Bubbles Don’t Correct, They Burst

By Harry S. Dent Jr., Senior Editor, Economy & Markets

"...the second greatest bull march in history is finally coming to an end. It’s done.

Wall Street thinks this is a correction – a 10% drop, maybe 20% at worst, followed by more gains. They think we’re just six years into a 10 if not 20 year bull market. This is just a healthy breather.

Of course they think that! It’s the same “bubble-head” logic you find at the top of any extreme market in history!

Every single time – without exception – we delude ourselves into believing there is no bubble. We think: “Life’s good, why should we argue with it?”

And every time, we’re shocked when it’s over. Only in retrospect do we realize, yes, that was clearly a bubble, and oh, how stupid we were for not seeing it.

Bubbles don’t correct. They burst. They always do. And if anyone is still doubting whether this is a bubble, they need to get with the program – now!

Like I said on Fox yesterday, I wasn’t always a bear. I was one of the most bullish forecasters since the late ‘80s because I discovered how you can predict the spending of consumers through demographics.

With one simple indicator I predicted the Japan crash in the ‘90s when everyone was saying they’d overcome the U.S.

I predicted the greatest boom in U.S. history thanks to the spending of the Baby Boomer generation. All from demographic research, driven by my top cycle, the Spending Wave.

And from that, we knew the Boomers would peak in 2007 followed by a slowing economy.

So after the U.S. and global stock markets finally burst in 2008, central banks stepped in and began an unprecedented and globally orchestrated effort to stop it.

We’re not the least bit unclear about why this unprecedented stimulus has only created mediocre 2% growth and little to no inflation.

It’s turned into one big game of “Whack-a-Mole” with the economy. They take one bubble burst, whack it with massive money creation, and then create the next bubble, wait for it to burst, and whack that one too.

What they can't seem to get through their heads is – you can't keep a bubble going forever!

We had the stock bubble in 1987, the tech bubble of early 2000, the real estate bubble in early 2006, another stock bubble into 2007, oil in mid-2008, gold in mid-2011 – and now, a final stock bubble into 2015.

They’ve all burst, or are still bursting!

Oil’s down more than 65% from its secondary peak in 2011 and was down 80% from its all-time high in 2008. Gold’s down 40% from its 2011 high.

Bubbles typically crash 70% to 80% before they fully deleverage. But when they burst, they usually kick off with a 20% to 50% slide right out the gate – most often within a matter of months.

Oil will keep falling – likely to $32 in the next month or so, crushing the fracking industry, and obliterating economies in the Middle East, Russia, and even Canada.

At the rate it’s been falling –$38 now – $32 is probably a conservative estimate! ,,,I’ve been predicting for many years that oil will eventually hit $10 to $20. [e.g., Gary Shilling also calling for $10-20 oil.]

How will the frackers survive that?

Simple: They won’t!

China’s stock market will also keep crashing – it’s already down 42%. When it does, its real estate will follow – with devastating consequences to real estate in the U.S. and the globe. And over the next several years, we’ll see the greatest global crash in real estate in modern history.

Even if stocks manage one more rally, there’s no avoiding the economic landmines all over. Over the last few trading days, we’ve seen how investors react to poor economic news.

The truth is that the markets are finally getting what we’ve been saying about the vicious cycle of China slowing. It hurts commodity prices and crushes emerging countries. No kidding!

When this bubble economy fueled through zero interest rates and endless QE finally does burst, it will only be worse.

This whole ordeal has taken longer than we would have initially expected from history. But it was unprecedented that central banks would come together on a global scale to fight a natural bubble-burst cycle with such massive money printing.

And whereas in 2007 we had a stock bubble driven at least somewhat by market fundamentals, in 2015 it’s just the long, drawn-out drama of a drug addict pumping too much heroine for too long. Now, detox is ahead!...."