HS 348 - Is a Drop in Gold Coming? with Harry Dent

This show is produced by the Hartman Media Company.

For more information and links to all our great podcasts, visit hartmanmedia.com.

Welcome to the Holistic Survival show with Jason Hartman. The economic storm brewing around the world is set to spill into all aspects of our lives. Are you prepared? Where are you going to turn for the critical life skills necessary to survive and prosper? The Holistic Survival show is your family's insurance for a better life. Jason will teach you to think independently, to understand threats and how to create the ultimate action plan. Sudden change or worst case scenario, you'll be ready. Welcome to Holistic Survival, your key resource for protecting the people, places and profits you care about in uncertain times. Ladies and gentlemen, your host, Jason Hartman.

It's my pleasure to welcome Harry Dent back to the show. You've heard him on the show several before. His latest book is of course, the Demographic Cliff, but he's got a new book coming out very shortly entitled the Sale of a Lifetime. He's also editor of the newsletter Economy and Markets, author of many, many books over the years. I started following his work about 20 years ago. Harry, welcome back. It's great to have you back on the show.

Nice to be back, Jason.

Good to have you. So you are coming to us from your new home in Puerto Rico, huh?

Yeah, and I tell you I'm loving. I've had to travel to Australia and I'm getting ready to go to London. So I haven't been able to spend as much time here as I would want to. But I tell you, people would be surprised. You hear it's a bankrupt country. You'd never know it where I'm sitting.

Yeah, good for you. Good for you. And you have not yet taken advantage of these phenomenal Puerto Rico tax rates, these incentives that we have done a few shows on that topic before. It's enough to fill the whole show. So let's not go down that rabbit hole now. But listeners, let me just tell if you're considering a move. Puerto Rico is pretty darn attractive if you have your own business and if you can make it work and qualify for these tax incentives. And Harry, I hope you're going to work on that soon because, wow, it's pretty amazing, isn't it?

Oh, yeah, I am working on it. I didn't move here for that because I have a vacation home here and I decided to put my primary home in San Juan as well. And yes, I am going to work on the tax advantages and I can probably save maybe 50% of my taxes, not as much as Some, they could go whole hog here. But I tell you, great place to live and unbelievable tax advantages without having to give up your U.S. passport.

Yeah, yeah, it's pretty good.

It doesn't get better than that.

It doesn't get much better than Puerto Rico, that's for sure. Well, hey, there's of course a lot going on in the world. You've made a lot of predictions over the years. Some have been right on, some have been some Mrs. And you admit that, which I like. What's going on now? And what are the latest Harry Dent predictions?

Jason, it's really simple. We've had now three stock bubbles, two real estate bubbles in the US and many countries, and then massive new real estate bubbles around the world. This is bubble mania. There's never been this many bubbles this global around the world ever, going back even to the 1700s. And I've studied all bubbles. And the funny thing about it, I keep getting on media and debating people and everybody says, oh, it's not a bubble because of this or because of that. I don't care what the reason is for a bubble. When things start to go up exponentially faster than the fundamental trends, which is very predictable and very trackable, you're in a bubble. If it looks like a bubble, quacks like a bubble, walks like a bubble, it's a bubble. We're in bubbles in everything. And the biggest bubble that has already burst, which we predicted many, many years ago, is the commodity bubble. Commodities are down 60, 70, 80%. Iron ore, gold's down 40 to 50%, silver, 50 to 70%. I keep telling people, look, when bubbles burst, they don't just correct, they crash. And that's what's happening in more and more markets. And Vancouver's real estate, which I warned a year ago was going to follow Singapore and put sanctions on foreign buyers, and they did, and they're down 20% in five months in real estate. Real estate doesn't crash as fast as stocks. So again, I'm seeing more signs. Yes, we've been early about warning about this global modern bubble busting, but it is happening. And I tell you, 2017 is going to be the worst year for the stock market since 1930. And real estate will follow. And the big thing is when China's real estate bubble bursts, that's the biggest single bubble in the entire world. And when that goes, it goes all the way around the world in real estate. So I'm telling people, you better love your real estate or get rid of it. You should not even think of Being in stocks at this point, get safe and reinvest when the bubble bursts. It's that simple.

