The Sale of a Lifetime: How the Great Bubble Burst of 2017-2019 Can Make You Rich
272
The Sale of a Lifetime: How the Great Bubble Burst of 2017-2019 Can Make You Rich
272eBook
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Overview
We're now entering the winter season of the 80-Year Four Season Economic Cycle. It's during this season that we'll clear the decks with a devastating crash and debilitating deflation. The economy and markets will shed the excesses created during the preceding fall bubble boom season and prepare the soil for new blossoming in innovation and a spring boom.
After the blustering bull market of 2009-2015, we are now preparing for a shakeout more painful than anything we've seen before. We have eight years of unprecedented government stimulus and money creation to thank for stretching this bubble beyond imagination and making the burst more painful than anything we've ever experienced.
There's no better guide to financial cycles than Harry S. Dent Jr., the bestselling author of The Demographic Cliff and many other books, and the editor of the Boom & Bust newsletter. For more than 30 years he has earned a reputation for eerily accurate predictions about the world economy and the financial markets.
Now Dent has an urgent new warning about the next crisis. The consequences will be devastating--but there's a bright side that he's calling "the sale of a lifetime." For anyone who heeds the signs and follows Dent's advice, the looming correction is a once-in-a-century opportunity to gather immense wealth.
In this pressing book, you'll learn not only why a collapse is imminent, but how to identify bubbles and tune in to the cycles driving that drive booms and busts.
Practical, accessible, and illuminating, The Sale of a Lifetime will protect you from the tough challenges ahead and help you cash in on the unique opportunities of the next few years. At stake is nothing less than your entire financial future.
Product Details
| ISBN-13: | 9780735217751 |
|---|---|
| Publisher: | Penguin Publishing Group |
| Publication date: | 01/03/2017 |
| Sold by: | Penguin Group |
| Format: | eBook |
| Pages: | 272 |
| File size: | 21 MB |
| Note: | This product may take a few minutes to download. |
About the Author
Read an Excerpt
CHAPTER 1
How to Identify a Bubble: Guiding Principle #1
IT'S ACTUALLY QUITE SIMPLE. You start the bubble identification process by looking at cycles. That's because a few key cycles give you the power to see what will impact your life, your business, your family, and your investments over the course of your entire life!
So I'm surprised when I hear someone say: "I don't really believe in cycles."
What!?
You mean you don't believe that the sun will rise tomorrow morning, like it did this morning?
You don't believe that the tide will peak twice a day and that we can know, down to the minute, when this will happen on every beach around the world?
You don't believe winter comes once a year?
That you were born and will die?
That your teenager will hate you when they turn 13?
Have you looked at an EKG . . . ever?
Did you know our stock market, adjusted for inflation, has peaked every 39 years in the last century, that commodity prices peak every 30 years, and boom/bust cycles peak around every 10 years?
Did you know that the average household peaked in spending at age 46 (for the baby boom generation) and that has caused predictable booms and busts that we can see decades in advance? (For Japanese households, that peak in spending is at age 47 . . . it differs from country to country, but only by a year or two on either side of 46.)
What about the 500-Year Mega Innovation Cycle, which Henry Phelps-Brown and Sheila Hopkins discovered? It shows that inflation rises and peaks every 500 years. It did so in 1154 and again in 1648. It's due to peak next around 2150.
What about the 250-Year Revolution Cycle? The Protestant Reformation . . . the American and French Revolutions . . . the Industrial Revolution. The next one is coming in the next decade or so!
What about the 165-Year East/West Cycle? Power shifts from the East to the West like clockwork! You can guess it's heading back East for the next century.
There's a 5,000-Year Civilization Cycle shifting from towns to cities to megacities . . . oh, and have we seen megacities emerge in the last century . . . the 10 million-plus club.
A 100,000-Year Glaciation Cycle, with cooling longer term, except CO2 cycles are causing man-made warming first . . .
A Billion-Year Climate Cycle . . .
Sunspot Cycles . . .
Population Cycles . . .
Ovulation Cycles . . .
Sleep/Wake Cycles . . .
