Gold, Viagra and Emerging Markets: Harry Dent on 2009 and Beyondby: Andrew Mickey January 14, 2009
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This level of stimulus is at the point that it’s like taking a bottle of Viagra and nothing happens...” - Harry S. Dent
We’ve entered an unprecedented period of uncertainty. The markets have collapsed and $30 trillion of stock market “wealth” has evaporated.
The future could be filled with even more. There are a lot of unanswered questions.
Real estate, gold, stocks...what’s a safe haven? Is this a correction which will get sorted out soon or will it take much longer? Any life in China and India? Inflation or deflation? Is this the end of the financial world as we know it?
Those are just a few of the big picture questions.
Q1 Publishing’s Andrew Mickey is a firm believer in finding unique and thoughtful perspectives. He says, “Finding truly great people which can challenge you and the way you think is tough. When you find one, ask them as many questions as possible. Chances are, you’ll learn something.”
That’s why he recently sat down with Harry S. Dent of the HS Dent Foundation. Dent is the creator of the “Dent Method” and author of: The Great Boom Ahead (published 1992); The Roaring 2000s (published 1999); and The Next Great Bubble Boom: How to Profit from the Greatest Boom in History, 2005 – 2009 (published 2004).
Andrew Mickey says, “Harry is one of the best big picture guys in the world. He focuses heavily on age demographics, spending patterns, and has had dozens of spot on predictions over the long-term.”
Below is a discussion Andrew recently had with Harry about what’s around the corner for gold, China, India, oil, commodities; where to have your money now; and where the big opportunities lie over the next 5 to 10 years and beyond?
ANDREW MICKEY: I’ve got to tell you Harry, the title of your latest book, The Great Depression Ahead, didn’t get me too excited. You’ve hit the nail on the head many times before and if you’re right this time…it’s depressing to think about.
At Q1, we’ve discussed the era of double-digit returns coming to an end, but I still don’t think too many investors have fully realized what that will mean. But hey, that’s reality and if we are honest with ourselves now we can be prepared for it and actually prosper.
With that, I’d like to ask, what is the main point investors need to realize now, given the current state of the economy and stock market, so they can navigate the tumultuous years ahead successfully?
HARRY DENT: The biggest point here is that this is something that we have been forecasting for 20 years. Some people think, “we’ll it’s because of the banks meltdown, because of this and that. And now we’re in this crisis.”
They’re wrong.
We’re due for this crisis because the biggest generation in history was going to come to an end.
We’ve had a long, and incredible, wave of productivity and spending. At the end of such booms you always have financial excesses and leverage. People just throw risk out the window. They think it’s going to go up forever. You hit bubbles which have to break down.
But our point is that this is a long term reversal not a short term. This is not just another recession where the Fed stimulates the economy and we come back with more baby boomers buying houses and spending money. This is the end of a long boom and it’s coming about a year earlier than we would have anticipated, because of this meltdown.
This is major.
Everybody knew we were in a housing bubble and we’ve been in bubbles before with stocks…and now commodities. Regardless, very few people saw how sinister the financial system got because, in a nut shell, investors, pension funds, and hedge funds increasingly became addicted to the returns in the 90’s where you could make 20-30% returns in stocks easy. You could even make 6-7% plus in fixed income.
All of a sudden, when bubbles started bursting, you can only make half that much in stocks - at best. With Fed interest rates so low and disinflation you can only make 3-4% in fixed income.
All of this final kind of bank and securities melt down came out of the fact that wall street needed something different. A bunch of smart ass MBA’s came up with this clever scheme of packaging all this debt in ways and diversifying it...tranching it up and insuring it.
Although, the insurance is not real as it’s not regulated by insurance companies. They created what would appear to be a triple AAA security and the ratings agencies went along with it. Really they were more like triple B- or triple C+.
Then when the housing slowdown came (and we did forecast this cause that’s a clear trend that shows where we are in this cycle). This thing melted down and created a near-term disaster.
What we’re saying is the bigger downturns yet to come.
ANDREW MICKEY: Bigger downturn to come? You mean, October and November meltdowns weren’t the end?
