Harry Dent's "The Great Depression Ahead" offers a lot of well-thought-out scenarios, using studies of cycles. Using them, he was pretty good in his 1993 book in calling for the 1990's economic boom and seeing the beginning of this decline. He might have missed the amplitude of the boom, but his approach does seem to have some value as a guide.
Things in the book, I think worth remembering are:
1. Leaps in science finally apply to economics, with micro-cycles being more probabilistic than macro-cycles which are more deterministic - cause and effect.
2. His S-Curve principle for new products overtaking old ones is helpful. Demographic and technology trends are perhaps the most helpful.
3. Oil/commodity booms tend to follow 30 year cycles. Though, he might not have caught the recent oil/commodity drop, it doesn't invalidate all his thinking.
4. Georege Soros is mentioned as calling 'an end of an era' in foreseeing the bursting of the credit bubble.
5. Demographics and low interest rates led to the housing bubble.
6. Geo-political cycles restrict a stock boom by about 50%.
7. He thinks 2011 will be the worst, with unemployment 12-15%, with the 'depression' lasting until about 2013.
8. Kind of funny, but he tracks potato chip spending, and he documents it peaking when a family head reached about age 42.
9. He sees 2008-2012 as survival-of-the-fittest among businesses, with the strong ones getting stronger.
10. He tracks 5000, 2500, 500, 250, 20, 10, 4, and one year cycles also. Perhaps, this is the book's weak point, since so many intersecting cycles may add too much confusion. But, he does focus on a few main ones, so I guess it could help a reader as things play out.
11. Stocks do better from May 1 - Oct 31. Although others have noticed this, he provides a helpful chart.
12. Estate taxes from dying baby boomers could be an unexpected windfall for stressed state budgets, since never before have we had such a large prosperous generation.
13. Globally, the innovation cycle will continue, if managed well.
14. Errors of LTCM are the same which are affecting the 'quants' in today's hedge fund meltdown. They are a) assuming the future will be like the past, b) assuming large gains/losses are too rare, and c) assuming investment returns are independent variables.
15. Dent mentions the book, 'Black Swan', when thinking just because you don't observe something doesn't mean it can't happen.
16. Stock/financial markets are not casinos. Casinos are closed systems with predictable odds. Markets are worse, because they contain induction errors, where price movements, themselves, affect future ones. Data points are not independent, so can't use standard bell curve distributions. Again, he mentions Soros, his 'reflexivity' concept - prices affecting prices. Volatility increases during phase transitions. Volatility is not a constant. However, the S-Curve can help somewhat.
17. Besides knowns and known unknowns, there are unknown unknowns, like the Russian bond default which caused the LTCM meltdown.
18. Republicans do better during growth and innovation phases, benefiting mostly the wealthy. Democrats handle shakeout and maturity phases better. helping everyday people. Need both.
19. Infrastructure investment is best when labor is freed up, like during economic downturns. The US spends about 2.4% of GDP on infrastructure, Europe - 5%, China - 9%, so we can handle added infrastructure spending during our downturn.
20. World trade during the 30's collapsed 67%. Something to keep in mind. Unlikely it will get that bad this time.
21. Iraq - the good thing is that maybe we learned not to try to be the world's policeman, an expensive thing.
22. The US regenerates its population at a better rate than other mature societies like Japan, Europe and Russia. Not great, but relatively better than a lot.
23. The green revolution could help the economy.
So, this is a good book, which should help a person evaluate what happens from here, in this economic meltdown.
2 comments:
The Worldwide DEBT is the problem.
The best solution for the present economic crisis would be a REBOOT or restart of the entire debt system for the ENTIRE WORLD.
1. A data base listing ALL DEBT, government, business and personal needs to be created. The list would need to list the debt and debt holder with a bank that could make an accounting of the debt. Included would be all national debt of all nations, all mortgages car notes and credit cards for individuals. All outstanding bond and other debt for corporations, The idea is to list ALL DEBT of any kind owed.
2. Every government on the planet would need to call a special session of its legislature. Using the same authority that governments have to use or create FIAT CURRENCY the legislatures and Central Banks need to authorize the creation of ACCOUNT CREDIT in an amount equal to all the listed debts in the world.
3. The Various governments and Central Banking Systems then need to make an accounting change equal to the debt in the form of an ACCOUNT CREDIT or CREDIT zeroing out ALL THE DEBT in the entire world, and crediting all debt-holders in the world.
The following day the economy of the entire world would restart and the Stock Markets of the world would react to the new renewed capital in the banking systems, the Capital now available to restart all business and the disposable income to the individual people would restart and grow the retail sectors and the manufacturing sectors of the entire world.
Some have commented that if this was done in a very short time the exact problem would be repeated. My answer to this idea is history does recycle and repeat itself but some do learn and avoid making the same mistake. Europe learned after WWII and has avoided a major repeat for more than sixty years.
The other objection has been the possible inflation that would result would weaken the dollar. My answer to the weakened dollar is it may be a GOOD thing to help our ability to export manufactured products and also make our manufactured products more competitive in our own country. Jobs are needed for our own citizens especially the bottom forty percent.
Allen Charles Report
http://allencharlesreport.blogspot.com/
Yes, Allen, it all comes down to one word - debt.
But, I don't know how to get some database of it, as you want. Since there are so many derivative products, plus insurance - credit default swaps, etc, it is hard to track things so as one knows what is what. Plus, debt on debt - like one only has to put down 10% cash when buying Treasuries. I suspect that is a contributing factor for the bubble in Treasuries. It is like we love bubbles, if one bursts, we want another, all with debt.
The only good thing which is happening is that the world is going through a massive deleveraging. I wish our tax laws wouldn't allow deductions for debt, especially deductions for mortgage interest on individual returns - all that does is inflate home prices.
...Joseph
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