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Harry Dent has predicted a stock market crash. Should you care? Thumbnail

Harry Dent has predicted a stock market crash. Should you care?

Harry Dent recently appeared on Fox News Digital and “predicts stock market crash worse than 2008 crisis: The ‘bubble of all bubbles’…. "I think we're going to see the S&P go down 86% from the top, and the Nasdaq 92%. A hero stock like Nvidia, as good as it is, and it is a great company, [goes] down 98%. Boy, this is over," Dent stressed.  (Source: Fox Business News, June 10, 2024).

Evidently some of our clients were watching because we have received a number of calls expressing fear and concern. We don’t normally react to such radical prognostications, but we feel compelled to this time because this isn’t the first time that Dent has scared clients of ours. The problem with Dent is that he is wrong much more often than he is right! Our guess is that anyone taking this forecast seriously doesn’t know his track record. Chris Roth, our Chief Investment Officer, points out “he makes most of his money by selling newsletters and books. Simply put, the more sensational his calls are the more attention they get and the more books he will sell.  He has been making big bear calls for a very long time now. This is not someone who has recently shifted into bearish territory.” 

We’re going to get into the details of his forecast and provide you with our reactions in our next newsletter. It will come out before Friday. But first, let’s take a look back at previous bearish calls that Dent has made and how they worked out. We can do that accurately thanks to an article written by Roger Wohlner. He is a financial writer who brings extensive experience as a financial advisor to his writing. Fluent on a wide range of financial topics, his work has been featured in MarketWatch, TheStreet, Investopedia, Morningstar Magazine, US News & World Report, Yahoo! Finance, The Motley Fool, and a number of other sites. Most of following information is taken directly from an article he wrote about Dent on December 22, 2021. Comments from us, and not from Wohlner, are specifically called out. 

Wohlner starts out by pointing out “What Dent Got Right”:

  • Dent correctly called the “bubble burst” in Japan in 1989 and the long recession that ensued.
  • He also correctly predicted the bursting of the dot-com bubble.
  • Additionally, Dent is credited with predicting the populist groundswell that propelled Donald Trump into the presidency. 

Beyond these predictions, many of Dent’s forecasts have missed the mark. Here is a look back at some of his more notable stock market and economic calls. 

1999: The Roaring 2000s

In Dent’s best-selling book “The Roaring 2000s: Building the Wealth and Lifestyle You Desire in the Greatest Boom in History,” published in October 1999, he predicted that the stock market would experience a significant boom during the first decade of the new century. In fact he predicted that the Dow might hit 35,000 in the upcoming decade, in large part fueled by demographic changes for the Baby Boomer generation. This did not happen. Both the S&P 500 and the Dow finished the decade at lower levels than at the end of 1999.  Dow Jones Industrial Average 12/31/1999: 11,497 Dow Jones Industrial Average 12/31/2009: 10,428 S&P 500 12/31/1999: 1,469 S&P 500 12/31/20099: 1,115 (Source: Market data Source: BigCharts.com)

2006: The Next Great Bubble Boom

Dent followed up his predictions of a boom for the upcoming decade made in “The Roaring 2000s” with another bold upward prediction. His book “The Next Great Bubble Boom: How to Profit from the Greatest Boom in History: 2006-2010” was published in January 2006. In this book he doubled down on his predictions for the 2000s and predicted healthy gain for the rest of the decade. Again, he was proved wrong by the financial crisis.(2008-2009)

2008: The Great Depression Ahead

At the end of 2008, Dent published his next book, “The Great Depression Ahead: How to Prosper in the Crash Following the Greatest Boom in History”. If we look at the markets from 2009 through the present, the predictions made in that book have not come true. There was no Great Depression. Since the stock market bottomed on March 9, 2009, we have seen tremendous growth in the major averages:  Dow Jones Industrial Average 3/9/2009: 6,547 Dow Jones Industrial Average 12/15/2021: 35,927 S&P 500 3/9/2009: 677 S&P 500 12/15/2021: 4,710 (Market data Source: BigCharts.com)

