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Opinion: Why you should listen to Harry Dent even if you don’t believe a word

MarketWatch logo MarketWatch 3/01/2017 Chuck Jaffe
Harry Dent Jr.© Provided by Dow Jones & Company, Inc. Harry Dent Jr.

Editor’s note: The opinions in this article are the author’s, as published by our content partner, and do not necessarily represent the views of MSN or Microsoft.

You don’t have to go far to find people with serious concerns about the future of the stock market and the economy.

Roll all those people into one and you get Harry Dent Jr.

At a time when the upcoming election has Americans seemingly obsessed with the worst parts of the country and ignoring the rest, it’s not surprising that Dent’s message — that big trouble is coming — resonates with a lot of people.

It doesn’t resonate with me, however, which is why I wanted to chat with Dent again recently.

I know the popular thing to do these days with people with whom you disagree and who don’t believe the way you do is to shun them or shame them, unfriend them and ignore them, but I figure you learn more from hearing the other side than from scorning them.

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)  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) 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.

But in talking to chief economists, market strategists and others — something I do every day — and asking them about their biggest fears, the concerns Dent mentioned have all been somebody else’s bugaboo. So has a basic increase in interest rates, the outcome of the presidential election and more.

What those other experts almost universally agree with — and what Dent seems to ignore — is that bull markets tend to end when the market is euphoric and investors feel it’s a can’t-miss. No one has felt that way for years, and Wall Street has climbed that proverbial wall of worry to new heights; investors’ moods aren’t changing any time soon.

Neither is Dent’s forecast, and not just because he has the new book to promote.

Moreover, his message will continue to ring with investors because there is one thing he is historically right about, namely that when markets turn and bubbles burst, the initial action is the most violent and damaging.

“The first whack is the worst, so people who say ‘I’m going to hang in there and see if Harry is right’ will still be hit the hardest,” he explained. “This is a bubble. It will burst. It’s just very hard to say when.”

For anyone who believes that, the likely message is to keep some money invested in the market in case the forecast is wrong.

For anyone who believes the opposite — who gleans through the economic numbers and makes the case that the slow-growth economy will lead to further years of slow-steady growth — the strategy is the opposite, involving keeping some money in safe havens.

What you learn from watching the extreme forecasters on either side is that moderation, diversification and a middle-of-the-road strategy is best in the long term.

You’d rather be mostly right most of the time than exactly right very rarely.

The extremists will be right, again, at some point. Listening to them is smart, because each individual idea is not necessarily severe or whacko; ignoring them may make you feel better, but you’ll miss out on a viewpoint that, however radical, will make you a better-informed investor.

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