Harry Dent chats Jason Hartman about what you need to know about the economy. Harry looks at patterns to predict what’s to come. Jason discusses co-living and roommates in relation to shadow demand for housing.
Jason Hartman 0:00
Working with the local market specialists went really well feel like I was able to get the type of property that I wanted and happy with the price and the rehab job and the tenants have gone well. Welcome to the creating wealth show with Jason Hartman. You’re about to learn a new slant on investing some exciting techniques and fresh new approaches to the world’s most historically proven asset class that will enable you to create more wealth and freedom than you ever thought possible. Jason is a genuine self made multi millionaire who’s actually been there and done it. He’s a successful investor, lender, developer and entrepreneur who’s owned properties in 11 states had hundreds of tenants and been involved in thousands of real estate transactions. This program will help you follow in Jason’s footsteps on the road to your financial independence day. You really can do it. And now here’s your host, Jason Hartman with the complete solution for real estate investors.
Jason Hartman 1:07
Welcome to Episode 1428 1428. Thank you for joining me today. I have a question for you. How many times? How many times have you and if you have kids especially, or the rest of your family, how many times have all of you washed your hands today? Yes, we’re all germophobes now. And you know, it’s amazing how few people actually know how to properly wash their hands. Go talk to a doctor, go on YouTube, get a hand washing lesson, folks. It’ll save lives and now it really matters. You know what’s so interesting about all of the devastation coming out with the illness and the virus and so forth is this, the silver linings that are happening just everywhere, not the least of which are opportunities for real estate investors. nothing short of phenomenal. Remember, we’re going to have an upcoming webinar on my pandemic investing, you can go now to pandemic investing calm, and you can just grab one of many, many, many, many pieces of content. This was early, which means a week and a half ago. Yes, it was in the early days of a presentation I’ve been working on. And that’s it pandemic investing.com pandemic investing calm. Yes, I know, you’re thinking, can you believe Jason got that domain name? Yes, I did. So um, I put some materials there. We will be adding to that. Things are changing so fast and things need to be updated so fast. And we’re going to have a webinar that covers way more than that coming up, and we will announce that and you are invited, you are invited to that webinar. I think it’s going to be very valuable to you. I am working on some rules. Really big stuff for your really big really big. And that has to do with the equations that I have been working on. Yes, I’ve been doing some calculus here, folks behind the scenes. You know, it’s not like I just come on and talk to you every day. And by the way, speaking of every day, this week, we will be running all seven days. So join us this weekend, too. There’s just so much to cover. We cannot get it out in five days a week. We need seven days a week right now. So we will be having episodes on Saturday and Sunday this week. And probably for the next foreseeable future, I’m not sure. But tune in seven days a week, not just five days a week as normal. And lots more to talk about there. So today we’re going to have part two of Harry dent and many of you told me how interesting this was. And today we’ll have Part Two tomorrow we’ll do part three, and we are going to have a special 10th episode show on Thursday. It covers some of the public health and the medical side of this I think you can find that fascinating too. But some of the calculus I’ve been working on is this idea of shadow demand. Yes, Shadow demand. There is a huge shadow demand for housing. And you already know that before you ever heard the word Coronavirus, there was a housing shortage. Yes, that’s no surprise. However, I say the housing shortage is going to become much, much more intense after this blows over. And who knows when that’ll be, you know, I’m kind of thinking it’s going to happen. late April mid May. I think we’re going to be past the worst part of this at least I’m hopeful. I am hopeful we’re past the worst part of it sooner. We’re obviously moving into some pretty tough times here. But but the shadow demand for rental housing, and in purchase housing also is nothing short of enormous it is a tsunami, a tidal wave and you You can benefit by surfing it, you can surf the wave, okay? surf this wave of massive shadow demand that is coming at you. And that comes from married couples. It comes from single people. It comes from newborns. It comes from the home office trend. And it comes from roommate’s. Let me just give you an example in one of those many categories. And we’re going to drill down deeply on these topics because I’ve taken