UK economy: 'It's going to be a difficult few months' says expert
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Recently renowned investor Jeremy Grantham warned that the US was now in a stock market superbubble with indicators already suggesting a major market correction to come. Economist Harry Dent told Express.co.uk he also foresaw a major crash which in its first instance could wipe 54 to 58 percent off markets. Mr Dent said: “This bubble has to crash, it will crash, it will be the crash of your lifetime, it is only just been a question of when will it crash.” He further warned it could be “such a blow to investors they will not buy in next time, they will not jump back in and buy the dip”. He said: “They’ll say something’s wrong.”
Mr Dent explained his biggest indicator was demographic cycles linked to when people spend money which he said peaked at 46 or 47 years old.
He previously forecast the 2007 financial crash on the basis the baby boomers would have peaked in their spending by then.
Comparing 2007 with the 1929 Wall Street Crash Mr Dent said it was on “the same cycle” but crucially this time “the central banks realised they had printing power they didn’t have back then and they just took out the canons”.
He added: “So we’ve been living off of printed money ever since.”
According to Mr Dent this reliance on printing money has made the economy fundamentally weaker though, with companies also taking on more debt.
He said: “23 percent of public companies in the US can’t pay their debts, they’re called zombie companies, that’s not healthy.
“We have a great reckoning coming here.”
Levels of debt are also a key indicator for economist Ann Pettifor, who previously predicted the 2007/2008 financial crisis in the book The Coming First World Debt Crisis, published earlier in 2006.
Speaking to Express.co.uk Ms Pettifor warned the world had accumulated a “mountain of debt” through a combination of low interest rates and GDP.
Global debt now stands at £168.47trillion ($226trillion), more than global GDP and the value of listed companies.
Although central banks are now beginning to move on interest rates and reducing quantitative easing Mr Dent warned it was coming too slowly and too late.
He said: “They know if they don’t keep pumping more and more the whole thing goes down.”
Debt is not the only warning sign of underlying economic problems though.
Ms Pettifor pointed to current volatility in the stock market as a key indicator to look at.
She said: “We know the great financial crisis was triggered by the fact investors asked if assets were really worth what they said they were worth.”
Pointing to the soaring value of stocks such as Tesla she questioned whether the assumption they would go up forever can really hold, arguing that too much money had gone into “speculative betting.”
The rapid gains of certain shares were also recently cited by Jeremy Grantham as an indicator of a bubble about to burst.
Mr Grantham singled out meme stocks such as GameStop which saw huge gains last year as investors piled in but has since come crashing down.
Ms Pettifor also pointed to similar trends for cryptocurrencies, describing Bitcoin as like a “Ponzi scheme”.
Another key indicator to keep an eye on according to Ms Pettifor is the Baltic Dry Index (BDI) which measures average prices paid for the transport of dry bulk materials.
The index is widely used as a bellwether for the shipping industry and gives an indication of global supply and demand.
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According to Ms Pettifor, recent declines in the index are a reflection of falling demand from China.
China has been trying to reduce debt among many of its major companies however for the property industry in particular that is beginning to result in less economic activity.
She said: “If China is not exporting stuff and its not importing more stuff, then there’s less going on essentially.”
While a number of warning signs are there Ms Pettifor said it wasn’t yet clear what the spark would be that would trigger a financial crash.
Mr Dent warned: “The clearest sign in retrospect, and it will be too late, will be that we’re down 45 to almost 60 percent in less than three months.”
He added: “This financial asset bubble is global, it is going to have to come back down to reality which means it’s going to have to fall about 50 percent when you count all stocks and bonds and everything… this is a good thing to happen but it will be painful.”
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