HARRY DENT: It’s all cyclical.We peaked in housing, we peaked in commodities, we peaked in stocks and at some point, around 2010 or so, we just turn around in our own spending and we go into a longer deeper downturn.
We’ve been saying for a long time that we’re going to see a depression here. All these bubbles are deleveraging. With the economy, the biggest surprise I guess is it started [its downturn] late 2007 to 2008, not late 2008 to 2009 as the broader indicators would suggest. But it is happening and we call it the perfect storm.
The peak of the long term commodities cycle which happens every 29 – 30 years which happens to have coincided with the peak of a long term generational cycle which happens about every ..... This is like a storm. The first side of the storm hits. This is irresponsible at this point. The Government says we’ll create money, we’ll throw money at this and we’ll buy treasuries, we’ll buy agencies debt. This is getting ridiculous at this point and we’re probably going to see an eye come over the next year.
We’ve got a new president, huge stimulus, low interest points, oil has fallen – ok the consumer gets a big break here and then just as the eye passes over and people think “god maybe we got out of this?” then...BAM! You get the backside of the storm which is always worse and builds on the first side of the storm and that hits in 2010 and that’s when from our point of view, we go into a depression not a depression.
Then we start to see bigger levels of deflation. From the storm point of view we get floods and damage and everything is disarray.
ANDREW MICKEY: When do you see the true “bottom” coming in for the economy, housing, etc?
HARRY DENT: In 2012 and into 2013 housing is going to go a lot lower and stocks are going to go a lot lower.
We usually say that bubbles usually go back to where they began or a little lower. We use the example of the Japanese housing bubble which is a big reality. What we’ve been saying for years is that people don’t understand that real estate could go down for years – Big Time.
Just look at the 1930’s in the US and the 1990’s in Japan. Real estate bubbles can decline for very long periods of time. Japan’s bubble started in 1986 in real estate. It had been going up for decades just like ours but it went up exponentially from 1986-1991 just like ours from 2000-2005/2006. It dropped right back down to 1986 levels. This was a 60% drop in homes and a 70% drop in condo’s in Tokyo.
It makes people almost want to puke looking at that graph. People haven’t seen real estate go down like this all their life except for a few little things in the 90’s and early ‘80’s.
ANDREW MICKEY: How far back could we go? We’ve already watched stocks lose 10 years of gains.
HARRY DENT: To summarize, housing prices have to go back to 1996-2000 levels. That is a 60% drop, not quite as bad as Japan in the 1960’s and 1970’s.
Let’s just call it 50% for the average house, not for the high priced condo’s in Miami, NYC, or San Francisco, those will go down more. And stocks have to go back to about 3800. Might be a little lower it might be a bit higher but will probably reach its 7000 or so lows.
This is not over, we do expect a bounce in stocks at the end of 2009 and we do expect a bigger bounce in commodities. We expect real estate to kind of flatten out but we’re telling people that this next year, especially if you didn’t see it coming, this is your chance to get straight. Sell what you need to and get liquid and prepare for the bigger part of the storm between 2010 and 2012 especially 2010.
So that’s basically our overview. We’ve been warning about all this forever and even greater things to come with this credit meltdown. This is a dangerous time. Don’t think it’s a short term crisis because it’s long term.
And don’t think that the government will solve this either. Maybe the government would help if we were in a short term crisis like the 1990’s, but this is not. The government is damn near going to go bankrupt trying to bail us out of this. We’re probably going to have to turn around and have China bail us out in a few years and that’s going to be humiliating.
ANDREW MICKEY: China bail US out! Amazing. What’s your take on “buy and hold” investing at this time? The markets were dragged through the mud and there’s a lot of compelling buys relative to their price a year ago.
HARRY DENT: The number one thing to understand is this is a long term peak. It’s like 1929 and the stock market...
Financial planners say invest in long term, buy on dips and diversify – no, not in times like this.
It’s even worse now. This is the first time that we’ve got a generation following the echo boom (that we call them or the generation Y or the millenials) that will only, at best, bring us near the previous levels of prosperity.
This generation is not larger than the one before, in fact, it’s a little smaller. So our country goes sideways for a long time. We had enough real estate in this country – housing, to last us forever. Except for the areas that people are moving into such as the SE or the the SW. So the real estate game changes.
