Harry S. Dent Jr.'s Blog, page 158
April 2, 2015
April 1, 2015
What Economists and the Fed Don’t Get About the Economy
I often get pegged as an economist, but if you’ve listened to me speak, you know that I don’t consider myself one.
That’s because economists think you can come to conclusions about the economy by following economic and monetary policy that pours out of Capitol Hill or the hallowed halls of the Federal Reserve.
How convenient.
March 31, 2015
Resistance is Futile…Don’t Fight the Fed!
Last month I wrote a piece about not fighting the Fed — that is, not investing contrary to Fed policy.
That’s been a common theme for many years, as those who have done so have lost big.
Now, bond investors aren’t stupid. I was surprised last week when they continued to push yields lower after the Fed’s press conference, but they caught back on quick.
After the meeting, long-term rates were at 2.54%, sliding to 2.48% last Wednesday, March 25. By Friday, March 27, they were back up to 2.6% — even higher than at the time of the meeting the week prior.
Sure, it took a week to sink in, but these bond investors understand
New Generation, New Values: The Decline of Marriage in America
Every generation has a different set of values from the one before it. The “Greatest Generation” survived the Great Depression and World War II, developing a much different set of values than, say, Generation X or Y, whose conflicts tend to be focused on family, friends, and their immediate surroundings.
My wife and I married at 23, which sounds crazy now. I was obviously young, not far out of college, between undergrad and grad school, and already had student loans.
Living in New York, my idea of financial responsibility was keeping the credit card charges under the limit while spending everything I had on rent and entertainment. To say that we weren’t yet on a firm financial footing would be an understatement.
It didn’t matter, we married anyway. Our first child was born when I was 26 and still in grad school.
Those circumstances — young, educated, in debt, not yet financially stable, back in school, and married with children — didn’t seem unusual at the time, although they would clearly make me an outlier today.
Nowadays, the news is full of stories of young millennials putting off life decisions as they grapple with finding good jobs, paying off student loans, and generally
March 30, 2015
Don’t Miss Out! Why You Should Max Out Your 401K Every Year
Warren Buffett is sometimes referred to as the “Sage” or “Oracle” of Omaha, as his wisdom is so widely followed in the investment community. But even in his prime, not even he could consistently deliver 46% returns year in and year out.
Amazingly enough, those kinds of returns are offered to the vast majority of employed Americans. And even better, they are offered with absolutely no market risk… or any risk at all, for that matter.
WARNING: The Greatest Market Crash of Your Lifetime Is Coming
I have a hierarchy of four macroeconomic cycles that I’ve developed over the years.
I developed my first cycle in 1988, when my research culminated in the Generational spending wave, a very projectable demographic cycle spanning roughly 39 to 40 years that looks at how people spend as they age.
March 27, 2015
The Puzzle of Biotech Developments: Something’s Missing…
Does it seem like everyday you wake up to find another smartphone app either solving the world’s most basic necessities or performing a completely nonsensical function? From better ways to catch a ride, to providing on-demand animal sounds to fill that awkward pause in a conversation, app writers have had no shortage of ideas over the last decade to quickly develop, test, and distribute.
Meanwhile, in the life and death arena of medicine, we are running out of effective antibiotics and can’t keep up with demand when new deadly diseases strike.
Something is horribly wrong with this picture. Fortunately, a new Biotech Lab, born and based in “the cloud,” is in the process of tackling this problem.
D.J. Kleinbaum and Brian Frezza, founders of Emerald Therapeutics, believe our current industry is behind the curve in development speeds for medicine, due to the complex nature of running experiments and testing in life sciences.
Traditionally, a new experiment will take a month to setup and requires highly skilled and educated doctors and scientists to run — not to mention the upfront cost for lab equipment, which can be astronomical.
Emerald Cloud Laboratory, dubbed “ECL-1,” hopes to change this approach by creating a more modular and on-demand approach to experimentation and testing. They have an enormous warehouse space filled with state-of-the-art instruments for DNA sequencing, gas chromatography, nuclear magnetic resonance, and other standard life science experiments.
By using robots to handle much of the day-to-day operations, ECL-1 can run up to 50 experiments simultaneously, even with a staff of just three technicians.
Their clients upload protocols for new experiments remotely on ECL’s hardware, very similar to how Amazon runs their on-demand, cloud-based web services. This allows for a more cost-competitive and efficient approach to experimentation… ultimately speeding up new medicine development, testing, and implementation to the masses!
Make no mistake, Emerald Therapeutics is revolutionizing how the biotech industry will develop and test the medicines and vaccines our country and world need urgently.
As always, I will continue to monitor the market’s latest health and biotech technology trends via my social media collective intelligence tool and keep you updated on the latest.
Ben
What Do Equity Investments & Russian Roulette Have in Common?
