious belief in the regular, measurable rhythms of economic cycles. Although most modern economists have abandoned this concept, Batra embraces it as a fundamental principle; for him, economic tides not only wash in and out on predictable timetables, they are an infallible tool. With the next depression, this natural tide will replace our flawed economic structure with something better, for as he states, "Crony capitalism is about to go the way of Soviet communism." Replacing it will be Prout, an acronym for a new socialist system derived by Batra's mentor (but so quirky it might have been invented by Karl Marx on LSD). Prout is an economic, political, and social structure as well as a philosophy and clearly defines the politics of the author. For those taking his predictions to heart, he also includes a list of suggestions for weathering the difficulties he describes. The best way to evaluatethis title is to recognize that "the Great Depression of 1990" didn't happen. In his latest book, the author not only dodges any blame for being wrong, he claims even greater prescient powers because of his previous reasoning. (Author tour)
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Product Details

  • ISBN-13: 9780609605127
  • Publisher: Crown Publishing Group
  • Publication date: 9/7/1999
  • Edition description: 1 ED
  • Edition number: 1
  • Pages: 288
  • Product dimensions: 5.50 (w) x 8.25 (h) x 0.97 (d)

Meet the Author

DR. RAVI BATRA, professor of economics at Southern Methodist University in Dallas, is the author of five international best-sellers. Chairman of the department from 1977 to 1980, Batra was ranked third among forty-six "superstars" selected from all-American universities by the learned journal Economic Inquiry. In 1990, the Italian prime minister awarded him a Medal of the Senate for correctly predicting the downfall of Soviet communism.
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Read an Excerpt

INTRODUCTION: A TORNADO ON THE HORIZON

January is normally a placid month of the year in the southern part of the United States. The average temperature is just right, a balmy 64 degrees F. City parks are filled at the weekend with revelers, screaming children, and their doting parents. But January 1999 turned out to be deadly, the single worst month on record for tornado disasters. The month was barely half over when more than a hundred twisters ripped across the quiet plains of Texas, Oklahoma, Louisiana, Tennessee, Florida, Georgia, Mississippi, and Alabama, killing scores of people, uprooting trees and power lines, and anything else that had the gall to be in the way. Business and property damage climbed into the billions.
Was nature's fury a premonition or just a passing wave? I believe there are much bigger tornadoes on the horizon, not of the weather but of financial mayhem. They are not the twisters of wind, water, and lightning but of share price crashes, inflation, and job losses. They are out there if anyone has the binoculars to see them, and they are fast headed our way. From my calculations, they will be here by the fall of 1999, at the latest by the millennium.

Ever since the early 1980s, stock prices, with temporary hitches, have been sizzling in the United States, building the biggest speculative bubble in history. Some people call it the market of the millennium; others compare it with eating your cake and having it too. Whatever you call it, the bubble is about to burst. Millions of Americans, including some journalists and computer experts, are worried about the perils of the so-called millennium bug; I submit we have more to worry from themillennium bubble, whose explosion would be heard around the world, even where computers have yet to make a dent. The market of the millennium is about to slip into the crash of the millennium, possibly a few months before the Y2K bug gets a chance to contribute to the damage. Here is why.

Free enterprise functions smoothly only if the twin forces of demand and supply operate without constraints; this means that high competition prevails among firms so that wages rise in sync with productivity. Wages are the main source of demand, and labor productivity the main source of supply. If salaries lag behind productivity, as they have all over the planet due to the prominence of monopolies, the supply-demand balance can be maintained only through artificial means; eventually, artificial props give in, and demand falls short of supply, leading to production cutbacks, layoffs, and a recession. As wages trail productivity, profits and hence share markets jump. When the demand gap comes to the surface, stock prices drop, business and consumer confidence wanes, and a recession becomes inevitable.
At this point, nations may resort to deficit budgets, monetary expansion, or foreign loans, and the problem may be postponed without instituting fundamental reforms that free the supply side from the constraints of monopoly capitalism. Eventually, bigger trouble follows, because share markets go into a frenzy, only to plummet when the demand gap returns with a vengeance. If a country has borrowed freely from abroad, its currency crashes, and both inflation and layoffs follow.

The long-term cure lies in restoring the balance between supply and demand rather than in short-term palliatives that create debt, strengthen the supply side, and relatively weaken demand. One proper policy, for instance, is to encourage high competition among industries and discourage mergers between large and solvent companies. But the whole world has been doing just the opposite at least since 1990, and now an economic disaster of an inflationary depression is simply inevitable.

Is there a way out? Not in the short term. But if we follow plain sense and introduce fundamental economic reforms to build a truly free enterprise system, then the crisis could be limited to just three years. However, if we resort to the usual artifacts of creating more government debt, monetary expansion, or both, then I am afraid the coming calamity could outlast the new decade, and we still would have to change our course eventually. This is my worst nightmare and is the more likely of the two scenarios. In other words, we have to prepare for the worst, and I can offer you some simple and commonsense advice about protecting your assets in case the horror becomes a reality.

THEME OF THE BOOK
Thus the moral running through my work is plain and simple. When a country postpones its economic ills through massive borrowing from abroad, at first share markets and the economy roar, but then a bigger calamity of an inflationary depression follows.
I have written a number of books forecasting the future of the world economy and society; some forecasts have been optimistic, some pessimistic, although most associate me with Cassandra-like predictions. I am also the one suggesting that, following our manifold catastrophes, the world will witness its first golden age. For the 1980s, too, my predictions were overly optimistic to many, as I wrote that oil prices, inflation, and interest rates would sharply fall, even as share prices skyrocket, culminating in a great depression in 1990. Fortunately, the United States and the rest of the world only had a recession that year, but, unfortunately, they prevented a depression not through fundamental economic reforms but through mammoth inflows of foreign capital, especially from Japan.

That misguided policy is about to produce bleaker results. I have usually maintained that the coming depression would be deflationary or accompanied with price stability. However, now I believe that, for the first time in history, the U.S. depression will be inflationary, at least at the start. The reason is that under crony or monopoly capitalism that today reigns the world, including the United States, when a country postpones its ills through massive loans from other countries there is first a giant speculative bubble; then the bubble bursts, the currency collapses, and a lethal combination of inflation and depression erupts. The evidence for this hypothesis comes from recent crises enveloping the Asian Tigers, Mexico, Russia, and Latin America. All these regions borrowed huge sums from abroad in the late eighties and the nineties to finance their prosperity and trade deficits. For a while they enjoyed lofty growth or a stock market binge or both, only to see their currencies plummet since July 1997, when the Thai baht collapsed.
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