Stocks have peaked for decades and maybe even more than that. And we’ve been saying for decades that the recent peak in the stock market exceeded in our lifetimes.
Japan has declining demographics going forward. Europe is more like sideways, just like the U.S.
So this is going to be a switch. You have to ask, “Where is there growth in the world?”
The answer is it is in the emerging countries.
All of the Western countries have either plateaued or are declining for the long-term. The declining ones are Russia, Eastern Europe, Southern Europe, and Japan which were the first ones to start to decline demographically. That’s why they peaked 20 years ahead of us.
ANDREW MICKEY: Russia? But it’s one of the mighty BRIC countries?
If Russia is facing more trouble ahead because of its age, wouldn’t China be facing the same problems?
After all, Demographers Richard Jackson and Neil Howe stated in 2004, “Today's great powers became affluent before they became ageing societies. China may be the first major country to grow old before it grows rich.”
In our 100% Free E-Letter, the Prosperity Dispatch, we’ve been tracking the China manufacturing crisis for some time now.
What’s your research telling you about the prospects of China, India, and other emerging markets?
HARRY DENT: China is going to start to move sideways and then down for decades.
We’ve got this movement where the richest countries in the world have the highest standards of living are aging rapidly and precisely because of that high standard of living. This is precisely because of the fact that people get rich and they live in large cities. It just makes sense to have one or two kids instead of three, four or five. Meanwhile, people in emerging countries have three, four, five, six, or seven because they’re easy and they’re cheaper to raise. They need labor and they don’t go to school as long so they have more years of productivity per person. It’s a clear trend around the world
Let’s say a billion people that are in these developed countries are wealthy, yet four billion aren’t, and about two billion of those or more that are really starting to rise strongly. That can make for a lot of growth. The combination of rising incomes, especially when you get about 5,000 dollars per capita, makes the emerging world very interesting.
China and India are the biggest examples. But there are many more in Asia and Latin America, the Middle East etc. We are really seeing a shift, you know we’ve been told that this is the century of Asia for decades now, while the Western world and particularly the U.S., we’ve risen fast too. So the gap has only closed so much. But in the coming decades we plateau and go down, but they rise. So it’s a big shift towards emerging countries.
The countries that are going to be the best are the countries that are moving away from commodity economies. This is a commodity peak that happens every 30 years where commodity prices are going to go down for a decade or more. So these countries, even though they’ve got good demographics, in Africa, in the Middle East and South America, they’re commodity dependant. So if commodity prices go down and they don’t have a middle class society working in the offices and factories, shipping goods around the world, they may not do as well.
But countries like China and India are moving into higher value industries. China only has favourable demographics for the next 5 to 10 years, but India has favourable demographics for the next 55 years, give or take, in the future.
These countries have a lot more development potential: the ability to move people from rural areas to urban and a greater ability to put in infrastructure to leverage people.
China’s already done that. They’ve already had massive moves to urban areas. And they’ve put in a massive infrastructure in their country beyond belief. India is just starting to make these same moves.
ANDREW MICKEY: I think you’re dead on when you say, “India has 55 years of growth ahead of it.” I look at India as being at the same spot as the U.S. in the 1950’s. You agree?
HARRY DENT: If I was a young person and I could live anywhere in the world and decide what type of education I wanted to get and where I should go? I would focus on infrastructure and real estate development and other things in India.
India was slow moving towards the capitalist model and the government has not been as strong as it should be.
People in developed countries want laissez faire governments. We want government to have infrastructure and laws and such but we don’t want the interfering stuff. We want markets, and entrepreneurs, and business and investments to drive our economy.
That’s not true in emerging countries. They don’t have the infrastructure and they don’t have the rules and regulations. The Government needs to step in and get the country going and then once things are really moving they can let free markets drive the economy.
India has been slow moving towards this. But they’re starting to realize that they need infrastructure and foreign direct investment. They’re the people who most want to be like Americans in the world.
The Chinese do not. Chinese want to top us but they don’t want to be like us per say. In India, where I visited for several weeks a few years ago, they want to be just like us. They want to be movie stars and watch soap opera’s and they want to have a big house and own flat screen TV’s.