out the spreadsheet, and I’m no expert in spreadsheets, but I know enough to be dangerous. And I’ve been doing some math and thinking about this from every which angle of how’s it going to go? How is it going to go after this blows over? Oh, one more part of that is urbanization. Okay, or D urbanization more appropriately. So I’m going to be talking about all of these things with you on the webinar. And we’re probably going to turn this webinar into an entire course on pandemic investing because the opportunities are are absolutely phenomenal for investors out of every crisis comes an opportunity, remember years ago during the Great Recession, And hey, if you followed my advice, then you made a ton of money. So congratulations. I know many of you are still listening to the show that were following my advice back then. And you’re probably rich and retired. And I would normally say sitting on some tropical, beautiful beach, but you’re probably actually sitting at home, but you’re in a much nicer home than you would have been otherwise. Right. So that’s good news. If you followed my advice back then you profited handsomely dramatically you profited. So let me just share with you just a sliver, just a sliver before we get to part two of Harry dent of one part of this shadow demand, okay. And it is the roommate component. Okay. Now, nationwide nationwide, back in 2000 to 25 Point 4% of the households 25.4%. Let’s just call it 25%. One quarter that’s rounded off one quarter of the households in the country, or people doubling up. They were roommates. Okay, roommates, and in 10, short years, between 2002 and 2012. That number went up by 7%. Well, actually, if it’s relative the number that was it went up by something like 25%. Really, because 25% to 32% is about, I don’t know, give or take 25%. Right. So an almost stir right about 25% increase in the number of roommate households. All right, went up to 32%. In the US, right, these were adults living in a doubled up situation. Now that they’ve been pushed into the home, there’s no gym to go to. There’s no office to go to. There’s no places To go, they’re tripping over each other, if they are in the type of job or business or career where they can work out of the house. Like I’ve said before, this is not new. I’ve been saying it for weeks now. You know, they need to split, they need to split up. So the one that stays in that house and takes over the lease, or maybe they own the house, you know, they were renting out a room, maybe it’s an owner, they got to kick the roommate out and say, Look, I we need to split up because I need that spare bedroom, that extra second bedroom as an office, I’m working at home. And by the way, I don’t have a gym to go to. So where am I going to put my overpriced peloton bike or my treadmill or my weight set? You know, I gotta stay in shape. Right? Hopefully people are using this time to stay in shape, right? It’s kind of, I don’t know, I’m developing a bit of a dad bod. Frankly, one of the biggest flaws was I learned how to cook. Well. Now I’m enjoying good food all the time, but kind of got to be working out a little more. Okay, so Think about it, even if a small number of those roommates, which represents millions of households, millions and millions of households, even if a small number of them split up, you literally Double, double the demand for housing, right there, boom, boom, boom. Okay, you’re going to profit from that. Yeah, you are, because you’re listening to my show a lot more on that. And this will be in detail with math. When I get the math finished, as part of our upcoming webinar, so look for an announcement on that. And hey, I want to play you a message. You know, this, this economic situation has really rattled a lot of people, billions of people, not just in the US, but all over the world. I mean, we’ve never seen literally billions of people in quarantine. This is absolutely something that I never thought I’d see in my life. And certainly you probably didn’t either, but just note that how just engaging in In the investments, we recommend the suburban properties, where the people from the high density locations will flee to when this part of the crisis is over. They’re going to be reevaluating their lives. They know they can work remotely. Now, the emperor has no clothes, the cats out of the bag, whatever you want to say, right? They know they have options. And they don’t need to live in these expensive high density cities anymore. They want to live in places where they can comfortably socially distance. But even if you don’t want to build an empire, even if you don’t have the resources to build an empire, maybe you don’t want to buy three dozen properties from Jason hartman.com slash properties. Maybe you just want to buy one or two. Here’s one of our clients and listeners who has been listening a long time he came to the last meet the Masters we had in Newport Beach, California. And this is Kurt and he left me a message about a week ago and listen to what he said.
