The recent gyrations in global stock markets are just the beginning, says U.S.-based economist and author Harry Dent, who believes the Dow will fall below 10,000 in the near term before crashing to around 3,000 in 2013.
"I think the stock crash started in late April. This is just the first wave down...I think the crash really starts some time in early 2012," said the Founder and CEO of economic research company HS Dent and author of upcoming book "The Great Crash Ahead".
He pointed to the selloff during the last global financial crisis, when the Dow
[.DJI 11061.12 68.99 (+0.63%) ] lost around 8,000 points in the period between October 2007 and early 2009.
Dent based his bearish predictions squarely on the changing spending habits of global consumers.
"Baby boomers around the world, and all the developed countries — Europe, North America, Australia — they have peaked in their spending cycles...they've been driving up real estates prices and stock prices and the economy for decades, and now they're going to be saving and not borrowing," Dent said.
Accentuating the problem is the deleveraging of U.S. private debt, which has doubled to $42 trillion from $20 trillion in the last eight years, according to Dent, and is now valued at three times the size of the nation’s public debt.
"That debt is deleveraging, and that's actually causing deflationary trends. It won't matter how much stimulus the government throws at the system, because baby boomers with their already huge debt burdens will not want to borrow money and spend more,” said Dent.
"In the Great Depression, that's what happened — deflation came in such a deep downturn because so much debt was deleveraging."
BRENDAN CONWAY Dow Jones Newswires September 13, 2011
Bruised Wall Street shares stage late turnaround on China hopes
The Dow Jones Industrial Average closed up 68.99 points, or 0.63 per cent, at 11,061.12, in choppy trading that had sent the measure down as much as 167 points before a burst upward in the last half hour of trading. The S&P 500 index gained 8.04 points, or 0.70 per cent, to 1162.27. The Nasdaq Composite rose 27.10 points, or 1.10 per cent, to 2495.09.
In response the sharp turnaround, the Australian share price index futures contract jumped 40 points, suggesting the benchmark S&P/ASX 200 index could rise about 1 per cent in early trading. Yesterday, it slumped 3.7 per cent in its biggest one-day fall in five weeks.
New York traders late in the session cued off a report in The Financial Times that China was in talks with Italy for "significant" purchases of government bonds, which would help one of the most important of Europe's heavily indebted governments. Traders earlier in the session had been preoccupied with worries that Greece's sovereign-debt crisis was coming to a head.