(Kitco News) – The biggest financial downturn ever will happen this year, and investors will take “the biggest risks [their] “If they don’t sell now before the market is completely wiped out,” said Harry Dent, founder of HS Dent Publishing.
Dent is an economist and author of Zero Hour: Turning the Greatest Political and Financial Turmoil in Modern History in Your Favor and his latest book, What to Do When the Bubble Bursts: Personal and Business Strategies for the Coming Economic Winter. He bases his economic forecast on demographic changes.
Speaking to Michelle McCurry, editor in chief of Kitco News, Dent said risky assets would sell in waves, with the first wave seeing US stock markets drop as much as 40% and the entire bear market phase totaling up to a 90% loss for the S&P 500, as opposed to What happened to tech stocks during the 1999 Dot Com Bubble crash.
“This will be the biggest crash and the biggest downturn of your life, and most of it will probably happen in 2022,” Dent said. “A complete breakdown would be from 80% to 90%.”
The first crash would be “40% to 55%, too fast, you won’t see it, so if you wait to see if you’re right and take that risk, you’re going to be hit pretty hard and history is pretty clear about that.”
This collapse will occur in large part due to the fact that financial assets are in what Dent called “the greatest bubble in history” of excessive stimulus by the Federal Reserve.
“It is one thing if it is a normal bubble, but when it is coordinated by central banks, there is no way to predict [the timing] exactly “.
Dent’s comments come as the Fed released minutes of Wednesday’s meeting noting that once asset purchases begin to taper off this year, “the appropriate pace of balance sheet run-off is likely to be faster than during the previous normalization cycle.”
Stock markets reacted negatively to the news while Treasury yields rose.
Dent said this market correction in 2022 should be followed by a rebound, with a bigger boom cycle led by millennials.
“We will have a lifetime purchase opportunity in late 2023 or so,” he said. “I was expecting that the next boom, forever, would be millennials from 2024 to 2039, not as long as the Baby Boomer, and not too steep, but we will see another boom following this in the US and more so in Asia, especially India at this time, and China and Southeast Asia”.
All assets are at risk, including gold, although Dent added that Treasuries should make the most of the asset price deflation.
“If you want to do something cool, you buy 30-year Treasuries and that can go up 40% to 50% and it happened in 2008,” he said.
Dent distinguished between the hedging properties of gold and Treasuries.
He said, “In the inflationary outcome, gold is the ultimate inflation hedge. Treasuries, the highest quality bonds, are the ultimate deflation hedge.”
The collapse in financial assets will not be caused by economic downturn; Conversely, a market crash would precipitate a recession, Dent said.
“When people start selling those financial assets, wealth disappears and people panic more and this causes a recession. The collapse of financial assets actually leads to a recession which is what happened in the 2000 crash,” he said.
Dent notes that one of the assets to buy during the 2023 recovery and beyond will be cryptocurrencies, although he sees most altcoins in a bubble now.
Dent’s holdings now mainly include cash and real estate.
For more information on why emerging markets, particularly in Southeast Asia, are likely to outperform in the coming decades, watch the video above.
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