Harry S. Dent Jr.'s Blog, page 115
March 18, 2016
Empty Buildings and Wasted Debt: The Chinese Economic “Miracle”
March 17, 2016
The Demographic Pandemic Sweeping the Globe
Yesterday, the Fed pulled back its forecast of higher interest rates this year. Our economic overlords now plan to launch two rate hikes in 2016 instead of four, given the global risks that are showing up. I’m not convinced they’ll even do that much. But even if they do, it won’t matter. They simply don’t have the tools to address what ails the nation. Neither do any other central banks.
For years we’ve been warning that every developed nation is facing a demographic pandemic for which there’s no good solution. Long-term, each one has to figure out how to maintain its population, to say nothing of growing it. Without kids, we lose the major spending driver in the economy, as well as the working population of the next generation.
It’s the biggest economic story – and threat – of a generation, and almost no one is talking about it.
There’s only one solution. As I told Boom & Bust subscribers in their February issue: we need more sex.
Judging by what I hear on the radio and see on television, one might suspect people are having sex every minute of the day.
But while people are consuming sex-based media at a record pace, they’re not following through. If they were, then we’d have baby booms around the world, even with contraceptives.
In Japan, the problem is so bad that by age 34, 26.1% of men and 23.8% of women have no sexual experience. And the problem doesn’t go away once a couple gets hitched. 44.6% of married couples say they’re in sexless relationships. And of course, without sex, there are no kids.
We don’t have this extreme of a problem in the United States yet, but we’re moving in that direction.
March 16, 2016
No Wonder the Stock Market’s So High: It’s All Corporate Buybacks
So like a lot of people, I’ve gotten suckered into following the presidential race. As of last night, the Republican field has narrowed to just three candidates. That’s a long way from the 19 or so who started out, but who’s counting?
Not too long ago Carly Fiorina was still in the race. Everyone remembers Carly as the former CEO of Hewlett Packard who lost her job. I remember when Carly took over as the Chief Executive back in 1999. In her six-year tenure, the company bought about $14 billion of its stock, which was $2 billion more than it had made in profits.
Again, that was just in six years. Over the next six years, her first two successors bought back about $53 billion. That was as of 2011. I don’t even want to know how much the current CEO has purchased, as
March 15, 2016
On the War Path: Facebook, Google, and Amazon
If you saw the 2010 film The Social Network, you understand a little about how the company that put the “F” in the “FANGs” stocks started out.
Mark Zuckerberg has come a long way from opening a social media platform for his buddies at Harvard in 2004. Since then, Facebook has grown to 1.59 billion monthly users worldwide.
If that sounds like a lot, it’s because that’s 22% of all the people on earth! But it sounds like Facebook is just getting started.
If you’ve listened to Harry, the meteoric rise of Facebook has grown hand-in-hand with the debt bubble. Only today would you see a company become so successful not by increasing productivity or efficiency, but through mindless entertainment. We all live in a bubble, and Facebook proves it.
March 14, 2016
March 11, 2016
A Defensive Game Plan for This Friendless Market
I’m sure you’ve heard the popular saying…
“The trend is your friend.”
And also variations of it, like…
“The trend is your friend… until it ends.”
And my personal favorite…
“The trend is your friend… until it stabs you in the back!”
The idea here is simple: following along with your friend, the trend, is usually beneficial. But every once in a while, and without much warning, your “friend” will desert you.
March 10, 2016
Investors Are Catching On: The ECB’s Move Reeks of Desperation!
The European Central Bank met this morning, and the expectation going in was that they need to do something drastic. In the past, ECB President Mario Draghi said they would do anything it takes, but ultimately disappointed. This time around, analysts expected a cut in interest rates, which were already negative, and an increase in their asset purchases or QE.
March 9, 2016
Secret Monetary Group Warns a Catastrophe Is Coming
The Bank for International Settlements is nothing if not obscure. As the central bankers’ bank, it seems little-more than a back-door, private club for monetary elites to rub shoulders. And it’s located in Switzerland which has always carried a reputation for financial secrecy.
Then it has this going for it – John Keynes of “Keynesian economic theory” opposed its dissolution back in the 1940s. His was the kind of thinking that has largely influenced central banks to hijack our economies with manipulative monetary policies! So you’d probably think I hate these guys.
But you’ve got to give credit where credit is due. The Bank for International Settlements is one of the few financial institutions that warned of dangers to the global financial system as early as 2003.
So by time the financial crisis struck, they’d been warning about it for years. Its former chief economist, William White, even dared to challenge former Fed Chair Alan Greenspan about cheap money policies that helped start the crisis!
Once again, this group is on the right side of history.
It just warned about a “gathering storm” in the global economy as central banks seem to be
March 8, 2016
“Whatever It Takes.” The Next Level of Monetary Policy
There’s an old adage in economics that the best way to cure deflation is to drop money from helicopters. Clearly this phrase isn’t older than mid-20th century, because before that time we didn’t have helicopters… we also didn’t have manipulative central banks. But now we have both, and they are about to join forces.
The helicopter statement isn’t meant literally. It conveys how central banks approach an economy when mainstream – and even out of the mainstream – monetary policies have failed.
