Meet the Bold Prediction Maker

Meet the Bold Prediction Maker

Trends by Janet Leiser | Senior Editor

A business consultant built a reputation on economic forecasts tied to demographic trends. He says his predictions are usually right, though timing may vary.

A sharp economic downturn will occur between 2009 and 2011 and it will last for as long as 14 years, says Harry S. Dent, an entrepreneur and best-selling author.

Don't get Dent wrong. The 52-year-old Harvard graduate is no naysayer bent on predicting gloom and doom. In fact, he was called a crazy optimist in 1989 when he predicted a long economic boom.

But Dent offers good news with his dire warning: Businesses still have several years of economic expansion left to prepare for the downturn and Florida is one of the best places to weather tough times.

"A lot of people are saying the economy is going to burst now," says Dent, who has called Tampa home for about a year. "We're saying the economy is good.

"We're telling people the boom is going to continue, but only for another three to four years," he adds. "Then we'll have a long downturn. Stocks and real estate - the two places where most people make their money in investments - will both do poorly."

His prediction is based on demographics. As baby boomers age, they'll spend less. And there aren't enough new consumers spending in their place.

"There are just physically not enough people in Generation X to keep up the pace of spending set by Baby Boomers," Dent says.

Dent, who charges a $50,000 public speaking fee, says the U.S. boom started in the early '80s and accelerated in the mid '90s with the Internet moving mainstream.

"This is a race for leadership," Dent says. "By the top of this boom and the early stages of the next downturn, the leaders of most new industries and growth segments of old industries are going to be determined for decades to come."

He points to the Great Depression in the late 1920s and early '30s, which determined the leadership role of General Motors and several other companies.

"Everybody else fell away," he says.

"Businesses really need to invest now, focus the next three or four years on dominating your market and then around the turn of the decade, around 2009, you have to get very conservative and be ready to weather a strong downturn," Dent adds. "The people who survive that downturn will be the long-term leaders. The only way you do that is by dominating, being one of the top players in your field and getting your costs down and not over-investing at the top."

Fortunately, Florida is one of the best places to be in a slowdown, he says. The Sunshine State will continue to see population growth from baby boomers retiring and those in Generation Y, who'll be setting up households after marriage or college.

How he started

Dent is a South Carolina native and the eldest child of Harry S. Dent Sr., a Republican politician who worked for Sen. Strom Thurmond and presidents Richard Nixon and Gerald Ford.

After graduating from the University of South Carolina, Dent obtained an MBA from Harvard and worked at a Boston consulting firm. He moved to California in the early '80s to work as a turnaround specialist.

Some companies, he saw, did especially well.

"It was all baby boomers, new stuff the baby boomers were into, new trends, new types of products," he says. "So I started studying baby boomers. How many are there? Why are they different than the past generation?"

In 1988, he realized two charts were strikingly similar: The S&P 500 and the birth index of baby boomers.

"At some point I got enough data, where I started saying, 'Well gosh, we know a lot about this. This is what's obviously driving the new economy and the growth we're seeing in this boom.' "

He'd found an important economic indicator.

Most people, of course, hadn't yet heard of Dent. He lectured to chief executives and continued his work as a consultant to troubled companies.

"I finally got to where I could convince the very independent thinkers and small businesses," he says.

Then a bold prediction came true.

"We were saying in the late '80s that Japan was going to go on a long-term decline," he says. "People said, 'What do you mean? Japan does everything right. We're the ones that should be in decline.' Nope, we dominate the new technologies. We have very favorable demographic trends. Japan dominates the old technologies and they have unfavorable demographic trends. They're going to go down."

In the 1990s, Japan's stock market dropped 80% from its 1991 peak and real estate values fell 60%. That country is still struggling.

In 1992, Dent published "Great Boom Ahead."

Again, people called him crazy, he says, adding, "In '95, when the markets took off and all this started to happen, people said, 'Well, maybe you're not crazy.' I had to wait a couple years though."

Stockbrokers, financial planners and investment managers were interested in his book, which was a bestseller.

The Great Boom prediction boosted his credibility.

"When you have a new theory, people always say, 'It sounds interesting, but I'll believe it when I see it,'" Dent says.

Slowdown countdown

Dent, president of HS Dent Foundation, isn't idly waiting for the bust. His firm publishes a newsletter that goes to about 6,000 subscribers. And he runs an advisory service, called the HS Dent Advisory Network. He does most of his research from his Avila home. He spends about a day a week at his Tampa Palms office.

He and his staff plan to publish "The Great Bust Ahead" in 2008.

"We think it's going to be the most important thing we do," Dent says. "Fear drives people more than opportunity. If you can steer people away from a loss, they'll love you for life."

Most of his firm's revenue growth, he says, will come from his role as adviser to a mutual fund that will specialize in recession-proof investments in industries such as health care and wastewater ventures, including the privatization of infrastructure.

The firm previously advised the Aim Demographic Trends fund that went from zero to $2 billion in nine months, he says. He expects the new fund to be larger.

His message to business hasn't changed in 20 years.

"This is a very entrepreneurial time," he says. "There is a lot of change and a whole new economy is being ushered in - one that's going to continue to grow for decades, just like the automobile, the assembly line and the phone and electrical economy of the past."

Any entrepreneur who plans to sell a company should do it by the end of the decade, he says, "while the economy is good, while stock valuations are high, while everybody is optimistic."

"If you're going to sell your business and transition into another business or investments or something, don't wait 10 years until you retire. The stock market and the value of your business are going to be way down."

Baby boomers planning to retire and sell their home should do it before 2010 or face a loss in value, he says.

"People think that's impossible," Dent says. "Housing never goes down. Well, it went down here [in the U.S.] in the '30s."

A believer

How confident is Dent?

He says he stands behind his predictions: Demographics don't lie.

"Old people just don't spend as much money," he says. "I don't care if you give it to them. I don't care if they win the lottery. They don't need a bigger house. They don't need more cars. They don't want a faster car. They don't have kids to feed. They don't have kids to put through college."

Other variables, however, might affect an economic prediction.

For instance, Dent predicted the stock market would take off in late 2005 or early 2006.

"It started to and it didn't," he says. "We had to look at oil and problems in the Mideast and recalibrate for the new environments."

He says global investment opportunities will continue. He expects China to peak around 2030 and India to peak another 30 years after that.