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The New Market Bubble Theory

So here's the good news: The next five years will bring us the biggest stock-market boom in history. The bad news? The party will end in late 2010, after which we'll face the worst economic decline since the Great Depression.

Welcome to the world of Harry S. Dent, an economist and demographic researcher whose 1992 book, The Great Boom Ahead, called the stock-market bubble of the late '90s when few saw it coming. In his 2004 book, The Next Great Bubble Boom, Dent predicts an even bigger bubble forming over the next few years. That is, before everything crashes down around us.

We caught up recently with Dent to talk about where the markets are heading, and where to park our spare cash...

A snip

WN: You predict this new stock-market bubble will burst in late 2010, followed by a long decline. Are we talking about something like the 1970s or more of a cataclysmic downturn like the Great Depression?

Dent: I'd say it's going to be in between. It won't be as extreme as the Great Depression. But it will be worse than the '70s downturn, and I think it will be worse than what Japan saw from 1990 to 2003. Maybe we'll see unemployment at 15 percent, give or take. The worst part of it is you're going to see deflationary trends in prices from a shrinking work force. Deflation is the enemy of asset prices. You've got to remember that in the '70s, while the Bob Hope generation was declining in their spending, you had a bigger generation coming behind them entering the work force and picking up some of the slack. Now you've got a smaller generation following the largest generation in history. So it makes the downward trend even more pronounced...

WN: Is there always a bubble somewhere?

Dent: Yes and no. We're in a whole bubble era. It started in the '70s with oil and gold and real estate, and then it spread to the stock market. And now it's back to oil and real estate. You have to go back to the early 1900s to see a similar bubble economy because that's when a lot of these economies were racing with much-higher-than-average productivity, all of these growth industries and all of this change. That's when you get bubbles. We didn't see bubbles in the (19)40s, '50s and '60s. This bubble boom will finally end around 2010 with the massive baby boom and the new technology trends.... I mean, by the end of this decade new technologies -- broadband, internet, wireless, home computing, all this stuff -- will have penetrated 90 percent of households in this country. The boom's over for a while. I mean, who are you going to sell this stuff to? You're down to West Virginia at that point.