I think that India is the choicest single country in the world that is large enough to have scale, extend the product ...and it’s starting to emerge on a ... let’s call it a 20 year lag to China and it has demographics much longer.
If you go to India, it’s so obvious that there’s a very important thing that’s missing. You have plenty of people, plenty of motivation but they just don’t have infrastructure. They have crappy places to live, they have crappy roads, you’ve got to walk forever to get water, fire wood and you’ve got no electricity. My wife made an observation that they are living as if Jesus is still in the manger over there. It feels like it’s thousands of years ago outside of Mumbai, or major cities such as Bangalore.
Healthcare is 15% of our GDP today and is supposed to go to 20% in the next decade. That’s the big opportunity after our big crash and downturn. I think everything will bounce if we’re right in the stock market bottoms in late 2010 and maybe near 2012, there’ll be a bounce in everything.
Why not invest in countries like China and India and sectors in the US like healthcare that still have demographic trends behind them. Are we going to buy there? The answer is yes. We’re going to buy a bunch of stuff that still has good trends.
China’s market is still going down more than ours. And India - they’re going to be hit by this. With China exporting to the rest of the world and holding our bonds, you know they’re going to evaluate. But you also know they’re going to come out of this. And India is not going to bail us out.
I believe that in the end our government is so over doing it here that we’re going to have to turn to China and say, “Oh my gosh, you don’t want us to go down do you? Let’s make a deal.”
You [China]invest a couple trillion now in our government to help bail us out and in return you get a percentage of our tax revenue or some kind of deal in which they get paid back somehow over decades.
This is a once in a lifetime kind of thing we’re going to see here. It’s going to be like the 1930’s, not as extreme, where bigger banking failures and company failures and much higher unemployment is going to be a reality.
This very unusual circumstance of extreme leverage unwinding and this world order where the richest country in the world may have to turn to the biggest – China, as well as the Middle Eastern countries and ask for help.
ANDREW MICKEY: There’s really no way around it, the U.S. is headed to 8% or 9% unemployment this year. Probably more in 2010. Do you think that greater than 9% of unemployment is a given even with the gobs of money the government will be throwing at the economy?
HARRY DENT: I think that over this coming year, unemployment will reach 8% at minimum, and I think 10% at the highest.
Then, I think we’re going to get a rebound.
At this level, we’ve got credit meltdown and we’ve got banks, and all these locked up problems. These are deflationary long-term and all these bubbles that ...all this leverage.
Man, this level of stimulus is at the point that it’s like taking a bottle of Viagra and nothing happens.
Now Obama’s talking about an $800 billion stimulus or whatever the final number turns out to be. They started out with $100-200 and I mean the treasuries that ...a billion here, 100’s of billions here. This is off the charts. So we’re probably going to get a rebound probably second half of 2009 and probably early 2010.
ANDREW MICKEY: With this rebound do you think that commodities will bounce back a bit and do you think that the rallies will be sustained?
HARRY DENT: The surprise of that rebound is going to be inflation pressures ...oil prices, commodity prices rocket faster than we thought. It’s supposed to be safe to stimulate the economy when you’re in a deep down turn but we’ve got demographic indicators, that have been very good at calling basic inflation trends, and they’re saying the growth into 2007 says that we’re going to have inflation pressures into early 2010.
These commodity cycles that we talk about as 29 to 30 year, I mean ideally it probably peaked in mid 2008 for commodities and will test those highs again in late 2009 2010 as well. So we may see oil bounce back to $80 - $110 and retest its high. Commodities prices have the potential to rally here and inflation prices will tend to come back, and I would raise interest rates which are already ridiculously high in some areas, and ridiculously low in treasuries, and that would tend to make inflation the problem instead of deflation.
The government can’t keep stimulating and if, and when, it stops stimulating, our indicators say that by 2010 our economy is really going to go the other way. It’s a very complex situation but it makes more sense if you realise it, unlike the late 20’s where we didn’t have inflation trends and the commodities bubble had already burst the decade before.
This time we’ve got something like a hybrid of 1929-32 and 1980-82...we’ve got a commodity and an inflation cycle peaking. A smaller one than in 1980 but inflation nonetheless.