I think you get my point. Everything . . . EVERYTHING . . . follows some (if not dozens) of cycles. I won't get into the details of many of the cycles-it's not in the scope of this book-but I have written about them before in The Leading Edge: Harry Dent Unplugged, my bi-monthly newsletter. Visit HarryDent.com if you're interested in learning more.
So do yourself a favor: don't trust anyone who doesn't "believe in," or denies the existence of, cycles. I certainly don't. They're either ignorant or short-sighted . . . and both conditions are extremely dangerous to you.
But while I believe Cycle Blasphemers and Cycle Atheists are asleep at the wheel, I understand their deep-seated unwillingness to accept the obvious. The truth is that many people don't want to believe in cycles because they don't like change and they especially don't like the challenging part of each cycle.
They don't want to die (who does, really?). However, I would propose that birth is actually more challenging and shocking.
Few parents welcome the puberty of their children.
We don't want to endure economic downturns, even though that's where all the great innovations happen and future prosperity is born.
Humans generally abhor change, and cycles are all about change and progress. Constant change. So many people just deny the existence of such forces because that gives them the feeling of power where they have none.
It doesn't stop the inevitable . . . but it can mutate it when the ones holding the national and global purse strings refuse to see what's right in front of them. In Chapter 7, I'll go into the details of how they did this, and the resultant damage they have done. I'll also show you the only outcome that's possible . . . but let's first truly come to grips with the nature of cycles and the bubbles they bring about.
Of course, this is a book about bubbles and how this latest one is opening up the sale of a lifetime for you as an investor and for the best businesses, including yours. But as I'm about to show you, cycles and bubbles are inextricably linked.
The Ultimate Economic Model
Like it or not, everything in life is cyclical. And all cycles have four seasons. Our annual weather cycle is the most obvious example: spring, summer, fall, and winter. Not so different are the four stages of our life: youth (spring), adulthood (summer), midlife (fall), and retirement (winter). There are four stages of the business cycle, too: innovation, growth, shakeout, and maturity.
Just as there are four weeks in a month and four phases of the moon, I've found that the economic cycle evolves through four seasons as well, only over the approximate duration of a human lifetime, currently about 80 years.
The first credible economic cycle I studied in the early 1980s was the Kondratieff Wave, revealed by the Russian economist Nikolai Kondratieff in 1925. Back then this was a 50- to 60-year cycle (we didn't live as long) that saw peaks in inflation rates in 1814, 1864, 1920, and more recently, in 1980.
This cycle of inflation and deflation was characterized as having four seasons:
A spring boom with mildly rising inflation.
A summer recession with inflation rising to a long-term peak and major wars.
A fall boom with declining inflation, powerful new technologies moving into the mainstream, and a credit bubble that leads to high speculation and financial bubbles.
And a winter deflation, during which time bubbles burst, debt deleverages, prices deflate, and depression takes hold (and wars can follow such upheaval as well, like it did with World War II).
Note that the great resets I showed you in Figure I-1 on page 6 in the Introduction all tend to come during this economic winter season, which indeed resets the economy from all of its excesses and imbalances so it can grow again. And it happens once in a lifetime!
But Kondratieff's original cycle seemed to lose its power to predict a couple of decades ago when the winter deflationary season was expected in the 1990s. I believe there are two reasons the cycle failed: we saw the first middle class generation to emerge after World War II, and the massive baby boom generation followed!
When the Bob Hope generation, born between 1897 and 1924, entered the workforce after winning World War II, they were the first middle class generation that could afford to broadly buy homes using longer term mortgages. They made the everyday person more important to the economy than ever before. They put demographic cycles to the forefront and such cycles have dominated ever since.
The Bob Hope generation's family cycle and spending boom dominated and stretched beyond the 30-Year Boom/Bust cycles, which were based on commodities and innovation, to nearly 40 years! The generation's boom stretched from 1942 to 1968, followed by its bust from 1969 through 1982.
Then the largest generation in 250 years hit. The massive baby boom took place from 1934 to 1961.
