On the basis of predictable demographic and technology cycles, Harry Dent has forecast since the late 1980s that the economic boom would be greater than previously thought and would last until the end of the current decade. Dent has been one of the most bullish forecasters for decades, standing virtually alone in forecasting the great bull market of the 1990s in his book The Great Boom Ahead (1992).

Now he is calling for an end to this great bubble boom, after revising his forecasts downward for U.S. stocks in 2006 as a result of the increasingly adverse geopolitical cycle and rising oil/commodity prices. In all of his past books since 1989, Dent saw an end to the Baby Boom spending cycle around the end of this decade.

Harry Dent forecast the housing slowdown years before it occurred and sees the minor recession of 2008 as the beginning of a greater stock crash and depression to unfold between 2009 and 2012, with the worst crash for stocks and housing likely between late 2009 and mid 2011. Home prices will continue to decline into late 2008 and then will likely experience a minor rebound in early to mid 2009. However, rising inflation, interest rates and a last commodity bubble will bring a final blow to stocks, the economy, housing, and even the greater emerging market bubble in stocks overseas.

Between mid to late 2009 and mid to late 2012, the U.S. will see the next Great Depression and the deflation of the “three bears,” bubbles in stocks, housing, and commodities.

This occurrence will represent the de-leveraging of the greatest credit bubble in history and will have much greater effects than we have seen thus far on banking and financial systems. Americans will see the first and last “Great Depression” of most of our lifetimes. Most people simply are not prepared for this coming dramatic change in our economy. Aging Baby Boomers will see the worst of the economy in their retirement years, much as the Bob Hope generation saw the worst in their early years in the 1930s and in World War II on an 80-year generational cycle.

The Three Bears: Stocks, Real Estate, and Commodities

Approximately every 40 years, stocks and the economy have peaked cyclically in tandem with generation cycles in consumer spending, much like the striking of a clock.  These peaks occurred in 1929 and in 1968, and the cycle is now set to peak by late 2009. Harry Dent pioneered the Spending Wave, a 40-year generational spending cycle that details a lag on the Immigration-Adjusted Birth Index for the peak in spending to occur between the ages of 46 and 50.

Chart 2 from Robert Shiller shows how overvalued home prices have become versus long-term inflation trends and replacement costs when adjusted for size and quality. Home prices have to fall by 40% to 50% to get back to reality; this will occur in the coming decade as Baby Boom spending finally decreases, from 2010 onward. 

Real estate markets, however, vary in migration and overvaluation by region, and there will be many pockets of real estate opportunity in the Southeast, Southwest, and Rockies during the downturn ahead. Commodity and oil prices also follow a clocklike 29- to 30-year cycle (Chart 3), which peaked in 1920, 1951, and 1980 in the last century. The next cycle peak is due around late 2009, in a perfect collision with the peak in the broader Baby Boom spending cycle in Chart 1.

Many forecasters predict that growing demand in emerging markets like China will keep commodity prices high for many years. Dent forecasts instead that the extremes yet ahead, including oil prices as high as $200, will force a global slowdown by 2010 in already slowing developed countries due to demographic trends including countries with emerging markets, which spend the most on food and commodities. Another long-term commodity boom will occur from the early 2020s into the late 2030s on this cycle.