This is a book review on Investment Trends
I , Scott Coombe, am finishing a great book called “The Next Great Bubble Boom” by Harry S. Dent. For anyone who wishes to make, keep or maintain money in investments over the next few years I highly recommend this book.
There are three major economic bubbles ongoing right now: Oil, Real Estate and stocks. Economic bubbles are peaks in economic spending based upon the spending habits of generations. Typically, a man buys his first home around 30, and a family purchasing their trade-up home around 42ish. There are spending habits in insurance, investments and material goods all calculated into the mix. What makes our current bubbles is the peaking of the Baby Boomer generation.
Baby Boomers driving the current economic boom are larger than any generation previous and it’s purchasing and investment power drive every trend to extremes, one after the other. Dent also notes that bubbles which coincide with radical new technology, business models and infrastructure grow in greater proportion. The last great bubble boom was between 1925-1929 compounded with telephones, automobiles, electricity and radio technologies – right up until black Friday and the fall of the sock market which we may be seeing again soon. Today we have Internet, high speed communications, wireless tech and e-commerce (shop at home). Anyway, instead of going into all the details of why he makes the predictions – though they make good sense and give credibility – I’ll just give a rundown.
Oil is up and will stay up. After 9-11, the US government began filling up their reserves which the previous administration(s) let slide. As the US government began purchasing 200,000,000 barrels of oil and other nations around the world began doing likewise (fearing terrorism) – there became a huge demand greater than the OPEC (sorry – the Saudi’s) decided to fill. With limited supply – up goes the price. America should have stopped stockpiling sometime late in 2007. Yet, events like Hurricanes, war struggles continuing and expanding, and great speculation in the market – we are still with high oil prices until possibly around 2010. If the Israel – mideast outbreak expands, oil companies are preparing for gas at $4 a gallon by next summer. Yuck. And it sucks when fair value of oil right now is between $25 and $40 a barrel while it is being sold at $70 (74.43 today 7/22). Just adding more money for our Saudi Wahhabiyah friends/enemies.
The next bubble here is Real Estate. It has peaked. The Baby Boom generation has passed its prime spending on homes in 2003. Because of inventions like contraception and safe sex education, the Gen Xer generation is about a third shy of what they would have been. So the amount of money going to be spent by the following generations will not be able to maintain the prices as they are. There just will not be enough demand for all the supply in housing. Yet, an incredibly low interest rate, low to zero down-payments and good employment conditions have helped and skyrocketed housing prices. Dent says These unprecedented liberal policies in lending are also a sign of an extreme bubble that is not sustainable. With the rising of interest rates and demand reduced, Dent calls this period a stalemate in the years ahead at best. He surmises that while we will likely only see declines in the most overvalued areas (Boston, Nassau/Suffolk, San Diego, Carlsbad, San Jose, Santa Ana, Irvine, Oakland, Cambridge, San Fran, etc. as determined by private mortgage insurance overvaluation charts who will bear the brunt of the eventual bursting bubble) while most homes will slow, flatten or decline modestly in price trends in the (5) years ahead. The real crash in housing – and the final burst of the greatest bubble in housing history – will come in the downturn we projected for 2011 – 2022 when we see and extended deflationary downturn (he is talking about a major depression here), like the one Japan saw from 1990 to 2003. Home prices have fallen in Japan 40% on average since 1992 and as much as 80% in the most overvalued areas. So much for the argument that real estate can’t go down because it is only getting more scarce. There are few countries with scarcer land than Japan.
Stocks are the great bubble ready to explode right now. Dent predicted the Dow would be at 12,000 right now which it just fell below 11,000. He expects that it will rise to around 14- 15,000 by late August 06 when the four year presidential cycle is likely to set in briefly followed by a sharp correction to 12,000 by October or so. He predicts we will hit 20,000 by late 2008 and then see the sharpest bubble from early 2009 into early to mid 2010. And yes, that scenario would suggest a peak around 40,000 similar to our Dow channel. Our alternative scenario closer to 1995 to 1999 growth rates would project a Dow of 32,000-plus by 2010.
He predicts the end will come between March and September in 2010 with a Dow between 32,000 and 40,000 and a Nasdaq around 13,000. He says tech and small cap growth will peak about a year earlier. I am not much of a stock guy and have little knowledge in the arena but the information I read and have briefly passed on to you all shows where any investment (other than my own company) will probably go. I hope that if you have investments in a peaking area – perhaps a little bit of further information would be worthwhile to receive the maximum profitability of your investments.
I shall conclude with the final paragraph in the forward of Dent’s book.
The sectors to focus on include large – and small-cap growth, technology, financial services (investment banking, management, and brokerage – but not mortgage lending), health care and biotech, leisure and gaming, upscale consumer products and services, consumer cyclicals (outside of housing construction), and Asia. Technology, small-cap growth, and biotech should be the best sectors to add near term. For fixed income, investors should focus on shorter-term maturities to protect against the likelihood of gradually rising long-term rates into 2006. And it is high time to sell investment or unnecessary vacation real estate by the fall or the spring of 2006 at the latest – or even to consider selling, moving from, or renting in the most overpriced coastal urban markets in the Northeast, California, and South Florida.
Please note: there have been recent deveolpments that have altered some of the predictions. Please go to http://harrydent.com/download/dow20000.pdf to read the latest developments. Thank you.
I hope that this was informative for you. I enjoyed recapping the information I read as I retain it longer.
Scott Coombe
scott@coombe.biz
Check out my other website at www.mydotbiz.biz
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