The conversation with Dent was a good reminder of why disagreement makes a market. It’s a lesson most investors should learn and revisit because while Dent’s position is extreme, his arguments aren’t.
Dent has long been seen as a prophet of gloom and doom. He has, at times in his career, called for the Dow Jones Industrial Average DJIA, -0.29% to hit 35,000 and 3,800. The latter is his current forecast, and has been for at least five years now, though it is most clearly stated in his new book, “The Sale of a Lifetime: How the Great Bubble Burst of 2017 Can Make You Rich.”
He believes that demographics ultimately determine the long-term direction of economies and markets, and there is no question he has had some hits among the misses, most notably for me when he said demography had Japan headed for long-term trouble at a time when most experts would have bet the ranch on the country’s long-term prosperity.
His often-spectacular misses typically are forgotten in the hype over the next prediction.
It would be easy to suggest he’s like the proverbial stopped clock — right twice a day — but the truth is that he’s more like a clock that is running fast or slow, which might only be right once every great while.
His current call is for a bubble bursting next year, driving the Dow into the 3,800 range by 2020. He sees three things as likely catalysts to start that downturn.
First, he sees the current issues with Deutsche Bank DB, +1.57% portending bigger economic problems for banking and central bankers in Europe.
“We will see Italy move into some sort of default zone in the months ahead,” he said in an appearance on “MoneyLife with Chuck Jaffe” this week, “and that’s going to bring the whole eurozone into a crisis, especially Germany. “
Next, he sees fracking as “totally a bubble industry,” along with oil generally. “We have said for year that oil is going [to be priced] from $8 to $20 before it bottoms, and I think you will see something like that in the next year,” Dent said. “That kills the frackers and that’s a whole series of defaults and junk-bond problems” that will expand and damage the overall economy.
Third, Dent fears economic events in China, which has “the greatest real estate bubble in the world” along with “a stock bubble that already has started to burst.”
Rolled together into a forecast that includes Dow 3,800, and Dent winds up only favored by the most extreme pessimists.
[link to www.marketwatch.com
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