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Demographics & Investing

A while ago I bought and read "The Great Depression Ahead" from H.S. Dent. I was impressed by the logic expressed in the book and consequently registered at their website (www.hsdent.com). Now I am getting once per so many months a newsletter from them that gives their comments on what is happening in the markets in relation to what they have explained in their book.

In general the book predicts the overall market developments for the next decade and decades based on demographic trends and some other cyclic trends. I think that this analysis forms a very good longer term framework to keep in mind when practicing safe index investing.

Below I have copied the contents from the H.S. Dent newsletter dated May 6, 2009. I recommend to buy and read their book and like to hear your opinion on it (especially when you have some good counter-arguments that contradict this book to balance my opinion).

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The Great Depression Ahead Book Update #2
May 6, 2009
 
The substantial bear market bounce we anticipated in the book is clearly now underway and the rise has been very strong and steady. We could see a modest setback into late May or so, but we are then likely to see a second strong rally before the market peaks and begins to turn down again. We have refined our best forecast for the Dow to 9,650 - 10,400 around mid- to late July or so. The best target would be around 10,100 in late July.
 
We are also finally starting to see leading indicators suggest that the economy will see some type of rebound later this year. What is likely to cause stocks to turn down again despite a rebound? First would be that commercial real estate continues to fall with rising unemployment that is likely to continue well into this year and that will continue to hurt the banks just as residential real estate flattens or rebounds a bit in some areas. Treasury bond rates bottomed at 2% in December of 2008 and yields are rising despite the government's efforts to buy its bonds and keep rates down. Recovery anticipation, some rise in inflation pressures and rising concerns over the U.S. government's credit quality will likely cause T-bond rates to rise towards 4.5% plus in 2010 and possibly a good bit higher. This will cause mortgage rates to rise just as real estate is hoping to recover and hurt the banks again. Then there will be a broader "prime" crisis wherein ordinary households have mortgages greater than their home values and then there will be the credit card crisis, and so on. The banking system is too mortally wounded to return to health and baby boomers are rapidly converting to savers as they would naturally in their 50s, but falling retirement assets make savings rather than spending even more urgent. Hence, the stimulus plan won't continue to be effective after a point.
 
We still expect stocks to start falling again by the fall and wouldn't want to stay in stocks past late July, or August at the latest, especially given that our 4-year and Decennial cycles start to turn down again making late 2009 to late 2010 the most dangerous period yet ahead. September and October tend to be the worst months for stocks.
 
To get a better feel for the more in-depth analysis in our monthly forecast newsletter go to the http://www.hsdent.com/free-downloads/ to download our free issue of the March 2009 newsletter. PLEASE NOTE: You will be prompted to Register as a free user, or Login if you have previously registered. When you signed up for the book updates, this did not register you as a user of the site.
 
 
 
Thank You!
 
Harry Dent
HS Dent Publishing

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