We’ve got this bubble boom deflating into this deflationary depression and we’re going to see both reacting and with our model – the storm – you are going to see the first storm, and we’re going to get a deflationary melt down as our economy sinks lower than it has since the 70’s and the early 80’s, and then this massive overreaction and stimulus we get a rebound because it’s deflationary pressure that’s come back.
Now inflation’s the problem and then we end up in deflation 2010 – 12. We’ll have deflation in early 2009 and inflation end of 2009 and into 2010 and back to deflation in 2012. That’s our scenario. When it comes to deflation, it’s going to come low enough here that I think that’s less likely, but I think that the surprise is going to be a rebound in inflation pressures and a rebound in commodity prices.
ANDREW MICKEY: So, you talk about inflation and deflation. Do you think gold is going to be a safe haven throughout everything?
HARRY DENT: Yes, we don’t do a lot of money management but we’ve got something that we do for financial advisors and asset marketers. We’ve had gold and silver and some of the most defensive of pharmaceutical and health care stocks. And they’ll go down when stocks go down but not as much and they’ll still rise when things turn around. We have recently cut back gold. Then oil rallied and then it looked weak and now it’s come back. Oil’s had a critical pattern.
Yes - I think gold and silver are two things to hold for a while. And at least until 2009 and mid to late 2010.
When we really start to tip into deflation in a down turn I think they’ll go down like other commodities. But I think gold and silver have held up the best.
When it comes to gold and silver there’s a two way street. The banks go into melt down and in response governments are going to print a lot of money, then watch gold as a safe haven. But if the economy turns around because of the stimulus package, and inflation pressures... commodities are back in demand, it goes up on supply and demand so it is the best two way street.
ANDREW MICKEY: If, and when, we see a rebound, where would you rather be...in gold, silver or oil?
HARRY DENT: If we see a real rebound I’d rather be in oil. Oil is so undervalued and gold and silver are more in between. But if I had to sit here right now and I could only buy one thing to hold over the next year, I would say gold and silver is probably your best bet.
If we see stocks slump down again in the next month or two, which I think is likely, I think stocks will probably go back and retest this bottom, maybe not a new low, but close to it.
If we see that then I may want to start to buy emerging markets again and the financials that really got trounced. And also buy things like oil that are extremely undervalued and play a rebound for the next 6-12 months. And then, I’ll look to get really safe and just hold my money in cash and wait for the deflation process.
Above all, the one thing that we are very clear on is that, in the end, this whole mess ends up with deflation not inflation.
And that’s the thing that’s going to confuse people.
First, it was inflation, then were at deflation, then it could be inflation again a year from now.
Bubble booms have to burst and they have to deflate. We’ve got bubbles in real estate stock, commodities, and credit, and just about everything, and that ends up deflating. It doesn’t matter how much the government stimulates the economy, at some point, the contraction of credit which is highly leveraged – 10:1 in the banking system – destroys more money than the government can create, and that ends up causing deflation, and deflation is good long term.
It brings down the cost of real estate, commodities, doing business. It’s a huge efficiency of survival of the fittest shake down and it makes us stronger, but it damn near kills you. It’s kind of like radiation or chemo if you have cancer and it damn near kills you. But the good cells survive and at the end the bad cells fall off. That’s what depressions are.
Bubble booms magnify innovation. New businesses emerge along with new technologies. Economists hate bubbles, government people hate bubbles and investors get humiliated by bubbles. They love ‘em when they’re going up and hate ‘em when they’re going down.
Bubbles magnify innovation in a way that nothing else can. And then when they fail, they quickly pull the rug out and shift market share to companies who did have the right business models often by accident, and not on purpose. This shifts market share to these companies and makes them stronger to the point that they can bring prices ever lower. And it makes everyday people’ standard of living go up.
So that’s the paradox, that the depression actually makes us stronger, especially the middle class person as opposed to the people who got rich off the bubble boom.
ANDREW MICKEY: Okay, so when looking at demographics, which countries do opportunities lay? Do you believe that Africa and Latin America have a shot? And are we 50 years away – realistically – from Africa...
HARRY DENT: We’ll you know, again, young people are expensive. When you’ve got a country and you’ve got young people, they’re usually not stable and they’ve usually got low productivity and they usually have inflation.