First of all, you know, Vancouver, you mentioned Vancouver real estate. I mean, that is far and away the most insanely overvalued real estate on planet Earth. San Francisco's right up there, I think too. And there are some others, of course, course. But I want you to just make the distinction for our listeners, if you would, because most people that aren't in real estate, they talk about it kind of generically and they say, well, real estate. But you know, we always try to divide the world up into three types of markets. The linear markets, those are the boring ones that don't make the news. The cyclical markets, those are Vancouver, San Francisco, all of California, that is expensive, northeastern markets, South Florida, etc. And then hybrid markets, which are kind of in between the two. I'd put Phoenix in that category, for example, maybe even Atlanta now, almost as a hybrid rather than a linear. And you know, of course, London, Paris, Hong Kong, those are all very cyclical markets. But you know, when you look at these like boring markets around the world, places like Memphis, where everybody makes. One of our local market specialists said, you know, I love Memphis as a rental property owner because everybody makes $40,000 a year and they have a blue collar job, you know, what do you think about those? I mean, do you kind of parse that up at all in your business or not?

Absolutely. To me, the biggest theme is the greater the bubble, the greater the burst. In the United States, in between the two great mountain ranges on the east and west, most of the country has not bubbled that most. It didn't bubble that much last time, hasn't bubbled up this much this time. Except now Denver and Dallas and Houston and Austin have bubbled up more around the fracking thing and all. But generally, yeah, if you're in an area where real estate is not bubbled, then it's not going to burst as much. The bubbles are on the coast. It is San Francisco, Louisiana, Seattle, Vancouver.

Boston, New York, San Diego, Seattle, name them all.

Like you said, Atlanta and Dallas are in between. I agree with you. We have three layers as well of non bubble, semi bubble and major bubble. And then you go around the world.

To buy China, Shanghai, oh my God, it's insanity, right?

800%.

Yeah.

I mean, is that going to crash or what?

Yeah, it has to. It can't do anything else. What goes up must come down, right? And those have gone up just extraordinarily. They're just Crazy, crazy markets. The other distinction that people need to make instead of saying real estate generically. And you've done it so well when you talk about the demographic cliff and really your predictions back to, I believe the late 90s, I remember you talking about this. How come 2010 to 2013 there are going to be baby boys, boomers getting rid of their large homes and there will be a McMansion bubble. I don't know if you said McMansion bubble. I think you may have. And so it's not just a matter of segmenting the market geographically and looking at certain cities that are bubble oriented, cyclical cities, but also looking at the product type. Right. The small necessity, bread and butter housing versus McMansion. Can you tell us about that a little bit?

Yes. And vacation and retirement homes. So the demographic trends are favoring the everyday starter home. Although this new generation is gun shy about real estate because they're the first to see it go down in their lifetime. Baby boomers never saw real estate go down, so they thought it can't go down. Well, they're wrong. And then you have the McMansions, which are the peak of the high end buying, which comes later in the real estate cycle in the early 40s. And nobody's going to need a 7,000 square foot or 4,000 square foot house in the future as their kids leave the nest. And then there's vacation and retirement homes that don't peak until age 63 to 65. And they're the ones that are most discretionary and will crash the most in a downturn, but they will be the fastest to come back because there's one more way what baby will bind. But here's the thing, Jason. The most important insight which I had to work on for many, many years to get. I usually take any sector like real estate and say, okay, peak spending in real estate's age 41. So I'll just move the birth index forward to see when that's going to peak. I didn't realize that real estate is different. It lasts forever. And when I saw Japan's real estate crash go down and still not bounce 26 years later, I realized, oh my God, real estate lasts forever. And when old people start dying even faster than younger people are rising to buy because the baby boom was so large a generation and outweighs even the generation to follow by a bit that you're never going to have rising net demand for housing again. Housing, real estate will never be the.