By all accounts, central banks from the euro zone to Japan fit this description, and our own Federal Reserve is getting closer every day.
When the financial crisis first hit, the central banks did what they always do. They lowered interest rates. The goal was to entice borrowers to take on more debt, which they would arguably spend on goods and services, thereby giving the economy a positive jolt.
We all know what happened next.
It didn’t work.
A main reason, which seemed just as obvious at the time as it does today, is that developed economies weren’t suffering from a business cycle recession; they were suffering from a balance sheet recession. It wasn’t that the current expansion ran out of steam. It was that borrowers simply ran out of borrowing capacity.
As consumers – mostly home buyers – we’d taken on all the debt we could and then some.
The long list of bad actors and schemes, including shadow banks, mortgage mills, derivatives, NINJA loans, etc., were all set in motion to feed the desire of regular people to get in on the casino money that was flowing from real estate. Where else could a work-a-day, $50,000 per year Average Joe put down a little cash (or even no cash) and walk away eight months later with a $20,000 profit?
The feeding frenzy drove entire industries, like home building and furniture. But it couldn’t, and didn’t, last. The basis for the growth wasn’t earned income, it was borrowing, which eventually reaches a limit, even when it’s extended by sub-prime lending and predatory practices.
So lower interest rates in the face of a false expansion did nothing to revive the animal spirits of the economy. When that didn’t work, the Fed turned to monetary policy number two: printing cash.
Now, to be clear, I understand the Fed doesn’t “print” anything. It agrees to take bonds from Fed member banks, and in exchange adjusts the member bank’s account to a higher number. This one-sided transaction is the magical way the Fed creates capital.
In doing so, the Fed expected newly flush banks to make gobs of loans, creating new credit that would chase goods and services. The result would be economic growth, falling unemployment, rising wages, and a return to economic utopia.
They pledged $1 trillion. It didn’t work. So they slated another $600 million. Still no deal. So they did the contortionist dance called Operation Twist, which had no effect, and eventually decided to spend “whatever it takes.”
If that sounds familiar, it’s because ECB President Mario Draghi used those words to describe his approach to the euro. Whatever it takes. Remember that, it’s important.
It wasn’t just the Fed and ECB, central banks around the world were following the same script. They had to create inflation. They had to create growth.
And yet, they couldn’t. They haven’t. The problem is that both of these massive moves – in interest rates and cash creation – were focused on new loans. But the original problem of a balance sheet recession, which stems from too much debt, was never fully addressed.
And while many people did pay off their loans or go through bankruptcy, they’d be idiots to run up the credit cards and take out mortgages at the same rate as before. The only people crazy enough to suggest such moves are good ideas are… central bankers.
With interest rates below zero in many places and umpteen trillions of new dollars, yen, euro, and other currencies sloshing around the system, it’s about time for a new approach.
Central bankers have taken on the role of chief economic manipulators, and so far they’re failing miserably. That makes them quite cranky after such a long run of success in the 1990s and early 2000s.
Which brings us to the next phase. Helicopters. Big ones.
I’m talking hulking, tank-carrying, supply-wielding monsters that blot out the sun, or at least any light that shines from reasonable decisions on currency management.
Regardless of whether they contain euro, yen, or eventually dollars, the reason will be the same.
They’ll drop their payloads on consumers for the express purpose of being spent.
Imagine the sight. It could look like something out of the war in Iraq, where pallets of shrink-wrapped $100 bills are parachuted to the ground in supply drops for distribution to warlords.
Or, it might not be as dramatic. It could take the form of “social assistance,” where central banks fund payments to low-income citizens, knowing that such cash has the greatest chance of reaching a retailer in short order.
It’s unlikely that this next phase will be any more successful in establishing solid economic growth, but it will do something. It will cement the idea that central banks really will do “whatever it takes,” even when that means taking more from savers, in any form possible, just to accomplish a dubious goal over which the bankers were never given authority in the first place.
Rodney
Follow me on Twitter @RJHSDent
March 7, 2016
New Baby? Before You Start a College Fund, Do This
Nothing – and I mean nothing – will change your life as dramatically as the birth of your first child. It’s a wonderful moment and one that I hope everyone gets to experience. But it will turn your life upside down.
That chic apartment downtown no longer makes sense… nor does that sporty two-seater car. And enjoying that cappuccino on your patio after sleeping in late on Saturday? Yeah, maybe you can do that again in 18 years.
My wife and I decided to move to Peru, where she’s originally from, for the birth of our first son. And let me tell you, being a Peruvian dad is great. It’s like being an American dad circa 1950. For the first three months of my son’s life, I wasn’t even aware that babies could smell bad. He was always perfectly clean and presented to me like a trophy.
My, how it all went downhill when we moved back to Texas, had no more nannies, and my wife actually expected me to get off my lazy butt and help. Suddenly, it wasn’t “acceptable” for me to lounge around smoking cigars, chatting it up all day with the neighbors. Oh, well… It was great while it lasted.
Perhaps more than anything, starting a family changes your financial priorities. Suddenly, you have expenses you never knew existed… and that massive looming liability of college education.
I routinely get questions from clients and prospects about financial priorities following the birth of a child, but without a doubt this is the most common:
Should I start a college fund?
Absolutely, you should start a college fund.
