The Predictions of Harry S. Dent

Financial Crisis Worst is Yet to Come, Market Forecasts Into 2015

His predictions don't seem that irrational to me.

Here are the predictions of my gut.

1. Oil will outpace the stock market during a recovery. We saw this during the last recovery and we are seeing it now. When the stock market rises, the price of oil rises more. The reason we are seeing it, at least in my opinion, is because there is no clear cut growth engine other than things that burn oil. We don't have an illusion of an energy efficient dotcom bubble to chase any longer. Future bubbles seem to be based on building things (in China) and then powering them (in China).

2. At some point, the rising price of oil will cause everything to come crashing back down again. The first problem is that the Fed needs to inflate or die. The second problem is that all things do not inflate equally. The third and most important problem is that the inflation of some things causes serious economic pain.

Maybe I just watched too many Mel Gibson movies. That's what my gut thinks though and why I can remain a stagflationist long-term even though deflation has arrived.

Cushing, OK WTI Spot Price FOB (Dollars per Barrel)

Note that the price of oil bottomed at $30.28 on December 23, 2008.

Bloomberg: Energy Prices

Today it is $49.16.

That's actually a 62% increase. In sharp contrast, the S%P 500 is a mere 15% off its March 9th bottom.

I was not a believer in a long-term commodity based stock market rally in 2004. I'm not a believer now. We may indeed have an impressive stock market rally from here, but I doubt very much that it will usher in a new permanent round of prosperity.

There is just too much money floating around out there in the hands of the uber rich and at least some of it will be willing to chase oil again. The oil market is way too small to absorb it, just like it was last time.

Allow me to do some "crude" back of envelope calculations to show you what I mean.

Petroleum Basic Statistics

U.S. Crude Oil Imports from OPEC: 5,980,000 barrels/day

At $50 a barrel, that's $300 million per day.

In theory, a $700 billion stimulus plan could therefore pay for 6 1/2 years of imported OPEC oil. In practice, the price of oil would rise exponentially as the money was spent though. Too bad. Free oil for every American for 6 1/2 years would have been one heck of a stimulus.

Want to guess how many years of imported OPEC oil the $50 trillion that was lost during this global recession could have bought us? Try 456 years. Once again, that's just in theory though. I'm fairly confident that we couldn't have bought 456 years worth of imported OPEC oil at any price.

That's how small the oil market is when billions and/or trillions of US dollars attempt to compete with it. That's why I am comfortable being a long-term stagflationist. And when I say comfortable, I actually mean terrified. It's almost like we are letting the terrorists win.

September 19, 2008


Since 2001, our economy has faced a recession, the bursting of the dotcom bubble, major corporate scandals, an unprecedented attack on our homeland, a global war on terror, a series of devastating natural disasters. Our economy has weathered every one of these challenges and still managed to grow.

Update:

On September 19, 2008 the S&P 500 closed at 1,255.08. After the past week's impressive rally, it closed today at 778.12. That's a 38% loss.