Young people cost everything and produce nothing. Rural economies may go to work early but our models for demographics don’t really start to apply until countries move into infrastructures and start to develop education systems, law and order and so on.
If you’re poor in Africa, you’re poor when you’re 12, you’re poor when you’re 19, you’re poor when you’re 99, you’re poor when you’re 50 and you’ll probably die poor. You don’t have a way to improve your standard of living. You don’t have education or infrastructure. And it usually doesn’t matter what you make because some damn dictator or ward comes and steals it anyway.
Countries like Africa, outside of South Africa and Botswana, are part of the few countries that are not on this model. India is just getting on it in the last decade or so and China’s been on it for decades now, as many other countries have been. Once you get on it, demographics drives and actually it’s a bad sign. If somebody puts a chart in front of me and shows the age distribution and does not tell me what the country is I can tell you whether its’ a third world country, an emerging country, or a developed country.
The third world country will have a ton of young people and age just goes right down. These people have low life expectancies and a low standard of living. And a lot of young people in your economy means that you’re screwed. You’re going to have more violence and you’re going to have higher inflation and costs, so that’s not a good thing.
Once countries start to develop, you see people age longer, births come down and life expectancy is longer. And you start to see bulges in the middle age of your population which ends up being your peak earning and maximum productivity level. With these bulges you get generational lulls and now we’ve got a developed country and that’s when you can measure the generational earning and spending and you can predict the economic cycles. So that’s important in our work and that’s our qualification.
We can tell what the potential demographic trends are everywhere in the world. And that’s why we say India, who is joining the party, and has trends that will boom into 2065 and maybe into 2070 at the latest.
ANDREW MICKEY: Okay, so China with better infrastructure and decent demographics, where do you see China in the near term?
HARRY DENT: China is going to run out of steam and they’re going to get old before they get rich. Older people don’t innovate, they don’t move from rural areas to urban areas, they protect the status quo and they buy less and less stuff. Old people don’t need anything - they just save.
So I think China’s not going to boom as long as most people think. India will be the strongest economic country in 50 years. In 10 years – no question, I think China’s going to be the most important and dominant emerging country. 50 years out, it’s bound to be India.
ANDREW MICKEY: So when it comes to valuation now for emerging markets, do you think that when the depression really hits, that will be the time to start looking at India? Or you can realistically wait until probably 2020?
HARRY DENT: No, no - way before that in that case.
Were the ones who – Europe, the US – have this downward demographic cycle from let’s say 2008 or 2010 to 2020 or 2023. India and China don’t have that. They are going to get hit by this world wide crisis, this credit crisis, this bubble bursting, because they’ve got bubbles in their stock market too! Shanghai and Mumbai; they’ve got bubbles in real estate almost as bad as ours. They’re going to get hit by this – including their export. They’re strongly export driven, more China then India. Which is a plus for India in the downturn. But they are going to come back sooner. But I’d say in late 2010, as early as then, I’m looking in China and India.
I’m still thinking that while the US may have kind of bottomed, and we’re probably going to retest that bottom in 2012, I’m only buying for a bounce. And even then we’re going to somewhat retest [a bottom] again in 2020. So we’re thinking long term.
I’m going to buy in India and China and places like that. And maybe the best health care stocks here in the US. For the short term we’re looking for a bounce next year. Maybe 5,6,7,8 months in stocks and a year plus in commodities.
And if I’m looking here in the short term, emerging countries have been hit the most and they still have the strongest demographics short term and long term. Emerging markets, and commodities, and financials, are going to be likely to lead this rebound. If I’m an aggressive investor and I have seen the markets crash and see that it’s slowly turning around and I want to play a short term bounce...I want to be in commodities, emerging markets, financials and things like that.
So, I like emerging markets short term and then after the next crash they should lead a bigger rebound that should last longer and of course should lead for many decades.
ANDREW MICKEY: Do you focus on any of the previous big bubbles ...one in 1840? And one later in the 1800’s?
HARRY DENT: Actually, there were two depressions in the 1800’s of significance. One was the 1840’s and one was the 1870’s.
I think this is more like the 1840’s because we not only had this railroad and canal bubble that peaked in 1836. But we also had a massive land rush partly spurred by railroads and canals into the Midwest.