Kurt 10:58
It’s Kurt fun To give you an update and a big thanks Coronavirus update flaw this was all developing, I had landed a security job, except to the author put my two week notice in and it was going to take a week off between jobs that we turned into two weeks because of a delay in the onboarding process. And then that turned into four weeks between jobs. So now we are in that fourth week. And the third fourth, we got added because of the complications of flying and the virus. The theme of all this is that I’m doing okay, because of the couple properties that I have. The knowledge I’ve acquired from listening to you for like 12 years, not only the knowledge on on real estate, and the principles on wealth, and real estate because i squared away like my spending and my savings, you know, started doing that like three, four years ago had this happened five, six years ago, I would I would be living paycheck to paycheck. That’s what I’m trying to say. But because of listening, I’ve got the properties I got a little cash flow. coming in. It’s just to it ain’t much, but it’s completely changing how I’m experiencing the Coronavirus isolation. And I feel a lot more secure because of every action I’ve taken on the knowledge you’re giving out in every episode. So thank you again, sir.
Jason Hartman 12:16
So that is the difference. This can make our investing plan, just two properties, not a big deal, just to nothing big, not a huge portfolio. And I want to just say Kurt, congratulations, and thank you for listening to the show for the past 12 years. That is awesome. I’m glad you’ve been listening for 12 years and I know a lot of people listening to this have been listening that long too. So keep on listening, and we’ll keep trying to provide you as much value as we can. Anyway, let’s get to part two of Harry dent. Oh, but first I want to mention, be sure if you haven’t subscribed to our humble little YouTube channel, which by the way, you can see this same Harry dent in Have you there with all of the visual aids? This presentation included many graphs and slides and visual aids, okay? So some of them we kind of simulcast. We put it on the YouTube channel. And we also have it on the podcast. So if you want the visual component, you can get it on YouTube. What I like to do personally, is I like to listen to things in audio form, because it’s portable, I can go walk the dog. Heck, people are now running marathons in their backyard because I can’t leave. I know we got to have a little laugh at some of this craziness that’s going on. You know, the audio is portable, and that’s handy, right? You can move around, you can move around the house with it and have your earbuds in and or your air pods or whatever, and listen to the audio. But go back and just skim through the video skim through this stuff on YouTube. So you can see the visual aids and that extra component will really add a lot to your life. Learning and a lot to your knowledge. Okay, so hope that helps a short quick link to the YouTube channel, right here. I’ll just give that to, you know Bitly right where you can shorten links, right? So it’s just bit.li slash Jason YouTube that’s an easy way to get to it bit dot fly you know Bitly slash Jason YouTube or you can just look Jason Hartman up on YouTube and you’ll find the channel lots of great stuff there anyway without further ado let’s get to Harry dent part two
Harry Dent 14:33
and then okay I mean so I said the only people buying that this one chart here shows the red line is corporations buying their own stocks. The blue line is foreigners so just barely buying but less so the green line is households. They have not been buying into this bubble. They’re scared to death they got killed in the last bubble in 2008 nine, crash 54% and they didn’t know why. And then you got the instance the blue, the purple line that’s the smart money the institutional investors they have net not been buying they don’t see value in this market getting so overvalued so. So that’s what’s happening. And that’s what’s created this next chart. It’s just show this is look
Jason Hartman 15:14
okay and we’re in we’re still we’re still focused on the stock market. So we’ll get to the broader economy today.
Harry Dent 15:19
And I’ll tell you why Jason because the stock market is the best leading indicator of the economy and gets way more overvalued than real estate in a bubble but real estate’s in a bubble too, but it’s more on the high end and in certain places, as you know, cyclical markets. Yeah, but the stock market is a good way to say gosh, are we in a good place? Or are we about to see the crash of a lifetime and I’m making the argument we’re about to see something worse than 2008 and nine and we saw what happened to real estate and the economy and banks and and people underwater and mortgages and what did well like affordable housing and apartments versus what high end houses and and what did the word bubbly stocks.