When they entered the workforce en masse during the economic summer season of the '70s, the economy saw massively higher inflation trends. The cost of incorporating young people into the workforce is high. Until they become productive, they drive up inflation.
And their impact on the economic fall season was also outsized, extending that greatest and inevitable boom to grander heights, and, again, for longer than Kondratieff's original cycle allowed for. So when his cycle showed it was time for the economic winter season to set in, we got the greatest boom in history instead.
That's why there was a rash of books in the late 1980s and early 1990s calling for a great depression: Ravi Batra, Robert Prechter, James Dale Davidson, and Harry Figgie wrote them, and they all sold boatloads of copies. I respect most of these authors and read their books because they have a much greater perspective of history and cycles than most clueless economists who aspired to be accountants but didn't have the personality. Of course, their forecasts were wrong because Kondratieff's cycle no longer "seemed" to work.
They lacked the insight into the demographic impact of the new generation cycle of middle class spending and the massive baby boom . . . and how it altered the economic cycle.
From the research I was working on at the time, I understood that there was no way we could have a great depression when the largest generation by far was in its sweet spot for spending, house buying, and borrowing in the 1990s.
So I wrote my second book in late 1992, called The Great Boom Ahead (my first book, self-published in 1989, was Our Power to Predict). I presented my thoughts on a new four-season economic cycle that spanned roughly 80 years with two 40-year boom and bust cycles.
I saw that the baby boom had exaggerated the Kondratieff cycle in terms of the magnitude of inflation and booms.
Besides, our life expectancies took a big leap between the 1930s and 1960s, extending all human-related cycles, including the length of the booms and busts.
The Kondratieff four-season cycle is still valid, but it has been stretched and magnified. Just by projecting cycles in spending and inflation through demographics, we can more accurately time this powerful and overarching, four-season economic cycle into the future.
That's why it's important to be able to accurately project the fundamental trends rather than just following historical, clockwork-like cycles (although many are still very clockwork-like and I will look at those later).
The deeper explanation for the shift from a 60-year to an 80-year cycle is that our economy changed dramatically in the last century.
Up until the late 1800s, the United States (and even most of Europe) was still an agrarian nation with 80% of its population involved in agriculture, mining, and trapping. Even in the early 1900s, it was still 60% rural. Of course, agrarian consumers don't have nearly the effect on the economy that the urban, affluent, middle-class consumers have today.
Even today in China and India, rural consumers have lower economic impact because they're mostly self-sufficient farmers (I'm not talking about commercial farmers here).
But after the Roaring '20s, we saw the first mass affluent middle-class society in history. Their spending cycles started dominating the economy instead of the 30-Year Commodity Cycle. This stretched the boom and bust cycle to 40 years each, so a full four-season cycle is now 80 years long.
All of this explains why most Kondratieff proponents were wrong about a depression in the 1990s. On the extended, 80-year cycle, that depression was due only 20 years later . . . and that's what we're seeing now.
Figure 1-1 below shows you what this new 80-Year Economic Cycle looks like:
This 80-Year Economic Cycle perfectly summarizes what started in 1942, after the Great Depression that marked the end of the last winter season with deflation in prices and massive bank and business failures that generated 25%-plus unemployment.
The inflation index (the gray line) in Figure 1-1 follows the traditional pattern of the Kondratieff Wave: moderate and rising inflation in spring, high and peaking inflation in summer, falling inflation in fall, and deflation (falling prices) in winter.
Think of inflation like temperatures in our annual weather cycle. High temperatures are like high inflation and low temperatures are like deflation. Both are uncomfortable and present challenges for the economy and stock markets, which paradoxically are the greatest drivers of breakthrough innovations that make us wealthier and live longer over time.
The black line in Figure 1-1 is the Generational Spending Wave. The Bob Hope generation's Spending Wave rose from 1942 into 1968, which is also when we saw a great bull market in stocks. When adjusted for inflation, the S&P 500 peaked in 1968. This was the economic spring.
Then there was an on-and-off recession from 1969 through 1982, as the Bob Hope generation slowed in its spending-the economy kept going into recession after recession. But that time period saw the emergence of the massive baby boom into the workforce that paradoxically created high inflation along with a series of wars (as is typical in the summer season).
