(Kitco News) – The greatest financial downturn ever will happen this year, and investors will be taking the “biggest risk of [their] life” if they don’t sell now ahead of a complete market wipeout, said Harry Dent, founder of HS Dent Publishing.
Dent is an economist and the author of “Zero Hour: Turn the Greatest Political and Financial Upheaval in Modern History to Your Advantage” and his latest book “What to Do When the Bubble Pops: Personal and Business Strategies For The Coming Economic Winter.” He bases his economic forecasts on demographic changes.
Speaking to Michelle Makori, editor-in-chief of Kitco News, Dent said that risk assets will sell-off in waves, with the first wave seeing U.S. equity markets drop as much as 40% and the entire bear market phase totaling up to a loss of 90% for the S&P 500, not unlike what happened to tech stocks during the Dot Com Bubble bust of 1999.
“This is going to be the biggest crash and the biggest downturn of your lifetime, and most of it is going to happen probably in 2022,” Dent said. “The whole crash is going to be 80% to 90%.”
The first crash will be “40% to 55%, so fast, you will not see it, so if you wait to see if I’m right and take that risk, you are going to be hit very, very hard and history is very clear about that.”
This crash will happen largely due to the fact that financial assets are in what Dent called the “greatest bubble in history” from over-stimulus by the Federal Reserve.
“It’s one thing if it’s a natural bubble, but when it’s orchestrated by the central banks there’s no way to predict [the timing] exactly,” he said.
Dent’s comments come as the Fed released meeting minutes on Wednesday stating that once asset purchasing tapering begins this year, “the appropriate pace of balance sheet runoff would likely be faster than it was during the previous normalization episode.”
Stock markets reacted negatively to the news while Treasury yields rose.
This market correction in 2022 should be followed by a rebound, with a larger boom cycle led by the millennial generation, Dent said.
“We will have the buy opportunity of a lifetime in around late 2023 or so,” he said. “I’ve been predicting the next boom, forever, would be the millennials from 2024 to 2039, not as long as the Baby Boomer’s boom, and not as steep, but we will see another boom to follow this in the U.S. and more so in Asia, especially India at this time, and China and Southeast Asia.”
All assets are at risk, including gold, although Dent added that Treasury bonds should benefit the most from a deflation of asset prices.
“If you want to do great you buy the 30-year Treasury bond and that can go up 40% to 50% and it did in 2008,” he said.
Dent made the distinction between the hedging properties of gold and Treasuries.
“In an inflationary outcome gold is the ultimate inflation hedge. Treasury bonds, the highest quality bonds, are the ultimate deflation hedge,” he said.
The crash in financial assets would not be triggered by an economic downturn; on the contrary, a market crash would precipitate a recession, Dent said.
“When people start selling those financial assets, wealth disappears and people panic more and that causes the recession. The financial asset crash actually triggers the recession which is what happened in the 2000 crash,” he said.
Dent noted that one of the assets to buy during the recovery phase of 2023 and beyond would be cryptocurrencies, even though he sees most of the altcoins as being in a bubble right now.
Dent’s own holdings right now include mainly cash and real estate.
For more information on why the emerging markets, especially in the Southeast Asia region, are likely to outperform in the coming decades watch the video above.
Follow Michelle Makori on Twitter: @MichelleMakori
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