Same, and that's in Japan. And you so correctly pointed out that Japan's problem is largely in famous Harry Dent speak, a demographic problem.

Yeah, old people are sellers in real estate and there are 8 million now. This is out of 100 and I don't know, maybe 100 million max, 90 million households. In Japan, 8 million houses are vacant. Then you go to China where they have a different problem, where they overbuilt everything because they're just planning on the future forever with a government driven top down economy, which is same. They've got 27% of condos and houses empty in major cities and real estate's going up. The Chinese buy real estate, don't even rent it out.

They are the biggest speculators, aren't they? Yeah, they really are. They really are. What about in the US though? I mean, the population is expanding. Granted, our economy is built on a house of cards, which pretty much every economy around the world is. So I don't know if we're that much worse off, as crazy as we are over here. But what are your thoughts about some of these, you know, more linear markets? I mean, are you okay with those? Do you think there will just be a waiver if this bubble bursts, as you say it's going to, or what do you think?

No. Bubbles only burst. When real estate bubbles burst, it's typically 50 to 60% down. Stocks burst 70, 80, 90% down, commodities 80, 90%. And commodity bubbles burst every 30 years, just as we saw after 1920 and 1980 and now 2008, 2011 recently. And stock bubbles come now every generation, especially every other one, like the 1930s and now. And these things don't just correct linearly and they don't build linearly, they build exponentially and they crash. Stocks crash twice as fast as they build. Real estate takes about the same time for a bubble to build to crash. And so do commodities and commodities crash the most. So again, in my new book, the Sale of a Lifetime, I really developed a bubble model. The best one is around stocks. Stocks will crash twice as fast as the bubble builds. And you don't measure the bubble from when the last low was in the last bear market. You measure when the trends go exponential versus the linear trends you talked about. That's when you say, this is when the bubble's beginning and bubbles tend to go back to where they started. So when bubbles burst, all these economists and political experts say, oh, that was a black swan. I'm like, they're idiots. This is not a black swap. Bubbles build systematically, exponentially, and then they burst even more exponentially, especially with stocks. And so we can predict that. And we're saying, look, this stock bubble is going to burst and it's going to probably take into late 2019, early 2020, and it's going to go back down to at least a Dow of 5,500 and probably back down to 3,800 to 4,000 where the bubble started. This is not guessing. This is what bubbles do if you look at them, which nobody does, because the reason, Jason, people don't understand bubbles or see them is they don't want them to stop. You're selling things for nothing.

It's like being drunk. You don't want it to stop. It's fun. You know, last time you were on the show, I mentioned mean and you've made some pretty risky predictions over the years. I got to give you credit for sticking your neck out like that. Last time you were on the show, you were talking about how gold was going to go down to 750 and maybe even down to 250 per ounce. And it's at 1338 now. Of course, it was at this crazy peak of almost, you know, it's like nineteen hundred and something dollars, I think at the peak a few years ago. What do you think is happening with gold? I mean, that prediction come true yet? Or were you too early with it or did you change your mind or. I'm just curious.

No, no, no, Jason, in late April of 2011, when silver hit $48, that was crazy. The top all the way back to 1980, we said sell this sucker. You were right about that and said silver and gold. And gold actually ended up going about 5% higher into September and then crashed 7% $50 from 1,800 to 1050. And when it went to 1050 in late last year, in late 2015, we said gold is due to bounce again. A bear market rally, not a new rally. And it has. I said gold's going to go to around 1400. Well, it got to 1373. It may yet get to 1400. I doubt it. And I think the next move is down to 700, 750 in the next year or two. And here's the thing, Jason. People didn't get gold saw it's been bubbling up since 2001 after bottoming after being down for 18 years or something since its peak in 1980. It rallied the most after 2008 when it saw this unprecedented money printing. And of course, the natural assumption is inflation. Printing money. We're going to get inflation. Well, we didn't get Inflation, because we've been saying debt deleveraging bubbles. Deleveraging creates deflation. It kills money. And gold got this in early late 2012, early 2013, the Japanese went triple down on quantitative easing. And shortly after that, Europe came back and said we're going back from the more the bazooka from Mario Draggy. And guess what? Inflation kept going down.

