Harry Dent Explains How $3.44 Trillion Money Printing Will Crash Stocks and Real Estate

Without further ado, we will bring up Harry Dent. And as I mentioned, I've been following his work for 25 years. He's been on the podcast maybe, I don't know, eight, ten times now and just has fantastic information. One of the things I really love about Harry's work is that demographics don't lie. You know, there's an old saying that demographics are destiny. Demographics are destiny. And I really think that's true because people do very pretty predictable thing at certain ages. You know, when they're in the family formation stage, they buy baby food and they buy diapers, you know, and when they are in their peak earning stage, they spend money and when they get to retirement age, they downsize their houses and they become more conservative. And, and so this is just all very predictable stuff. Now, what Harry teaches, I think, and you know, he can correct me if I'm wrong on this, but one of his very popular ideas is called the S curve, and he is, I'm sure, going to talk about that today and can really demonstrate a lot of very, very interesting and very reliable things when it comes to the dangerous business, the dangerous business of predictions. Okay, that is a risky business. And very few are really willing to take it on, but Harry is, and so it's great to have him here. Welcome to Harry Dent. Give him a big hand, folks.

Thanks, Jason, and good day, everybody. I'm used to saying that because I'm talking to Australians all the time now. So what I'm going to do today, some people might be familiar what I do. I'm not going to go all my forecasting tools. I'm going to give you a summary of them. I'm going to focus a little more today on what's been happening with this incredible endless stimulus program and printing money and stimulus to keep a debt economy going and the highest stock market in history and one of the worst economies in history and why that's happening. But most important, if people have been listening to me off and on for the last several months, I've been saying, you know, we've got a major bubble, the greatest bubble in modern history, certainly the greatest of our lifetimes and the greatest we will see. And I've been saying we had that first crash, which was the first sign that the bubble was peaking in February, March, but we're in that rebound phase. And I was saying that phase might, at the latest, last till the election. I am not seeing that now. I'm seeing a lot of evidence that this is this top, this unbelievable top that's been building since 2009 with again endless money printing up 20 to 25 trillion dollars now globally and now all these new stimulus programs and stuff to keep an economy that should have deleveraged, should have gone through a deeper downturn 2008 to 2010 like we did from 29 to 32 in the Great Depression. Deleverage a lot of debt, get rid of a lot of zombie failing companies, clear out the deck so we could grow again. And of course central banks decided they were smarter than God, Mother Nature or whatever you want to call it, and that they were just going to engineer a new economy that never has recessions. Oh, that's really smart of them. Here's the next chart. Here's the monetary base. The greatest expansion this money printing is they buy their own bonds, accumulate these bonds, take them off the market which pushes down interest rates and has a lot of money to buy these unlimited amounts of bonds being issued. Otherwise the prices of these bonds and interest rates would go up when they're issuing so much. Oh no. So this is the monetary base. Guess what? Gdp, look at the bottom line, grows slower than ever. Money supply only a little faster. So no big deal. They're all. The only thing correlating with this is the S&P 500. Stocks love this push down interest rates. That alone creates higher valuations for stocks because stocks project investors project stock earnings out 10 years which are usually. And they usually over estimate that but whatever and then discount that earnings stream to the present using the discount rate of the 10 year treasury bond. So they push that 2 to 3 percentage points lower than it would be which alone could double the value of stocks. Just that adjustment in the discount rate for that not going to go into this chart. I could spend 20 minutes on this. Just focus on these two red things. Last time we had a monetary based surgeon a boom money supply went up three times the monetary base and the boom before went up 9.7 times. So much lesser response in money supply as I already kind of showed. But look at the far right. Financial assets went up 20 and a half times for every dollar printed. Now that's an impact and that is the BS I'm talking about. Okay, but also look in the middle, the yellow of all the areas net wealth and real estate, stock market and bond market, the three big markets for financial assets. Stocks got the big. They all got a bang. Stocks got the biggest bang. So stocks have bubbled the most and will go down the most. But real estate will go down too and bonds will go down Point really Quickly, the Fed is printing all this money for years and years and years. They finally said, you know, we don't have to do this anymore, we'll kind of taper back, buy less bonds and flatten out. And when that happened, this chart shows the reserves that banks hold got taken down. And all of a sudden this is a little technical. So don't worry