The government was giving away land. It was a technology boom and real estate and kind of a commodity boom, all at the same time. And it bust from 1835-1842. It was an eight year down turn in stocks and that was a depression greater than the 1870’s and not as bad as the 30’s but more like what we’re going to see now. The 1840’s is probably the best parallel to today. I think that the biggest lesson that we look at in history would be the cycle...But the lesson is when you see a major bubble boom it only ends in one way and that is in a deflation, deleveraging process, which creates a depression. In other words, deflation is always the result. We’ve seen no exception to that. Even if you tried to blow your way out of it with printing presses and inflationary measures it always ends up in deflation.
ANDREW MICKEY: With medical technologies improving how do you see this affecting demographics? Stem cells are finally starting to reach the market place and do some amazing things. The human genome project is starting to produce some early stage trials. What will the impact be of extending lives even further on demographics?
HARRY DENT: Yes. First of all, even in the last century, because of other medical technology but even just a better and safer standard of living, our life expectancy has only been increasing a year and a half a decade in the last three or four decades. In the 30’s and 60’s it grew four years per decade. It accelerated, in fact we didn’t have very high life expectancies, up until the 1800’s and then they really accelerated through the last decade because of technology and because of an improved standard of living. We expect this, in the developed countries again, in emerging countries it takes much longer.
In the developed countries we expect, over the next four decades or so, that biotech, robotics and nanotechnology is going to extend life spans. Our children are going to live to be more like 100 rather than 80, and what that does is it stretches out the human life cycle, it also stretches out the human work cycle. It makes the peak in spending later in life. So instead of a peak in life being late 70’s – early 80’s and our peak in spending being in the late 40’s, we might be peaking in our spending in the late 60’s early 70’s and living to be 90 or 100. So that will change demographics.
In the back of our new book, we allow for some of those scenario’s, we have allowed for two things: one, there will be an aging revolution in the developed countries which extends some demographic trends, but they only extend it because we’re already slowing in population, the second one is, when we really started moving and started to get wealthy and we moved to suburbs..from cities to suburbs, in the 40’s and 50’s we had a baby boom! Life is good, we’re a major country we won WWII and people felt good about the future and we had a baby boom.
We could have a baby boom in emerging countries where they’re starting to become successfully developed countries. And that could extend their populations even past this 2065-70 peak in world population of present demographics.
So yes, you’re right. There’s a lot of changes that could come from this advancement of globalization and technological change in the coming decades and beyond.
The good thing about demographics is that we manage the changes, the impacts come later. If we had 5 million new births in the US drop out of the sky, all we would do is add costs to the economy because of the costs to raise those babies. We could predict that 50 years from now, and maybe even a little later, with increasing life span, 50 years from now, those babies would cause a boom in our economy. So that’s the good thing about demographics, if these changes occur, we can anticipate what is going to occur and know that they’re not going to affect our projections near term at all. But once they occur, we can say, “okay, so here’s the impact on India if they have a baby boom or here in the US if we really start to move back to 4 to 5 years a decade...and life expectancy. Here’s the impact that’s going to have impact on the future: instead of us peaking in the early 2050’s you know we’re going to peak in the 2060’s along with India and our echo boom.
So these are things we’d love to see and these are things that we can adjust to. That’s what we love about demographics opposed to all other economic stuff.
The government does this...and supply and demand. Okay, well who the hell can predict supply and demand? Who can predict what the government is going to do and who’s going to be elected and you know we predicted tons of stuff, but no mention of politics. But I would say to people hey – you love Bill Clinton or you hate him he didn’t cause the damn boom in the 90’s! He almost had nothing to do with it.
Technology progress and the baby boom was probably their strongest spending surge. I recall the greatest boom in the 90’s instead of a depression. Most writers were calling for a depression. So that’s what’s good about it. And there are certainly going to be changes in demographics and there already have been. In the last century people are saying the biggest advance was in the baby boomers around the world and in life expectancy. Baby booms and increased life expectancy is good. It’s a sign of progress that we live longer, learn more, work longer, spend more – produce more over our lifetime.
ANDREW MICKEY: So India, onward and upward for the next 50 years?