Yeah, right, right.

Well, Harry, holy crap, we've been making the wrong assumption. We thought this would create hyperinflation. It's not. And gold died. And it will never come back for a number of years. And you know what will make it come back? The next 30 year commodity cycle. In emerging countries who are much more commodity intensive, we may see the biggest gold and commodity rally in history, but it only come from the early 2000s to the late 2000s when most gold bugs are dead.

They've been wiped out. Right? Yeah. And I'm definitely not a gold bug, so don't worry about that. It sounds like you're pretty bearish on everything, is there, what is your recommendation right now? Just keep your powder dry, don't do it, anything. Or is it, you know, linear, boring real estate or what is it?

Cash flow? Positive real estate in not so overvalued areas can be good. That's the only sector running out to these rising millennials and maybe some retiring baby boomer. But otherwise, yes, it's get out of the way of the bubble, be in cash and. Or if you want to take some risk, short gold stocks, short real estate or indexes. But I tell you, most people, I'd say just sleep well at night. You've had the greatest bubble in history, giving you unbelievable gains beyond any time. Just take it, take your chips off the table and wait for this bubble to crash. And it'll crash faster in some areas like stocks and commodities, which have already crashed mostly, and slower in real estate and stuff, and just buy back in in the next 2, 3, 4, 5, 6 years and you'll be like Joseph Kennedy in the early 30s. He sold 1929 and bought everything in the bottom 80, 90% off. That's the way to make money in deflation. There is nowhere to make money because nothing goes up in deflation except maybe the highest quality.

As you pointed out on the last time I had you on the show, though, in a deflationary or stagnationary environment, the only thing you can hope for is yield. There's nothing else. There's no capital appreciation, obviously, it's a yield game entirely.

There's no Yielding bonds, which are going to get crucified the most.

Yeah, yeah.

The highest risk.

But that linear cash flowing real estate gives you a pretty good yield, even if the price of it goes down. With all the multi dimensional aspects, if you can make 20, 25% annually while everybody else is just getting creamed, relatively speaking, you're doing, you're doing okay, right?

Yes, and I agree with that, because the millennials who aren't buying are forced to rent more now. And so the rents will hold up even though the real estate values go down. And then if you're in this market of buying multifamily apartments and stuff and complexes and renting them out only if you can do it at positive cash flow, then when they go down in price, you can buy more of them at a lower price and do the same thing. So that is the one good strategy I see. But only in the right areas. You can't do that in South Beach, Miami.

No. God no.

Could you possibly buy something and rent it out at positive cash flow when it's so overvalued? No way.

Let me tell you about this ridiculous property. I was just, you know, surveying the Vancouver real estate market a few weeks ago. It's so insane, it's absolutely psychotic. This house was, it was about a thousand square feet. It was $2,495,000, I believe, basically $2.5 million. And I mean, and it was old. I don't know how old it was, but I just couldn't believe it. I mean, where I spent most of my adult life in Irvine, Newport Beach, Southern California, I thought the prices were nuts there. Vancouver is insane. And most of that is attributable to, to that Chinese money. I mean, it's strange how like Chinese and Middle Eastern buyers are so willing to be so speculative. They just don't seem to care about fundamentals of yield, cash flow, cap rate. It's all just buy these properties in these trophy areas and it's just nuts. I don't get it.

Jason, it's real simple. They're the dumb money right now. Same thing with the Japanese in the late 80s.

Yeah, yeah, absolutely.