about this too much. They normally banks, the big banks fund when banks and investors and financial institutions who are doing a lot of leverage investing and lending and stuff, when they need extra money overnight to balance out all their requirements and regulations, they just lend it to each other overnight. Well they stopped doing that in September of 2019. This red line is showing the total money printing of the Fed. All of a sudden, then it went straight up. All of a sudden we had this repo crisis you'd hear in the news back in September, October and on cnbc and everybody said, oh this is just a little crisis and the Fed just needs to step in and give a little liquidity. They printed 763 billion dol in a matter of four months until the virus hits. That's way more than their peak money printing at 60 billion a year back when they were doing that for six years straight. So this was the first sign there was something wrong. And I was telling my people and guess what, that extra money printing, where does the money go? And again, here's what you got to get about money printing and why it's different than normal bank lending. Normal bank lending is the central banks will make it a little easier to lend money or make short term interest rates a little lower and then banks will lend money and then if that money is paid back, then they get that and then they re lend and you can multiply money because the banks only put 10% of their deposits against those loans. That's how you create money naturally. And if the economy is healthy, then that works. But if the economy is not healthy, people don't pay back their loans and it doesn't work. And then that backfires when they print money and buy financial assets, which they primarily buying bonds, but Japan's buying stocks and now the Fed's buying junk bonds and corporate bonds and they'll eventually buy stock. What they're simply doing, they're not putting money into the economy, they're not giving it to consumers, except they they did a little bit recently or to businesses or to the bank. They are simply putting more money into the pool of financial assets, which is real estate, bonds, stocks, as I showed everything more money Chasing the same goods which bids them up. They're creating a financial asset bubble to offset the downturn in the economy to make people feel wealthier. The problem is the top 1% own 40 to 50% of those financial assets, and the top 20% own 88%. So it doesn't go to Homer Simpson. Now back here, we'll show the whole. The printing of money kind of peaked in late to the end of 2014 at $4.5 trillion of bonds they had on their balance sheet. And it just, they just kept it flat. So they weren't withdrawing it or destimilating, but they weren't stimulating further. Well, they did decide to start drawing down saying, oh, see, the economy's okay now we're going to taper back because the economy doesn't need this anymore. And I'm like, yeah, sure, sure. It's been living on nothing but stimulus since late 2008, early 2009. So when they tapered, okay, you see the first bump, that was the repo thing. And then the next bump is the virus. Oh my God. They ended up printing $3.44 trillion in eight months. Between the repo crisis and the coronavirus crisis. That is almost as much as they printed in six years in the biggest money printing operation in history, they printed 3.7. So here's the thing, and I've been warning investors about this for a long time. It's very simple to keep a bubble like this going. You have to print and stimulate exponentially more because you're going against something that wants to deleverage, wants to deflate, wants to go into negative prices. Deflation, not inflation. You're having to print more and more. And that's what they just did. So okay, if they just printed 3.44 trillion in eight months, well, what are they gonna have to print next time? Another 6 trillion in three months. You see where I'm going? There's a point where it looks so ridiculous. And of course, the law of diminishing returns. I've been comparing this whole money printing and over stimulus. Debt bubbles are one thing they'd start, but money printing is a whole other level. It's like a drug addiction. It's just a financial drug. Borrowing more for many years or decades then income or GDP is growing. We'll always end up in a debt bubble. Will always cause financial assets bubble always cause a crash. Just that I showed that earlier. Private debt peaks are always going to be followed by a crash and a deleveraging. Well again, printing money just does that on greater level. So we got the worst bubble in financial addiction in history, and I'm saying it's getting ready to burst.

Harry, can I chime in with a couple of things?

Yes.

So, because we do need to wrap up, but I want to make sure we complete a couple of thoughts here. So first off, you've distinguished before on the podcast with me talking about real estate markets. And you know, obviously everybody has to sort of broaden it when they're speaking in sound bites on the media and so forth. And just distinguish, if you would, between, you know, what we've talked about, about the cash flowing real estate that makes sense versus the cyclical markets and this stuff that's just pumped up with fake money, printing and these ridiculous prices. I mean, all of this west coast real estate and expensive real estate around the world, not just in the US was overvalued before we ever heard the word Covid, right?