HARRY DENT: I give it 2065 and roughly 2069 at the latest (unless something rapidly changes). Remember, emerging countries are not going to compete with life expectancy, biotech, they’re going to be decades behind us. Even if India has some surprise baby boom, which they won’t have in that time frame I don’t think, it wouldn’t have much of an impact because they’re babies, they’re not spending money.
So yes, India is going to peak around 2065 give or take, and at that point world population, and this is all very predictable with declining birth trends, with just a slope going down and rising life expectancy...they can take all this and predict the entire world population (unless something changes drastically) will peak around 2065 along with India. At that point we will see a slow down.
And I would predict that...frankly, with pretty high confidence that between 2065 and 2080 we will see the next depression. Another once in a life time thing as world population slows down and then the leading nation with growth and everything else, India will slow down and the world will go down with India just like the world is going down with the US today.
ANDREW MICKEY: Do you really see more problems ahead? When a depression time comes which countries do you think are going to rise out of it? And with reference to BRIC, which countries do you see coming out of this and how do you think Russia specifically will make out?
HARRY DENT: No, because Russia has declining demographics forever, their life expectancy...and they’re one of the few semi-developed countries (I call them semi-developed) there in between the emerging world and developed that has declining life expectancy because they’re literally drinking themselves to death. They have declining life expectancies...Russia’s toast after this.
India and China are going to come out of this very strong. They are the up and coming nations of the world. And Asia is going to come out of it strong and it’s going to be mixed in places like the Middle East and Latin America and other parts of Africa; because yes, they’ve got growing demographics but their economies are more driven by commodity prices. Commodity prices are going to fall from let’s say a peak in 2008 at least until 2020 and maybe 2023. They’ve got a long period of being down to flat and of course there’ll be rallies. But those countries, unless they make more than bananas and ethanol are just not going to be able to advance like a country like China and India who are moving into information and industrial jobs and exporting to the rest of the world.
That’s our scenario. Yes, we are going to come out of this. There is going to be extended booms in emerging countries. We’re going to come back with an echo boom. But you know what, Europe and Russia aren’t going to come back so much because they don’t have an echo boom. Japan after 2020, and China after 2020 and South Korea. Demographics just point down. So with the demographics you can see the future. Which countries are going to rise more, which are going to decline. And then given that one caveat, that these countries are on a development path, and not only a development path but if they’re run by dictators it doesn’t matter, dictators get all of the money anyway.
ANDREW MICKEY: What’s the bright side?
HARRY DENT: That’s our scenario. Yes, we are going to come out of this. There is going to be extended booms in emerging countries. We’re going to come back with an echo boom. But you know what, Europe and Russia aren’t going to come back so much because they don’t have an echo boom. Japan after 2020, and China after 2020 and South Korea. Demographics just point down. So with the demographics you can see the future. Which countries are going to rise more, which are going to decline. And then given that one caveat, that these countries are on a development path, and not only a development path but if their run by dictators it doesn’t matter, dictators get all of the money anyway.
ANDREW MICKEY: I tell you what, that makes a lot of sense. Harry, you have a book coming which just came out, is there anything that you cover in the book that we didn’t discuss today? And is there anything else that you would like to share?
HARRY DENT: In our book we go through this demographic thing around the world. And you can select which country and different regions and key indicators by chapters. Every country is different, but the patterns regionally are similar. The real focus in the future is really Asia, South Asia and India and the Middle East. The big question is whether a country like Pakistan and Iran and Saudi Arabia can join them in the modern world. If it weren’t for oil they would be third world countries and everybody knows that. Unlike Dubai or something, but they have not moved on this development path. People are still poor and stupid outside of the oil. Women are still walking around in veils and uneducated and so on. But, if they do get their act together they’ve got demographics that peak even later than India, and I think sooner or later they will, with what you see around the world I think what woke India up was China. You know, once you see countries nearby you developing and growing their standard of living, people naturally want the same.
ANDREW MICKEY: That makes a lot of sense. Is there anything else that you would like to add?
HARRY DENT: No, I think I’ve said a lot obviously, and I’ll send you an advance copy of my book “The Great Depression Ahead” and if anyone else is interested they can go pick it up...it’s available after January 5th 2009.