I’ve never played Russian Roulette. As I understand it, the game involves loading a bullet into one chamber of a revolver, spinning the cylinder, and then, without looking to see what comes next, putting the gun to your own head and pulling the trigger.
In a six-shot revolver, the player has a 1-in-6 chance of killing himself, which is about 16.67%. Even though there’s only a small chance of you killing yourself, the game is still not worth playing.
I look at the financial markets in much the same way, but with a twist.
Equity investing is a game that most of us “play” so that we can meet our financial goals. Knowing that no one is more interested in our success than we are, we spend a lot of time planning our investments and then monitoring their performance. We also do a lot of research, and find that many experts tell us the best thing to do is buy well-known companies or index funds and simply hang on.
That seems like Russian Roulette with my money, only worse.
I know that, on average, U.S. equities have returned 9% over the past [90 years]. Looking at the S&P 500 since 1950, the index lost more than 20% or more on nine occasions, and lost 30% or more five times, which equates to about a 10% chance and 5% chance of loss, respectively.
Granted, unlike Russian Roulette, the markets eventually recovered after each loss and reached new highs, rewarding those who stayed invested. Based on this little bit of information, dumping all your excess funds into the markets and letting them ride seems like the best option… but things are never as simple as they seem.
In the game of Russian Roulette, there are just a few variables. There is one bullet. There are six chambers. The outcome is binary — either a shot is fired or it isn’t.
In the world of finance and equities, the list of possibilities is endless. Central bank actions, wars, new discoveries, corporate fraud — all of these and more can change the course of the equity markets. Every day that we stay invested is another day that we leave ourselves open to the possibility that an unexpected outside force will push the market higher, or drive it lower.
Anyone remaining in the markets 100% of the time, based on the idea that it always comes back and always goes higher, is making the bet that nothing new will ever happen… like a central bank printing $4 trillion dollars… or the largest generation in history demanding its entitlement check from the government… or central banks around the world creating the biggest bond bubble in history.
Call me crazy, but I think new things are always possible, and not always good.
As investors, we can’t afford to bet our lives on an average, because we each have our own individual needs to consider. While we invest to grow our holdings to protect our standard of living in retirement as well as meet other goals, our timing has limitations. We might be able to put off retirement for a few years, or move up when we replace an aging car, but by and large we can’t put off major life events — which take chunks of cash — for too long. This lack of flexibility might force us to withdraw funds from the markets just as they suffer one of those low-risk, high-loss events, much like people who retired in 2008 or 2009.
This gets to the heart of the issue. Equity investing is essential to most of us who are trying to grow our wealth, but the risks involved, even though they have a low chance of happening, can be both unforeseen and devastating to us personally. When a metaphorical meteorite lands right in our portfolio, where will all of the “just buy index funds and hang on” experts going to be? They will be penning a piece about how they didn’t see it coming.
Great… thanks for nothing.
I understand the logic of buy-and-hold, but I also know the risks. That’s why my equity investments tend to be short-term in nature, using proven strategies with quantifiable risk, which is a fancy way of saying I invest where I see gains, and I’m willing to sell to protect my money.
People are free to choose whatever approach they want, but without a system that indicates when to get out as well as when to buy, you’re betting nothing new will happen, and that the law of averages will work out in your favor.
Those aren’t bets I’m willing to make.
Rodney
March 26, 2015
In an Economy Stretched to the Max, How Liquid Are Your Investments?
In recent weeks, I’ve written predominately bearish pieces with respect to my view of the market. And, of course the market has claimed higher.
My views aren’t intended to be precise market timing calls. Rather, I’m focused on risk management: Is now a good time to allocate new capital to equities? Should I take on more leverage? Should I tighten my protective stops? Should I take some money off the table?
It’s impossible to know exactly when a market will top or bottom. So, while I’m not trying to pinpoint an exact top, I am suggesting that we are at the extreme end of the risk spectrum for owning equities and it’s better than not to proceed with caution.
My latest concern is household liquidity. This is the amount of liquid, non-equity assets households have relative to the value of the stock market. I’m talking CDs, government bonds, money market accounts, and a few others.
On this basis, we are stretched to the max.
According to the chart, when this ratio is at 49% and below, equity returns are negative. We are currently at 39.8% — nearly the same position as the 2008 market top! Other than that time period, this represents one of the lowest rates over the last 60 years!
In other words, investors have too much allocated to the stock market and not enough stored in liquid assets!
When the stock market finally does tank, the pullback will be sharper than normal. Most households are going to scramble to reallocate their funds to these liquid assets, only to find they’re too late! They’ve already been gobbled up!
We saw this in 2009. After the market hit its bottom, households raised more liquidity than at any time since the early 1990’s by selling stocks at depressed levels, when they should have been putting money back into the market.
Collectively, households do the wrong thing at the wrong time. Right now, investors should be returning to liquid assets, not shoving capital to the stock market.
John