Jason Hartman 16:01
Yeah, right. High End houses are like high flying calm stock sense, you know, they, they really have trouble in in bad times. You know, Harry, when you look at all of these charts and we talk about all of these crazy numbers, whether it be the QE numbers or debt numbers or, you know, stock buybacks or whatever, are these things adjusted for inflation? Like, you know, the chart you’re showing now, dates show this one’s nice bubble. Yeah. Okay. The first bubble in 1986, a minor bubble. And then another one in the mid well, mid to late 90s. That’s the.com bubble, I guess. Right? Was the.com bubble
Harry Dent 16:37
considered? Oh, my gosh, huge bubble.
Jason Hartman 16:41
And then there’s the post 911 bubble, okay, which was because of all that 911 stimulation, and now there’s the stock market bubble we’re in now.
Harry Dent 16:50
Yeah. And so when somebody says in the analysts for any reason, there’s a million reason. This is not a bubble. My response is looks like a bubble wall. Like a bubble quacks like a bubble, it’s a bubble. This is the This makes 1925 to 29 look like nothing and look at it compared. Now again, this is not the NASDAQ, which is more bubbly. This is the Dow and compared to the bubble back in 95 to 2000. So, again that was a major Baba we had a minor problem before not and one of the reasons I use this chart also Jason I would tell people, we have four seasons in the economy. The bubble boom is the fall season, like we saw in the early 1900s. And this you expect bubbles and just even though that 87 was a small bubble, it was a 40% crash in two weeks. That never happened in the entire 1942 to 1968 stock market boom, it wasn’t a bubble boom, the corrections were 20% they weren’t 40 50%. Here I’m projecting 70 to 85% when this one blows so so again, the point here though, forget all the complication to the sun. If this stock bubble blows anywhere near what I’m saying, you know how much wealth disappear. The economy will
Jason Hartman 18:06
just that just just the other day when the stock market hit the first Coronavirus scare when it started paying attention to that. And then the following day was also down it literally everything was down. I can’t remember the stat I read but it was just a monumental amount of money
Harry Dent 18:24
was just 1.1 point 7 trillion in two days. Wow, that’s what it was. Now, look at this next chart real quick. We look at this whole bubble you see how much more bubbly This is the blue line is stock financial assets. And it is dominated by stocks but but it is real estate. It’s outside of private home but all of the financial assets bonds commodity stocks, investment real estate, okay, so
Jason Hartman 18:48
like 23 trillion. Can we wait, let’s talk about the real estate component investment real estate we’re talking about, you know, the commercial real estate sector like office buildings. industrial properties, maybe large institutional multifamily housing,
Harry Dent 19:05
but even even I think vacation home, you know, not your primary home. That’s
Jason Hartman 19:08
what this is interesting.
Harry Dent 19:10
So we look at the normal range back all the way to 1950 of how much financial assets should be compared to GDP. So so we’re really in this sense, adjusting them for GDP, we’re adjusting them for inflation we’re measuring relative to the growth of the economy underlying it. We’ve been in increasing bubbles since the early to mid 90s. Right when the tech bubble came and up and up and up, we now have 100 just in the US, hundred $23 trillion in financial assets owned by households. And if we just go back to normal valuations down 50% and note in the chart before I’m projecting the Dow the most bubbly stocks, the stocks are more bubbly than these other asset categories like bonds, commodities and investment, real estate. If overall assets go down 50% Which would bring them down to reality. $60 trillion. That is three times our entire annual GDP disappears from brokerage accounts, bank accounts, blah, blah, blah, blah. Don’t you think people would spend a little less money in the economy week when they lost that much money? Who’s really who’s keeping our economy going? This top 20%, the top 1% Top 10% they’re the ones who are going to pull back much more than Homer Simpson this time.
Jason Hartman 20:30
Hang on a second. Let’s just explain this a little bit. Okay. So this chart is you said goes back to 1950. And what it shows is it shows a range from 1950 on up to really about 99 weigh about 1999 95. Okay, fair enough. that things are sort of in line from 1950 to 1995. After 1995 they start to get really out of whack and in in relation to GDP. Okay, so these financial assets, and I almost want to put the word assets and quote when their financial assets because they’re sort of smoke and mirrors economy, Wall Street economy, not the main street economy. They are showing that they’re in a bubble. Now the top US had 20% is responsible for most of the spending and the
Harry Dent 21:21
half the spending and they own 88% of these financial assets. Got
Jason Hartman 21:25
it? Okay. So in the US and understand how that relates. So when they pull back about 70%, or 72% of the entire s&p 500 is based on consumer spending. And so they spend less, that creates this downward spiral where that all those companies that supply all those goods and services, they’ll spend less and so this puts downward pressure on all of those stocks or 72% of them in the s&p, right.
