By Harry S. Dent Jr.
Reviewed by Jon Ford, CFP®
Jon Ford, CFP®, owns CF Financial Planning Solutions, Inc. in Mesa, Arizona. He writes a regular "Financial Fundamentals" column for the Cedar Falls Timesin Iowa.
If you've ever been fascinated by predictability or the thought that understanding life cycles might answer your investment questions, The Great Depression Ahead: How to Prosper in the Crash Following the Greatest Boom in History (GDA) is for you. The author describes how age and aging affect fundamental economic trends, inflation, the "New Economy Cycle," and much more, including the next great depression. You will learn about the next New Deal, geopolitical and civilization cycles, the revolutionary and generation cycles, Elliot and Kondratieff wave cycles, and more.
I found GDA lucid, interesting and logical in its path to recommended investor activities. Its clarity is outstanding and the final chapters that describe how to move forward in today's economic scenario are offered without wavering-until later. He describes investments to avoid and to purchase going out 1, 3, 10, 50 years and longer.
The author seems to be a master of data mining; that is, if one looks at enough relationships and occurrences along a timeline, a pattern begins to emerge. From there, he sees patterns among and within overlapping, longitudinal, and multi-dimensional conceptual blueprints.
Are his ideas of interest to financial planners? Of course-the sheer breadth of his analyses and action orientation should delight us all. However, in order to suggest that financial planners actually take action with clients is another matter. A number of very powerful influences require convergence in order for such a leap of faith.
For one, the author's abstract framework takes shape around forecasting theory, and as such relies on the certainty of assumptions related to stochastic models. We all use stochastic models because they are designed to add assurances where little or none may exist; normal curves in their apparent simplicity and the more knotty Monte Carlo Analyses are examples. Unfortunately, as we've discovered with LTCM and others, even minor violations of the assumptions lead to predictive breakdowns and the theory of small numbers becomes dreadfully destructive.
Further, the demographic and technology cycles which the author uses to generate future business and economic trends contain much room for error. Fertility, mortality and immigration rates are subject to wars, political climates and economic variables. For instance, unforeseen catastrophic "wild card" events (John Peterson's 1997 book) or as later termed "black swan" events (Nassim Nicholas Taleb's 2007 book), promise structural changes that may wholly alter any or many cycles described in GDA.
This book is authored by the same person who in 2006 predicted Dow 40,000. He is quick to point out when and how he publically recanted, and requires his followers to obtain online corrections to current predictions. What percent of your clients' portfolios would you subject to a system like this?
Free Press (2009)