The following comments are from 5T Wealth, not Wolhner:  This period includes the Covid related market meltdown in 2020. Even that didn’t throw us into a depression. The S&P 500 dropped from 3393 to 2191 in early 2020 as the Covid scare took hold. That was a 35.4% decline, which was fully recovered within a few months. The S&P 500 actually finished 2020 up 16.3%!! (Source: Stockcharts.com)

December 2016: Dow 5000

The market rallied in the wake of Donald Trump’s election as president in November 2016. Dent made this prediction in December of that year. He was quoted on CNBC in December of 2016 as saying. “I think it [Dow] is going to end up between 3,000 and 5,000 a couple years from now.”  Again, this prediction did not come to pass. The Dow has not dropped below 19,000 since he made this prediction. The Dow did drop over 20% in March of 2020 in the wake of the pandemic, but that decline brought the index down to just under 22,000. The Dow closed at over 35,550 on Dec. 14, 2022. (Credit: Shutterstock)

2017: Major Crash within 3 years

In a June 2017 interview with ThinkAdvisor.com, Dent predicted a major crash in the stock market, the economy, and in real estate over the next three years. He also predicted this in his 2017 book, “Zero Hour: Turn the Greatest Political and Financial Upheaval in Modern History to Your Advantage.”  Part of the book description on Amazon says, “The turn of the 2020s will mark an extremely rare convergence of low points for multiple political, economic, and demographic cycles. The result will be a major financial crash and global upheaval that will dwarf the Great Recession of the 2000s — and maybe even the Great Depression of the 1930s.”  The following comments are from 5T, not Wohlner: Stock prices did decline in 2018, with the S&P 500 losing more than 6%. The S&P 500 was up 28.9% in 2019 and over 16% in 2020. Dent was clearly wrong again.

March 2021: Biggest Crash Ever by End of June

Dent predicted in March 2021 that we would see the biggest market crash ever by the end of June. He predicted that this crash would cause a drop in excess of 45% in the S&P 500 and that this crash would initiate an economic downturn that would be worse than the financial crisis of 2008-'09. This prediction did not come to pass. On June 30, the S&P 500 closed near a record level and the economy had not collapsed. The index closed at 4,298 on June 30 and continued to move higher, closing at 4,710 on Dec. 15 — an increase of about 9.6%.  In July 2021, he followed up with a prediction indicating that most equities would drop by 80% in the fall, which did not happen, either. (Credit: Bloomberg)

November 2021: Stock Market Crash of early 2022

 In a recent interview with ThinkAdvisor.com, Dent said that “The biggest stock market crash of our lifetime will hit in 2022.” Additionally, Dent predicts “crypto is going to drop even more than stocks.” Beyond these predictions, he foresees “the biggest recession, or a depression, of our lives” next year and says, “the economy isn’t going to get strong again until 2024.” This is the point at which Wohlner’s article ended. It was written on December 22, 2021. Wohlner’s last sentence was “Of course, only time will tell if Dent’s dire predictions for 2022 will come to pass.”

The following comments are from 5T Wealth: 2022 was a down year for stocks, but they more than recovered all of their losses in 2023. In 2024 they have gone on to new all-time highs. As of the close of the market on June 10, 2024 the S&P 500 is 42.7% higher than it was on December 31, 2021. (Source: Stockcharts.com). The economy continues to chug along, with productivity high and unemployment near all-time lows. The bottom line is that Dent was wrong again.

By our count Wohlner reported on 9 of Dent’s major stock market/economically related predictions over the past few decades. We'll give Dent credit for being correct on two of them.

  • Dent correctly called the “bubble burst” in Japan in 1989 and the long recession that ensued.
  • He also correctly predicted the bursting of the dot-com bubble.