Harry Dent 21:55
Yes, and yeah, really, this financial asset bubble has created this kind of extra wealth, and it’s not Spent, it’s not all spent, like normal income, but some of its spent and mainly by these rich people. So the economy is strong. And it would be I you know that that spending wave I showed in the first chart, that big blue wave of baby boomers and then the downturn with the experts like you, that shows our economy should have been not only not growing at 2%, it should have been declining, like it did for most of the 1930s overall. And so even the growth in our economy has been artificially propped up by this temporary artificial wealth from financial assets. But it’s been mainly this top 20% spending the money, not Homer Simpson, so they’ve been getting, they’ve been having the boom, they’re the reason it’s going up and when they stop spending, that they’re going to be the biggest reason. In other words, that’s normally a slowing economy causes a stock correction or crash, what’s happened, what’s going to happen this time, a crashing stock market’s going to cause a recession on its own, and then take us back to where we really should have been in a long time. recession Anyway, when when the largest generation in history naturally spent less because they don’t have kids to raise and get to college anymore.
Jason Hartman 23:09
Okay, let’s go to that next chart of the 90 year great resets.
Harry Dent 23:13
Yeah. Now this is a chart I’ve had some earlier one of the first charts I had along with the can draw a wave, four season cycle and the 30 year commodity cycle. This shows now if you go back to late 1700s, right there, we got this dotted line saying we’re going from British stock prices to us. That is when the stock exchange is started. Before that it’s all just a few big government owned stocks, like like the South Seas company and the Indian trading company, stuff like that. This is the real
Jason Hartman 23:44
company. Yeah. We’re going back a long way here.
Harry Dent 23:47
Since then, you can see now first of all, this chart is adjusted for inflation. And it’s also adjusted for exponential growth and it’s still exponential. I’m the stock market. Kids have grown so much in this era that you can’t even compare it to anything. First of all, we didn’t have stocks much before that but but this is already adjusted for exponential ality and for inflation and look at stocks go up and up and up and they keep bubbling more and more but note, every 90 years like a clock, you see a more bubbly stock market and a bigger crash and be looked back in the early 1800s 1837. The Panic of 1837 led to the biggest crash in stocks and US history down to 42. And I’m telling you back then Jason real estate was the center that bubble everybody moving to the west, government was giving away free land free loans overstimulating lots of speculation Chicago became the next New York in a matter of decades and then crashed 90 some percent so the biggest real estate crash and that was the biggest depression before the 19 3032. So you see okay then stocks after that. Big, big long time to get over that. Then they go up more normal rate. Oh, they’re bubbling in the 1929 Oh, and then big crash at 9% crash Great Depression even greater than that one back then. And here we are, then we go up note this time even faster than before. But then we get really bubbly here and then we’re just we’re right here coming 2019 to 20. That 90 year cycle I’ve been warning about this for a long time is due to hit and what central banks have really done is play into this bubble cycle by goosing financial assets. Again, not by lowering interest rates or a little fiscal stimulus, you know, building dams or something or running government debit, literally pushing trillions of dollars into financial markets to make them go up way more than they should as my model shows. And so this bubbles getting ready to crash and cause the next great depression, not recession, not 2008 nine that was a deep recession. This will be more like a depression. But good news for me, our fundamental indicators show that we should be done with this by 2023 and back up again, it’s between now and then that I am concerned and warning people to get out of bubbly real estate out of stocks all together. bonds, high quality bonds or good junk bonds you got to get out of if you’re in affordable housing that can run out if you’re in apartment buildings, even medical buildings and that sort of real estate investment, only high quality bonds and the best rental real estate hold up in a downturn like this. Everything else stocks commodities, you know, speculative real estate vacation and everything else goes down.
