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Best of boom, and worst of bust, is yet to come

Updated: May 3, 2013 12:14PM

Originally published: OCtober 21, 2004

The Dow Jones industrial average will rise to between 35,000 and 40,000 -- within the next five years! That’s not a leftover forecast from 2000. It’s a bold prediction in the midst of today’s churning, go-nowhere stock market. And it’s a prediction that would make most market analysts laugh, if it didn’t come from the highly respected -- and highly accurate -- market forecaster, Harry Dent.

Dent’s new book, The Next Great Bubble Boom, (Free Press, 336 pages, $26) is bound to make waves, because it is based on a study of waves. And according to Dent, the most important waves point to “the most unexpected bull market in history.” Dent has put his money where his mouth is, issuing his strongest buy signal ever to his newsletter subscribers on Oct. 1, 2002, at the bottom of the market. He called it “the buy opportunity of a lifetime.” And that was amidst the gloom just a year after the Sept. 11 terrorist attack.

Earlier great calls

It’s reminiscent of his optimism in late 1992, when Dent published The Great Boom Ahead just as the economy was emerging from recession. That wasn’t his only great call. In 1998 he wrote The Roaring 2000s, predicting that technology would lead the way to a more prosperous future and a soaring stock market.

At the time each book was published, Dent was standing against the prevailing wisdom. So we should listen closely when he says, “The most important premise of this book is that despite the crash of 2000-2002, the greatest economic boom and bull market is not over.”

Here are the long-term trends that cause Dent to champion this bullish position.

First, there’s historic stock market analysis. It starts with the long-cycle Elliott wave, which is a technical market forecasting tool that convinces Dent to extrapolate huge economic and stock market advances in the next five years.

And there’s the historical stock market “decade” cycle that shows the last five years in any decade are the best for stock prices. Not to mention that the fifth year in every decade this century has been up on average 34.6 percent.

But Dent isn’t just an ordinary stock market technician, charting past performance and looking for patterns. His unique expertise is in the field of demographic research, studying the patterns of birth and consumption and homebuying that move economies to grow and prosper. The real force behind Dent’s analysis is his assessment that the great Baby Boom demographic wave that will feature boomers in their highest spending period during the next few years, pushing economic growth and the stock market to unprecedented heights.

And on top of those demographic patterns, Dent has researched the history of technology and innovation, driving forces in economic growth and periods of slowdown. His conclusion: It’s only natural for a technology revolution to have a bear market shakeout along the way. But then the technology (in this case, the Internet and broadband connectivity) accelerates dramatically into the mainstream use.

This combination of stock market cycles, demographics, and technology cycles forms a unique force in history, one that encompasses most of the world except Japan (which never had a post-war baby boom). It causes Dent to say, “We have never seen such an alignment of fundamental cyclical and technical indicators pointing strongly up.”

And then?

The next part is the scary part. While Dent is forecasting an unprecedented boom for the next five years, he’s also forecasting that it will all come crashing down in late 2009 or early 2010, when the Boomers run out of spending power and start retiring, and the current technology innovation cycle has run its course.

At that point, things look extremely gloomy, according to Dent, for both the economy and the stock market.

He writes, “We are forecasting that the next bear market will occur between late 2009 or early 2010, and into 2022, with the Dow going down by 70 percent to 80 percent, and the Nasdaq (will) likely be down 90 percent or more. ... It will make the ‘tech wreck’ of 2000-2002 pale in comparison.”

So how should you invest for both the coming bull, and then bear market? How should you plan your retirement and your residential real estate needs? The Next Great Bubble Boom offers advice, but it only makes sense if you believe Dent’s premises of cycles in markets, technology and demographics. After reading his book, it’s hard not to. And that’s The Savage Truth.

Terry Savage is a registered investment adviser. Distributed by Creators Syndicate.

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