He was dead wrong on the other seven. Going 2 for 9 doesn’t give him a lot of credibility with us. We’d hope it won’t with you either. As Chris Roth said, he makes most of his money by selling newsletters and books. Simply put, the more sensational his calls are the more attention they get and the more books he can sell.  He has been making these big bear calls for a very long time now.”

For much of the time that Dent has been scaring people out of markets 5T Wealth has been hard at work, managing successful investment portfolios for clients. We don’t make outrageous predictions. We actually apply our knowledge and skills to creating real life, real time investment portfolios that are designed to create wealth over long periods of time. We started in 1998 and we are still doing it in 2024! Harry Dent clearly doesn’t do that! 

All the best,

Paul Krsek
CEO
5T Wealth, LLC
Main (707) 224-1340
Cell (707) 486-7333
Paul@5twealth.com




Harry Dent Follow Up

June 13, 2024

Yesterday we sent out a newsletter reviewing Harry Dent’s credentials as a forecaster of things to come in the stock market or our economy as a whole. We confirmed that the overwhelming majority of his forecasts have been dead wrong. We also told you that we would follow up by getting into the details of his latest forecast and provide you with our reactions.

Dent’s latest apocalyptic forecast, reported by Fox Business on June 10, 2024 is that the stock market is likely to crash. "I think we're going to see the S&P go down 86% from the top, and the Nasdaq 92%. A hero stock like Nvidia, as good as it is, and it is a great company, [goes] down 98%. Boy, this is over," Dent stressed. The market bottom is likely to “show sometime between early to mid-2025.”

Dent blames the coming crash on too much stimulus from the government, over the past decade and a half. Dent contends that all the stimulus has created the “bubble of bubbles” that will inevitably unwind with a disastrous stock market crash, within the next year. In the video replay of the interview on Fox he contends that the current Fed has raised rates 525 basis points (5.25% percent), just like the Fed did back in the early 1980s, which led to a major recession. He claims that 525 basis point is the “exact amount that they did back in 1980-1981 and that caused the deepest recession since the Great Depression.” (You can listen to the video to confirm https://www.foxbusiness.com/video/6350576237112)

His claim is both wrong and completely misleading. Paul Volker, Chairman of the Fed at that time, raised the Fed Funds rate from 10.06% on January 1, 1979 to 17.61% on April 1, 1980 and then the Fed Funds rate tumbled back to 9.03% by July 1, 1980. Then it rocketed back up to 19.08% by January 1, 1981. The total increase from January 1, 1979 to January 1, 1981 was 906 basis point, or 9.06%, almost twice what we have more recently experienced. Besides, it started from 10% rates, not 0% rates. The current cycle has ended with a Fed Funds rate of 5.25%, not 19.08%. The average Fed Fund rate since 1954 is 4.6%. (Source: https://www.finder.com/banking/fed-funds-rate) Today we are not much above the average of the past 70 years. Another way to look at that is that interest rates are normal again, not at all-time highs like they were in the early 1980’s.

Volker did cause a recession. Actually we experienced two technical recessions. The first one was January 1980 thorough June 1980. The second one was June 1981 through October 1982. Here is the chart, from the Federal Reserve Bank’s own website. The two recessions are the grey bars on the right.

But the stock market did not crash!! In fact, the S&P 500 was at 96.73 on January 2, 1979. It didn’t trade on January 1st. It was at 133.72 at the close on Friday, October 29, 1982 (the last trading day of the month), and technically the end of the second recession. From the time Volker started, through the peak of rates, and the end of the recessions, the S&P 500 rose 38.2%! (Source: Historical Data, Stockcharts.com)

We could go on and on about the flaws in Dent’s representations, but we won’t. Please remember that he sells sensationalism. We can’t consider him a serious advisor. If he could, we would. We haven’t had successful careers in managing investments by ignoring good resources. He is simply not one of them. At this point I think we have made a good case that he is not a good forecaster and that he takes liberties with historical data. So is he a good investment manager? That answer seems to be a resounding no!

