CONFIDENCE DENT OR REALITY CHECK?
24 October 2011,
INVESTORS must face reality and start selling their stocks and unnecessary real estate if they are to survive the next recession tipped for 2012, 2013, or 2014 at the latest, according to economic forecaster Harry Dent.
Dent predicted the 2008 global financial crisis a decade before it occurred and says the boom bubble has well and truly burst, precipitating a deflationary period.
“We’ve had a bubble in commodities in emerging markets and right now, we’ve got a bubble in gold and silver, so what investors have to do is realise this and they’ll have to come down to reality,” he says.
“Investors need to start selling their stocks and selling any unnecessary real estate they have like holiday homes or rental properties as the next crash is on the way and prices are about to plummet.
“If you sell your assets now, in a few years, when everything crashes, you’ll be able to re-invest and take advantage of new, lower prices in markets.”
Dent says while Australia held up well during the last global financial crisis, it won’t be so lucky in future.
“Australia will be hit hard in the next downturn despite the fact that it’s on the edge of Asia, which will be the boom area of the future. Australia is in a strong position, but will still have to survive the next crash,” he says.
“When we predicted this crash, we looked at demographics and other aspects including technology cycles, which parts of the world are going to boom and inflationary and deflationary pressures.
“All of these factors point to a global slow down, a deflation in prices and what we call the winter season, where a lot of businesses are cleared out and the ones left standing end up stronger than ever and these are the businesses that lead the next boom.”
Dent says great opportunities are out there for businesses that survive.
“Right now, businesses need to cut their costs, sell assets they don’t need and focus on their strengths. If I’m in business and I see this coming, I want to cut every cost I can, I don’t want to expand or buy assets, I want to focus on what I’m strong at,” he says.
“I also want to start assessing which competitors will go under so I can buy their assets and win their customers and if my business survives and my competitors fall away, it will be stronger than ever.”
Dent says his critics are in denial and refuse to look at the hard facts behind his forecast.
“People just don’t think that real estate is going to go down and yet, we saw this happen in the last global financial crisis,” he says.
“The China bubble is also going to burst, hurting countries that export with them. China doesn’t publish a lot of data, but we do know that its economy isn’t driven solely by consumers, instead its government is building real estate developments and infrastructure that is way beyond their need.
“China’s property prices are some of the highest in the world and because of it’s one child policy, a high percentage of their population is ageing and they won’t be the growth engine of the future – India and South-East Asia will be.”
Dent predicts the mining boom will not be enough to see Queensland through the forecast recession.