If you have been reading Harry S. Dent, Jr., you know that he has a real knack for taking demographic trends and turning them into investment insights. The U.S. stock, bond and real estate markets are strongly influenced by how many people are at what ages. That's because there are predictable spending levels and types of spending for each age group. For instance, young people are more likely to rent than to own and older people are more likely to buy a retirement home than a primary home.
In The Next Great Bubble Boom, Mr. Dent argues persuasively that we are about to see the best markets for buying and selling stocks and residential real estate for the next several decades . . . to be followed by a very poor period of economic performance that will last for many years beginning in 2010.
His demographic argument is buttressed by a look at technology cycles, historical economic and financial cycles, and various social trends. His demographic information on life cycle spending is much more developed here than in earlier books.
As far as it goes, this book is a wonderful resource that anyone can use to make more money by shifting their investment focus for the next five years. I strongly recommend that you read and apply this book!
What are the book's weaknesses? There are several.
1. He is overly impressed with back testing of various strategies. You will read more pages than you want to see how one focus versus another would have fared in the past. But the future is always at least a little bit different. For instance, the book doesn't look into the worldwide commodity boom and the rapidly deflating dollar . . . both of which will impact his scenarios.
2. He believes in risk adjusted returns rather than raw returns. But you cannot spend risk adjusted returns. Most people measure their wealth in the value of what they own. That often means that higher risk investments do better in boom times.
3. He doesn't think that politics matters very much, but shifts in tax policy can have a large impact on the values of various classes of assets . . . and the recent election suggests that tax policy is about to change. Stay tuned.
4. He likes the U.S. so much that he doesn't really consider the alternative investments to be very attractive, because of his sense of risk adjusted returns. For instance, even though Latin America looks great from the perspective of his tools, he says don't invest there because governments have been volatile in the past. I suspect that U.S. investments will do worse in dollar terms than investments in developing countries that export raw materials and have favorable demographics.