Goes up in a bubble. You have unprecedented wealth for no good reason, and then you tend to just blow it. You think, oh, I'm a genius. And you buy more and more real estate at overvalued prices and you're setting up yourself to lose absolutely believably. And so the Chinese are the dumbest buyers. They're the ones paying $100 million for an 8,000 square foot building box on Central park in New York.

This is crazy, psychotic. You know, everybody's a genius in a bull market. When you look back to the late 80s and the 90s and you know, the Japanese buyers, they bought Rockefeller center and you know, paid the taxes on it for several years nicely and then sold it back at a lower price, it's a pretty great deal for the US Isn't it?

That's what happens. The smart money becomes the dumb money at the top.

Yeah, it's just crazy Chinese.

I'm telling you, the Chinese real estate bubble is so extreme compared to the fundamentals there that it's going to burst. And when that bubble bursts, even more than the Japanese and more than any US investors, they have so much people can't realize that Chinese save like 30, 40, 50, 60, 70% of their income, unheard of here. And then they put it 75% into real estate and the other part in cash because they don't even invest in stock. There's no way to understand how the collapse of the Chinese real estate bubble that again is up 6, 7, 8, 900% in the last 20 years is going to impact especially the most affluent families and investors in China and they're going to pull back on everything. They're not going to be buying in San Francisco anymore or Boston or New York or Miami or London or Vancouver, which is the worst. That's why Vancouver has dropped the most thus far. The Chinese buying there is the most intense of any major city I've measured in the world. They love Canada, they love Vancouver. Money. You have to realize the Chinese are not just. They're not buying real estate so much. They're getting their money out of China in a way that they're not allowed to. 50,000 a year. They buy a $20 million condo. They got $20 million out of their country and it's still legal.

Yeah, they've got two issues. Number one, they've got a potential currency arbitrage. They've got a potential to make money on the real estate, which of course they won't. We just discussed that. But they also get the brink struck factor. You know, they're basically fleeing their own government in essence and doing it legally by buying US real estate. Right?

Yes, that's exactly. You got it, Jason. That's exactly what they're doing, laundering money out of China. Because they know the smart people, the richest people in China know it's a top down communist government. It's over, building, over, investing over in debt faster than any emerging country. In all of history and the bubble's going to go down. So they want to get out ahead of it. They're the smart money. But they're buying dumb real estate in the US in the UK and Canada and Singapore because they want to buy in English speaking countries where they can send their children to get a good education and learn English. So that's the countries that are most bubbling and these are these cities, San Francisco to London, Vancouver to Singapore. They're going to burst the most when the Chinese realize they're screwed and they don't have any money left.

It sure is. It's amazing. Harry, give out your website and tell people they can find out more about you and then maybe give us one closing thought.

Harry Dent.com youm can get on our free daily newsletter Economy and Markets they tend to offer my latest book the Demographic Clip and then soon the sale of a lifetime if you just pay for shipping $4.95 and that's real cost. And then for more about us dentresearch.com you can see all of our services but we just tell people look, get on our free newsletter, get to know us because we're really different but we have very good insights as we try to show here and then hey, if you love us, trade up but you can listen for free.

Good stuff. Well Harry Dent closing thought. Anything you want to just wrap it up? Any maybe a question I didn't ask.

You or anything real simple. I study long term cycles, not just short term, mostly long term and this is the greatest reset that is going to happen in the debt bubble and the financial asset bubble in our lifetimes. The greatest since the early 1930s. Imagine if you had gotten out the market in late 1929 like Joseph Kennedy and then waited until late 1932 to reinvest. You could have bought roach crap in 1932 or 33 or any real estate or any surviving company and made money for decades and decades.

Yeah. Fantastic.

Sale of a lifetime.

Absolutely. Harry Dent, thank you so much for joining us.

Okay, thank you Jason.

Thank you so much for listening. Be sure to check out hartmanmedia.com for appropriate disclaimers and terms of service. Remember that guest opinions are their own and if you require specific legal or tax advice or advice in any other specialized area, please consult an appropriate professional. We look forward to seeing you on the next Episode.