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3000 Dow In 2010: Is He Mad?

Harry Dent. Jr.'s wrap-up advice to his newsletter subscribers is ominous. In brief: "Get ready for the most extreme two years of your lifetime--the debt crisis of late 2010 to late 2012."
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In early March of 44 B.C., a soothsayer warned Julius Caesar about the Ides of March. Unfortunately, Caesar ignored the warning, and we all know the rest of the sad tale.

Harry Dent Jr., a former consultant to Fortune 100 companies and presently publisher of HS Dent Forecast, a monthly investment newsletter in Tampa, Fla., sees a similar kind of fate for the stock market, although he has expanded the time frame of his Ides of March scenario to somewhere between early March and late April.

In brief, Dent sees the stock market--currently benefiting from upward momentum and peppier economic activity--headed for a very brief and pleasant run that could lift the Dow to the 10,700-11,500 range from its current level of about 10.090. But then, he sees the market running into a stone wall, which will be followed by a nasty stock market decline that could drive down the Dow later this year to 3,000-5,000, with his best guess about 3,800.

A forecast of a possible 3,000 Dow this year might strike you as crazy. It does me. But Dent is no whack-o.

Actually, this interview with Dent, who has written several books, one in 1992 about the boom in the 1990s, and more recently, another about the coming depression, comes on the heels of some remarks he made in a piece I did on January 18. In it, I quoted several market pros, a couple of whom briefly expressed concerns about the economy and the stock market. One was Dent.

In response, a HuffPost reader e-mailed me, complaining that I failed to spell out Dent's bearish case. In reaction to that complaint, I decided to do a follow-up and detail his
gloomy reasoning.

Basically, Dent sees a series of "ticking time bombs," both here and abroad that will intensify world-wide financial turmoil.

Let's start with one of the stock market's biggest current worries, European debt fears, which embrace such countries as Greece, Portugal, Spain, Ireland and Italy.

Dent takes these financial concerns a couple of frightening steps further. He not only sees massive debt crises in the U.S., Europe and east Asia, but a series of defaults, as well, in Latin America, the Middle East and Africa due to a commodity bust which he believes will worsen into at least early 2013 and possibly into early 2015.

That commodity bust, as he sees it, could knock down the price of gold (now around $1,090 an ounce) to $250 to $500 over the next year. Gold, he says, won't save investors from this crisis. Correspondingly, he envisions a hefty drop in the price oil, with the per-barrel cost plunging from about $74.15 currently to around $30-$35 by year end.

Dent also expects rising geopolitical pressures to ignite growing problems, especially in Iran and the Middle East in general, as well as sharply increasing terrorist strikes in Europe and the U.S. in the spring and summer of 2010. Noting that we have already seen growing terrorist alerts in the United Kingdom and two failed terrorist airline attempts in the U.S., he believes there is very likely more to come.

Dent also voices concern about fast growing China, which is tightening credit to slow what a number of observers see as overheated economic growth. His chief worry: China's excessive overstimulation of its economy, which he predicts will fall hard when the global boom fails in the second half of 2010. He also thinks its excess manufacturing policy will contribute to deflation, as well as to debt deleveraging around the world.

Turning to the U.S., Dent sees housing in for another severe hosing. Despite renewed economic strength here, home prices, he contends, are not recovering due to rising defaults and foreclosures. "Consumers are not buying homes, only speculators are," he says.

Dent looks for rising defaults and foreclosures in residential real estate (spurred by mortgage resets) and growing defaults in commercial properties to put the kibosh on any sustained economic recovery. In turn, he expects the resumption of a sagging economy that will boost the unemployment rate (now 9.7%) to 15% to 16% by the first quarter of 2011, spur a banking meltdown, and clobber the market.

There is also no doubt in Dent's mind that the "stimulus recovery," as he calls it, is not sustainable and will very likely peter out between the summer and fall.

But what about growing bullishness and the recent outbursts of investor enthusiasm, as reflected in an expanding number of triple-digit daily gains in the Dow? Isn't that indicative of expectations of a stronger economy?

Dent pooh-poohs these stock gains, noting investors are in "major denial," which means, he says, "a major crash when reality sets in." He expects the next stock collapse will likely be as strong as the first one (meaning a decline of at least 50%), but he looks for it occur in a shorter period of time, with the greatest damage likely between late May and late September.

Elaborating on the point of "major denial," he takes note of the latest reading from the American Association of Individual Investors, which is considered a solid contrary indicator. At present, the association reports its membership is 46% bullish. "At 50%, we're at the top and we're almost there," he says.

His wrap-up advice to his newsletter subscribers is ominous. In brief: "Get ready for the most extreme two years of your lifetime--the debt crisis of late 2010 to late 2012. If you raise cash by selling assets, cutting costs and focusing on your business (or selling it), you will be highly rewarded."

He never said it in so many words, but Dent's message is clear: Get ready to run for the hills.

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