Oh, absolutely. I mean, it's been overvalued increasingly, this whole boom. Stocks have got more valued real estate, particularly in coastal hot cities. So we have bubbles everywhere. And these bubbles are bad for the economy. They put money into speculation instead of productive investment. And they give people a false sense of wealth that's not going to last. So people over borrow, overspend, and that's why it ends up so badly. So yeah, when this burst, you have to get into safer assets in the high quality bonds and cash flow, positive real estate. Now even that real estate, even apartment buildings that are healthy, positive cash flow, not so overvalued, will go down some because everything gets reset, but they won't go down as much as McMansions and more expensive homes. And commercial real estate gets absolutely clock clean. The other thing is that if you have cash flow, if you have properties or certain businesses that are throwing off cash flow, hey, the value of that business or the value of that real estate may go down some, not as much as something that's not or that's more overvalued. But if you've got cash flow, here's the real opportunity. Now think about this. All types of things start to fail. All these defaults. Banks got a lot of bad apartment building, bad real estate, McMansions, commercial real estate, everything. The people who have positive cash flow don't have to buy that real estate when they want that bargain to increase their rental properties or whatever they're trying to build into. You just use your cash flow, go into a bankruptcy and say, I will take over this loan at a 50% discount with no money down. And it's a win for the bank and a win for you. So cash flow positive real estate not only holds up and pays you money in a downturn, it gives you a revenue stream to leverage into bankruptcies and buying things. And really quickly, as I hear.

This is an incredible chart, Harry. I mean, it is.

This is. This shouldn't happen chart is what it is, right?

What? It's happening because the bubbles burst, people are pushed into the rental market. Is that the point of this chart?

No, this is happening because baby boomers did. Oh, sorry. Did not save for retirement because they grew up in La La land and they like the general. They're coming into retirement. Yes. They're starting to see bubbles burst, more volatility in stocks and real estate. They saw the first big real estate. They're realizing the only chance we have to retire now that we're turning, Moving on our 60 is to sell our overvalued McMansion, which puts them selling it at the top of a bubble, which is smart. They're not doing it to be smart. They're doing it out of desperation to fund my. They realize, gosh, my McMansion's worth a lot. I pay off most of the mortgage. The best way me to fund my retirement plan. I never say sell that McMansion. Instead of buying a downsized townhome to retire in or house, I'm just going to rent. More and more baby boomers are renting. So normally, the bottom green line of this chart, this is your normal younger people who dominate apartments. People buy rent until they can afford to buy in their early to mid-30s. Okay, so that's not growing because the millennials have already done that. Now the recession will extend their rentals and curb their buying even more. So rentals will hold up as they do in a downturn. The prices may fall some, but your cash flow should largely hold up, which is a big advantage. But again, where's all the growth? Older people, particularly these top reddish line 18.6 million new renters from baby boomers. And the other analysis, which I got into, I won't get in today. The older these boomers get, they rent at even higher rates at 75 than they do 65 or 60. So it only gets better. And more and more baby boomers, when they see financial assets fall, will say, my gosh, I've got to sell my real estate that's overvalued, and I've got to rent in retirement. So this is a huge new group. Now, the great thing about these baby Boomers, they are older, more financially stable, they stay with you longer. They're not just in there for three to four years till they can have a kid and buy a house. They don't wreck the place and shoot heroin and take drugs and God knows what. They're better clients and they like more upscale side. So my strategy for people in multifamily and rentals, buy apartment buildings and even single family homes. They want to. They get crushed in the downturn and refocus them towards retiring baby boomers as well as millennials who will increasingly want to buy again starter homes at first and then trade up homes in the next boom. So sell your marginal properties now, this summer here. If anything's marginal cash flow and not strong, sell it now. If it's really strong cash flow, or put it this way, look at all your assets and say, look, I want some assets to show I have positive cash flow to wheel and deal. That's one way to wheel. I also want as big a pile of cash as I can have to wheel and deal. They're both to your advantage. You have to determine that balance. I would take more of the cash myself because that's pure advantage. You want to be able to buy stuff. Whatever you're into, you're into apartment buildings, multifamily medical facilities are another thing that will hold up better and then be in more demand as baby boomers retire and get older. You want to buy stuff in the downturn in the next few years and reposition it for what's going to grow coming out of this.

And so, Harry, that means sell your $800,000 house in California, right?

Yes, I would be selling and that's exactly what I did selling my primary home. And if I have some cash flow positive real estate that's going to look good in this thing, I may keep that. And then I use the cash from the real estate that's either way overvalued. Even if it's apartment building, you think it's overvalued or more marginal. Take the cash out, sell real estate you have that's not, you don't have to have pile of cash plus some cash flow positive property. You come in this downturn with some cash flow property power plus a wad of cash. You, you are going to double, triple, quadruple your wealth, unless you're an idiot.