Posted: January 06, 2019
I read the book Zero Hour this past weekend. It is both interesting and terrible all at once. Let me explain.
I will say that rediscovering the Toronto Public Library has been great as I was able to get access to books I would have otherwise bought, read once and got rid of. For example: Zero Hour.
This book is both interesting and terrible. I will start with why it's terrible. The terrible portion almost destroys what could otherwise be a great read.
Terrible!
So what is this book about? Well at a high level it talks about a once in a generation/lifetime/century culmination of a bunch of cycles and demographic/debt related problems that will cause the major asset bubble from the last 10-20 years to come crashing down wiping out 50-80% of equity and real estate market wealth. The percentage prediction seem a bit excessive but you can see from some of their demographic and debt examples how trouble is brewing! More about that later.
But why is it terrible? Well the first half of the book is largely devoted to talking about cycles that occur revolutionarily, politically, and financially. Apparently all these cycles (and many more) are lining up to cause massive chaos (and then thankfully renewal) in the coming few years. The problem is these cycles are not based on demographics or some other data, they are simply listed as cycles because the author (Harry Dent) and co-author (Anthony Pancholi) have seen patterns over the years.
For example the Protestant Revolution and American Revolution are 250 years apart, therefore there is a 250 year revolution cycle. and expect the next one in 1776 + 250 = 2026 (or thereabouts to fit their model of their 2017-2023 period of problems). A lot of the argument for a new revolution is based around Globalization creating tension everywhere (over religion, immigration, trade imbalances) and need to reset to a more natural state of more regionalized and culturally aligned bottom up trade and economic growth.
Another example is the 28 year financial crisis cycle including 1933 (mid depression), 1961 (Bay of Pigs), 1989 (Berlin Wall) and next 2017 (which didn't happen - but to be fair hindsight is 20/20). You may note a few things - 1933 is mid depression, not the start, 1961 the S&P was up, 1989 the S&P was up, 2017 the S&P was up. As well this financial crisis cycle missed the 2008 financial crisis - the biggest since the great depression.
I could point out many other cycles and examples (some also quite loose) they've chosen but what makes this cyclical part of the book terrible is:
1) They have listed so many cycles it's impossible not to find some patterns with all the options which kills credibility. Cycles they noted: 84 (or 80), 28, 250 (or 252 for convenience), also 100, 10, 30,45, 60,144,180, 90, 165, 500, 60-80, 34, 39. Each one is a different type of cycle in theory but they don't stick to that rigidly in the book.
2) As with the Great Depression example they are lose with the years as in it's an 80 or 84 year cycle or something major landed just a bit early or late or around the next cycle date or during a period of for example the 6 year long WWII.
3) There are so many world events that can be pointed to you can't not find something of significance every year. Often they point to relatively minor or isolated events as if they rocked the world (first woman's conference in the 1800s, civil wars in the Middle East/Africa, Oil embargos). These were important events but hardly were as game changing as the Great Depression and the world wars.
4) Harry starts to go a little off the handle when they point to sunspot cycles causing financial cycles although again it doesn't seem to line up that well with the examples they gave
As the book wore on they pointed to so many perceived cycles that it felt like everything was a huge stretch and really none of these cycle really were worth talking about because the other parts of the book had some actual substance rather than just cycles with periods which have no logic behind them.
The main cycle which seems most relevant was the frequent reference to their personal & business websites where you can go to for more information (and to buy their products no doubt).
Non cyclical silliness
There was also the prediction around a US state (maybe California) separating from the US by the end of 2018.
I supposed like any good prognosticator they have to make bold predictions but give loose timelines. This way they can get lots of attention and clog to any relevant event that happens roughly within their wide timeline. In this case their claim of 2017-2022 having a major market crisis is quite broad but gives them room. But I have no idea why they'd risk saying a US state would separate within 18 months of publishing the book.., it seemed so improbable.
I should also note: Harry dent says if there’s no major financial crisis by early 2020 he’ll quit and become a limo driver. This will be interesting, he has 12-14 months to go!
Some of the book was interesting
Now that I've said my piece on their silly cyclical talk I will say there are some good themes in the book which I've heard of before but they've put some good data around them. They tend to focus on demographics.
The real persuasive argument here is that demographics in terms of working and consumer spending years are shifting unfavorably for America, Europe and China and the only thing holding up economies and markets since the start of the negative demographic shift has been QE, historically low interest rates and general central bank market manipulation.
These low rates & QE have caused massive debt build ups and asset bubbles. All of that needs to be reset to let markets and economies return to their more natural states They give the example of Japan and the massive stimulus and debt taken on to try to stem the fact they their population is aging and has recently started to decline.
China is in the aging stage and their urban workforce the book claims is starting to decline already. The US is losing it's boomer spending power as they retire and Europe is in a similar position in most (not all countries).
All of this combined is what's causing the slow world growth and no amount of low interest and QE will change demographics. We will have to rest the debt issue we've created and let new emerging and growing markets (which are also urbanizing) led grow in the coming decades. In the mean time the US, Canada, UK, Australia, NZ, Scandinavia will largely continue to grow but not be the major growth engines. The rest of Europe seems somewhat in trouble.
Where to look for savior? Southeast Asia and India!
Final conclusion of the book
1) There will be some major political and financial turmoil in the 2017-2023 period which will lead to major financial losses and shake out the debt filled rotten core of the economy. This will cause stock markets and real estate to crash as much as 80%. China/Debt/QT will be at the heart of the crisis.
2) Where to put your money? T-bills (for a short period), $USD/cash, market shorting ETFs and high quality bonds.
3) This will be followed by a slow but healthier financial recovery lead by new more local cooperation between more closely aligned groups, moving away from all out Globalization. (Ex Red / Blue states, Muslim/Conservative nations creating economic regions, Progressive / Northern sticking together).
4) There will be another commodity super cycle led by India and some Southeast Asian countries in a decade or so.
5) In general growth will come from demographic shifts which result in growing GDP/capita (urbanization) and population growth. Most of this again is in India, Southeast Asia. Africa and the Middle East can contribute if they shift to democracy/capitalism.
So...Should you read this book?
It is an easy read and has some interesting information. I would say though only read it if you want to see their view on current world macroeconomic issues (or you like cycling).
Enjoy!
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