Then the baby boom started up on its Spending Wave from 1983 to 2007, and again we saw the greatest stock market boom in history, from August 1982 to October 2007.
This was the economic fall and bubble boom season, paradoxically with falling inflation and interest rates as that generation and its new computer technologies created much higher productivity.
In 2008, the baby boomers' spending began its slowdown, and so started the great recession. That spending slowdown accelerates to around 2020, then flattens out and doesn't turn up with the echo boom or millennial generations until around 2023 forward. That is the winter economic season.
This economic winter will see deflation in prices from massive debt and financial bubbles deleveraging, just like what happened in the 1930s. And we'll see a depression, not a recession.
But governments around the world have pulled out all the stops to prevent this . . . good luck fighting Mother Nature on this one!
Everything I just described to you is how I was able to forecast, back in the late 1980s, that we'd see trouble after 2007! I understood how the Kondratieff economic cycle had changed and when I lagged the baby boom birth index by 46 years to see their predictable peak in spending, I had a very clear view of the future.
And this is Guiding Principle #1 of bubbles: they occur in the fall economic season, which consumer spending now predictably drives. The combination of a strong boom and falling inflation will always create bubbles. They're cyclical . . . which means they're unavoidable and more easily predictable!
Incidentally, this is how I also successfully forecasted, in 1989, that Japan would collapse.
My claims didn't make me very popular because, back then, everyone was saying that Japan would become a superpower. Today, the country is the poster child for how demographics drive the economy and market . . . and what NOT to do when these inevitable busts roll in.
Why every economist, central banker, and government official isn't studying Japan is a mystery to me. They absolutely should be because we're seeing one country after the next go over the demographic cliff . . . and one bubble after the next reaching their limits. But, they seem to live in a world of their own, untethered from reality, where bubbles don't happen and they think they can control consumer spending like puppets on a string.
Table of Contents
Introduction: Bubbles: Why We Never See Them 1
Part I How to identify a Bubble
Chapter 1 How to Identify a Bubble: Guiding Principle #1 13
Chapter 2 How to Identify a Bubble: Guiding Principle #2 25
Chapter 3 How to Identify a Bubble: Guiding Principle #3 33
Chapter 4 How to Identify a Bubble: Guiding Principle #4 41
Chapter 5 How to Identify a Bubble: Guiding Principles #5, #6, and #7 48
Part II A Brief (But Thorough) History of Bubbles
Chapter 6 Lessons from History 65
Chapter 7 Bubbling America 73
Chapter 8 Bubbling into the '90s and Beyond 83
Part III Our Power to Predict
Chapter 9 How to Predict When Bubbles Will Crash 101
Chapter 10 The Geopolitical Cycle: When It's Bad … It's Horrid 120
Chapter 11 Booms, Busts, and the Power of Innovation 133
Chapter 12 Evidence of the B.S. Recovery 143
Chapter 13 How Bursting Bubbles Make Investors Rich … and You Can Be One of Them 157
Part IV The Greatest Bubble and Reset of Our Lifetime
Chapter 14 The Single Greatest Economic Force the World Has Ever Seen 175
Chapter 15 The Greatest Debt and Financial Bubble in History 186
Chapter 16 Total U.S. Debt Is at Crushing Heights 205
Chapter 17 The Great China Bubble 225
Chapter 18 China's Unprecedented Real Estate Bubble 234
Chapter 19 Why and When the Global Debt and Financial Asset Bubble Will Burst 261
Chapter 20 Timing and the Finer Details 278
Part V Profiting from the Sale of a Lifetime
Chapter 21 Profiting in Investments 287
Chapter 22 Profiting in Business 309
Chapter 23 Profiting in Real Estate 314
Chapter 24 Profiting in Emerging Markets 331
A Final Word 341
Appendix: Cycles Discussed in This Book 343
Acknowledgments 345
How to Survive (and Thrive) the Great Gold Bust Ahead 347
The Unpublished Bonus Chapter from The Sale of a Lifetime 349