Back in early 2012 the DENT tactical ETF (Trading Symbol: DENT) was closed after 80% of its assets evaporated due to poor performance. This was reported by Alan Roth on CBS Money Watch August 1, 2012. Roth said that “Dent told me that the poor performance was due to the fund not taking all of his advice.” However, DENT was managed by HS Dent Investment Management from inception on September 9, 2009 through July 30, 2012. That was Harry Dent’s company.

Dent is currently the Chief Investment Officer of the Dent Sector Fund, which is a hedge fund based in Australia. The fund was launched in October 2020.

The fund has what we would consider to be an abysmal track record. Here is their fact sheet as of April 30, 2024. The annualized investment return from inception through that date is -3.27% per annum. The last 12 month return is -5.69%. Look at their performance vs. their benchmark. It’s terrible. (Dent Sector Cumulative Performance vs Benchmark)

I just ran the Orion Advisors Performance Report for one of our typical client portfolios. This client is a member of a family that has been working with us since 1990, eight years before we started 5T Wealth, while I was at Edward Jones. Thirty four years is a long time and it should indicate to our newer clients that we have done well for people for a very long time. His average annual return, net of all fees, was 6.10% from October 1, 2020 through April 30, 2024. His last 12 month return is 11.30%. Compare that with Dent’s results during the same time period and let that sink in a minute.

Having said all of this, Dent does make one credible recommendation in this interview. He suggests owning TLT, which is an exchange traded fund that owns 20+ year Treasury bonds. He makes the case that if the Fed starts cutting short term interest rates yields on long term bonds will likely drop too. If that happens, TLT will go up in value. That is true. He also remarks that if our economy experiences a “hard landing”, possibly a recession, that TLT will do even better. That is also true. This is not clairvoyance. It takes no unique expertise to know this. It is Economics 101. TLT is a holding in every strategy we currently manage that is invested in publicly traded stocks and/or bonds. During the financial crisis in 2008-2009 it went up almost 68%, from its bottom in 2007 to its peak in 2009. (Source: Stockcharts.com)

It is the overwhelming consensus among forecasters that rates will drop over time. Chair Powell confirmed yesterday that one cut is likely in 2024. It’s only a question of when, not if. So if you currently own a portfolio of 60% stocks and 40% bonds, and you expect a recession, the stocks may drop in price while the bonds will be appreciating. That’s not a bad trade off. Many of our clients are in that position. And what if the stocks don’t drop in price, as was the case during 1980-1982, while your bonds are appreciating? That would be a great problem to have!

On May 29, 2024 we released a newsletter titled “What History Reveals About Interest Rate Cuts. You can find it on our website at https://5twealth.com/newsletter-archive

I urge you to read it. It will provide perspective on what has actually happened to financial assets during each of the past seven cycles during which the Fed was cutting rates

I think this is enough said. Our very strong advice is ignore Harry Dent. As Chris Roth, our Chief Investment Officer, points out “he makes most of his money by selling newsletters and books. Simply put, the more sensational his calls are the more attention they get and the more books he will sell.”  

All the best,

Paul Krsek
CEO
5T Wealth, LLC
Main (707) 224-1340
Cell (707) 486-7333
Paul@5twealth.com

Disclosure and Disclaimer - Updated last on March 20, 2024 by Paul Krsek:

ELLUMINATION is the proprietary newsletter written for clients, friends, and affiliates of 5T WEALTH, LLC (5T), which is an SEC registered investment advisor. Information presented is for educational purposes only. The information does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and are not guaranteed. 5T has reasonable belief that this letter does not include any false or material misleading statements or omissions of facts regarding services or investments. 5T has reasonable belief that the content as a whole will not cause an untrue or misleading implication regarding the adviser’s services, investments, or client experiences.

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