Jason Hartman 26:44
Yeah, wow. That’s something now what’s interesting about it is this is a pretty quick downturn, right? It’s
Harry Dent 26:51
why was it three years why why is it so why is it so quick? I’m glad I’m glad it’s short lived. That’s good, but why? Because when these bubbles burst, it’s just it’s a chain reaction because there’s so much leverage in the market since I mean, again, leverage being put in by these s&p 500 executives buying their own stocks, they’re leveraging their stocks. People can borrow money cheap and they can buy real estate. everybody buys real estate with low money down and all that sort of stuff, and uses profits from existing real estate to roll into even more speculative real estate. So you build these bubbles. There’s a lot of debt and leverage behind it when these debts fail. It just exacerbates the whole thing. So 29 to 32. In 2.7 years, stocks and again, we’re talking blue chip stocks, not penny stocks, not small cap stocks, not Zimbabwe stocks or emerging countries like blue chip US and European stocks. And in case the US went down 89% in 2.7 years, and you know what, never saw that again, did nothing. Look look at the chart, you go back to the 30s that great reset from the three to the four kind of thing. Then in the early 30, stocks did nothing but go up and beat up bought stocks and either made money forever it’d be to bought real estate stocks bottom in July 32, the real estate market bottomed in March of 33. And from then if you’d bought real estate or stocks, you’d have made money for ever, you’d have bought them at the lowest price ever. And you would never see that again. That’s why this is get scared when I say this, but this is a huge opportunity.
Jason Hartman 28:24
Yeah. Okay. Let’s look at the NASDAQ and the Fed balance sheet, the balance sheet of the Federal Reserve versus the NASDAQ. What’s going on there?
Harry Dent 28:33
Yeah, okay, so that 90 year cycle right now is the most important provable saga, it’s actually 245 year technology cycles building edge. That’s another part of my model. I’ve got my demographic model, my technology model, the technologies create these bubbles. And I mean, what’s the biggest bubble now Microsoft, Google, Apple, Netflix these tech leading technologies. Since what happened here recently, the Fed is had been doing all this quantitative easing into 2014, then they just kind of held off and then just kept it even. They didn’t. They didn’t reduce their balance sheet stimulus, but they didn’t increase it. But then in 2018, they did they started selling their bonds, instead of buying that means you’re taking money out of the financial asset pool, and things got down, the bank reserves went down and stuff until all of a sudden the repo the overnight lending market, for banks to banks, especially banks that are on leverage speculating and stuff and hedge funds, that sort of stuff dried up, and the Fed had to step in the Fed said, oh, we’re going to taper and you know what, we’re confident tapering because we think the economy is so strong, we don’t need all this stimulus anymore. And I’ve said from the beginning note, without the stimulus, this economy will die so fast, because it’s so artificial.
Jason Hartman 29:47
That’s so then that and that just you know, compared to what again, that’s every economy on the planet, every now pretty much Lana
Harry Dent 29:55
Yeah, in fact, we’re not Japan’s way worse than China’s way more overweight. Average. We’re Europe’s got worse demographics. Yeah, we’re still the best house in a bad neighborhood here. I’m showing how bad it is here. That’s that’s
Jason Hartman 30:08
that’s that’s the that’s the really amazing thing, Harry. You know, you so aptly pointed out that Japan’s got a huge demographic problem it’s been suffering with for a long time. Japan has got weird stuff going on. You know, there’s just that’s just a strange
Harry Dent 30:22
dichotomy, like young people
Jason Hartman 30:24
not having sex. Oh, yeah, I know. It’s totally weird. Like a woman in Japan marry themselves. They have weddings with just them no groom.
Harry Dent 30:33
It can’t afford to have a man it can’t afford to have
Jason Hartman 30:35
a kid. It’s just weird. Yeah, Japan has a different kind of bird. But China, and I mean, we’re not even discussing Coronavirus or anything like that yet, or, you know, maybe we won’t at all but but China has a demographic problem due to the one child policy now. That hits that starts to show itself in about 10 maybe 15 years ago.
