Harry Dent, demographics-based economist

Spending slowdown will last 15 years, author says:
Jonathan Ratner, Financial Post Published: Saturday, February 14, 2009

Stock markets and commodity prices may have one last gasp and climb back toward their highs on the back of massive government stimulus programs, but a spending slowdown by Baby Boomers will create an even weaker economic environment that will last for the next decade and a half, according to Harry Dent.

The demographics-based economist and author of The Great Boom Ahead, published in 1993, and The Roaring 2000s back in 1998, outlines a gloomier long-term future than even some of the most bearish economists are currently forecasting. In his new book, The Great Depression Ahead, How to Prosper in the Crash Following the Greatest Boom in History, Mr. Dent warns that the de-leveraging process coming out of the banking crisis and the collapse of commodities is too big a tide for government to fight.

'The demographic slide is just beginning,' he said in an interview. 'We've seen the worst for now, but were going to see worse ahead.

The author points out that older people don't need to buy a bigger house or drive a car as much now that their kids are gone. Add to that the fact that they are scared and extremely concerned about the sharp decline in their retirement savings, and it doesn't bode well for durable goods spending.

But it is precisely this type of economic activity that is needed to get the banking system going again, Mr. Dent insists. Even if the banks were willing to lend, he doesn't see much demand for loans.

'The stimulus works when the generation is still rising and needs to spend more money, buy more houses and get their kids in college,' he said. While retirees may still go on cruises and live relatively well, they are expected to spend less and focus more on saving for retirement.

'It's not going to turn the economy around,' Mr. Dent said, predicting another strong stock market crash late in 2009 or in 2010, followed by an even deeper downturn into 2010 and 2011. As for de-leveraging, the economist expects that trend will continue into 2012 or 2013 before the economy can expand again.

In major banking crises like this, as opposed to a typical recession, things usually take about five years to work themselves out, Mr. Dent noted. This time around, he doesn't see the North American economy coming out of this demographically until the early 2020s.

As a result of the sheer size of the stimulus, the economist predicts the Dow Jones Industrial Average could rise as high as 11,800 sometime around the summer. He also thinks oil prices could bounce back to between US$80 and US$100 per barrel. However, Mr. Dent sees crude as low as US$10 between 2012 and 2014, and the Dow around 4,000 potentially sooner.

'People need to be patient and wait longer to buy houses, wait longer to get back into the stock market, and use whatever bounces we get this year to get out, because this is not over.'"