Harry Dent 30:55
No backup Jason no it their workforce already. peaked in 2011 and has been declining. The second thing they’ve been doing is over amping urbanization, removing people from rural urban areas, the price of real estate from all their stimulus and overbuilding and growth, and the pollution and the in the traffic are so bad that these rural migrants are actually turning around going back to the country. Yeah, now they have two things. Their demographics have been weakening, but if you keep building stuff and then urbanizing Well, now the urbanization has stopped and nobody sees that I dig out this data and say, Hey, the demographics peaked in 2011. The first emerging country to peak like Japan was the first developed country to peak back in the early 90s. China is the first emerging country to peak in demographics and now their urbanization is backfiring on them they are gonna go down you know,
Jason Hartman 31:49
Healy biggest bubble. I remember in the late 80s, all of the xenophobia about Japan. Everybody was worried Oh, Japan’s buying the US they bought right Rockefeller Center, they’re buying, you know, the movie studios, they’re buying everything. And turns out, all that really happened is they bought that stuff at the peak of the market and paid taxes on it for several years and then sold it back. I know.
Harry Dent 32:14
It’s like the s&p 500. They’re leveraging in a bubble, these s&p 500 companies, and then people gonna be able to buy their stocks back at a bargain when they bought them at the highest prices and screwed their own show.
Jason Hartman 32:27
I know. And then if anybody listening is worried about you know, if they’re like in the US or in the West, and they’re worried, oh, China’s gonna take over. I think I think if you look at the 10 largest economies in the world, the US is like you said, it’s the best looking house in a bad neighborhood. Okay, the US is in pretty good shape comparatively. And
Harry Dent 32:49
we’re going to come out of this the best in the developed world outside of Australia has got stellar demographics, because they’re getting all this age emigrate. But let me pull something else out because I just got this the other day China, they finally had a study by the University of Hong Kong, which is more independent and can do this thing and show that China has been over reporting their GDP systematically.
Jason Hartman 33:10
Imagine that.
Harry Dent 33:12
So first of all, when you look in US dollars, there are economies only 65% 64% as large as the US after all this massive expansion and high growth, when you adjust for the real growth rates, which they said were 1.7 percentage points lower for the last decade. They’re only 54% the size, their GDP per person, which really counts because they got four times by 9800 under their reported GDP statistics, but under the new ones, it’s 8000. So they are a sixth of our standard of living so China for and they also said China now, even if their growth rates double ours in the past decade or something, they won’t surpass us as the largest economy till 2036 I think they’re gonna have a bigger downturn than anybody think. So I think it’s going to be 2040 or later. And their GDP per capita will never surpass ours. So yes, and I was I came up with my indicators. So it’s, you know, that spinning wave I showed you and many others in the late 80s. Finally, formally, and it showed me Japan was getting ready to collapse. They had a bubble that we didn’t have, and their baby boom was getting ready to tank which would trigger that bubble burst, you know, and everybody said back then Japan was gonna overtake the US economy in two decades, which back in that case, unlike China, with such massive population, urbanization, that was not even possible, the Japanese would have to have three times the GDP per capita to make up for a smaller generation. So it shows you how economists just project trends and don’t understand cycles and don’t adjust things. You remember when you said before, is this adjusted for, you know, inflation? Well, yeah, and is it are things adjusted for the size of the economy. GDP if you don’t make these adjustments, then statistics don’t make sense.
Jason Hartman 35:04
It’s really something it really is hairy. Are you finished with the charts?
Harry Dent 35:08
Well, just this last chart, okay. The biggest short term thing happening is the Fed because the repo crisis was forced to inject money. And they say, Oh, it’s not quantitative easing. We’re just buying repo. Every time you inject money now what you’re
Jason Hartman 35:22
tight Wait, wait, what you’re talking about is the repo market. Okay, which has been talked about a lot lately that has been in the news, big time. Explain the repo market, just so our listeners have some context there, Harry, if you would,
Harry Dent 35:35
yeah, yeah, banks, you know, especially in this Bob, oh, boom, do a lot of speculating hedge funds. So Wall Street’s always doing a lot of speculating on leverage and stuff. So banks and financial institutions, you know, like, you know, Merrill Lynch and all these sort of stuff. They are basically, you know, they have certain margin requirements and things they have to meet and overnight, sometimes a bank, oh, we’re not meeting our regs. So we need to just borrow money. So They just borrow overnight. And what typically happens is the really big banks like JP Morgan and stuff and Bank of America, really big banks have so much assets and reserves, they’ll just do these overnight loans to make, you know, one and a half 2%, blah, blah, blah, well, when their reserves got down when the when the Fed started shrinking their balance sheet, which shrinks reserves twice as fast, and I want to get into that, but that’s what happens. These banks have said, Well, wait a minute, we don’t have enough liquidity here to keep doing this. And the Fed had to step in. I’m telling you how much 420 $4 billion since mid September, when this happened, they have put into the market to keep it flush. So basically, they had to go back to injecting money and I don’t care if they buy t bills or bonds or Japan’s even buying stocks. They’re so desperate to put money in doesn’t matter what you buy. It’s increasing the money chasing all financial assets, because it’s its own pool. It’s not going to the bank lending. As I said before, It’s not going to consumers if you wanted to really stimulate the economy, you would send a check to consumers and then it would be spent and it would go into bank bank accounts and bank lending potentially but so the Fed basically said oh, we’re taper everything be all right. And I warned No way. The repo crisis was the first sign of many to come. The economy cannot live without crack. It’s a markets on crack. They’re living on stimulus, all this additional liquidity, all these super low rates, which makes stocks and real estate more valuable, just the low rates alone. Without it all this thing comes down in the economy class. So this is the first warning Oh, no, if the Fed shrinks their balance sheet, well now I’m telling you within months, the feds going to be back at their peak before they tapered. But the point is I now have an indicator on a two and a half week lag. So it gives us a little notice two and a half three ways. Stocks are following we’re in this final center following this injection. By the Fed, right, right. And I’ve been saying we’re due for a correction which we’re now getting, because that has been moving sideways because the repos have gone down in need, but the feds still pumping money in addition because they don’t want this repo crisis to come back and the Fed and all central banks are reacting to the Coronavirus Oh my God, if this thing blows up, we better have a lot of liquidity in the economy, so the economy doesn’t blow up with it. So and this is why stocks are going up now and why they’re going sideways. Now, I think that central banks and the Fed are going to keep stimulating more but at least now, if they do start to taper if they if this indicator, the blue line will go sideways or down and stocks are going to go sideways to sit down if it starts to accelerate, which I expect is more likely to happen in the coming months. They’re gonna go right back up again. So this is a short term saying, okay, here’s what’s happening short term. This is how the final Bob is being stimulated by this fed injection. And the same thing happened in the tech bubble. In late 99, the Fed suddenly put in 150 billion dollars, which now would be like 300 billion and equivalent, you know, adjusted for inflation turn. And that goes the last six months of the tech bubble. And then it burst as soon as they pull that back. So So this repo bubble is playing into this final bubble. And I’m just telling people as much as I know this is going to crash. It ain’t time to go running from stocks yet until you see the Fed pulling back we’re going to be telling our subscribers Hey, you know, we’ll let you know when it looks more dangerous right now. This corrections probably not going to go a lot lower and interesting. If they step up more stimulus, then it’ll it’ll go up again.
Jason Hartman 39:49
Okay. Very interesting, Harry. This will be continued on the next episode. Thank you for listening and happy investing. Thank you so much. for listening, please be sure to subscribe so that you don’t miss any episodes. Be sure to check out the show’s specific website and our general website Hartman. Mediacom 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 and any other specialized area, please consult an appropriate professional. And we also very much appreciate you reviewing the show. Please go to iTunes or Stitcher Radio or whatever platform you’re using and write a review for the show we would very much appreciate that. And be sure to make it official and subscribe so you do not miss any episodes. We look forward to seeing you on the next episode.