Tea Leaf: The Economic 'Doomsayers'

Published: Wednesday, March 7 2012 10:00 a.m. MST

Trader Kevin Lodewick, right, works on the floor of the New York Stock Exchange Tuesday, Jan. 10, 2012.

Associated Press

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Ok, I will admit it — right off the bat.

I do not think much of those economic forecasters whose only message is, and nearly always has been, that U.S. economic and global collapse is just around the corner.

They do sell a lot of books and high-priced newsletters — after all, “bad news does sell newspapers”.

A recent story in USA Today noted three authors or writers (I won’t insult them by referring to them as economists) who all predict economic devastation pretty much just around the corner.

Harry Dent, author of the new book, "The Great Crash Ahead," says another stock market crash is coming because of a bad end to the global debt bubble. While he did predict some major stock market hits last fall (didn’t happen), and had focused on a domestic and global meltdown in 2012, he now sees the crash coming in 2013 or 2014.

Dent suggests the combination of aging Baby Boomers exiting their big spending years and a shift toward debt reduction and austerity around the world will cause the economy to suffer another leg down, making it more difficult for the government and Federal Reserve to avoid a new meltdown. Surprisingly, Harry used to be on the other side, writing "The Great Boom Ahead" in 1993, as well as other books focused on stocks going to much higher levels.

Gerald Celente, a trend forecaster at the Trends Research Institute, says Americans should brace themselves for an “economic 9/11” due to policymakers’ inability to solve the world’s financial and economic woes. The coming meltdown will lead to growing social unrest and anti-government sentiment, a U.S. dollar with far less purchasing power and more people out of work.

He won’t rule out a panic that could spark enough fear to cause a run on the nation’s banks by depositors. That risk, in his opinion, could cause the government to invoke “economic martial law” and call a “bank holiday” and close banks as it did during the Great Depression.

Note: My view would suggest that a bank run is a virtual impossibility. As long as the Federal Reserve has the ability to “create” money, banks WILL have sufficient access to funds

And then there is Robert Prechter. He is always bearish, and makes a very nice living scaring people all of the time. He says today’s economy has similarities to the Great Depression and warns that 1930s-style deflation is still poised to cause financial havoc. Prechter predicts that the major stock indexes, such as the Dow Jones Industrials and the Standard & Poors 500, will plunge below the bear market lows hit in March 2009 during the last financial crisis.

The Consensus View

Note that these doomsayers obviously do not represent the more optimistic view of dozens of seasoned forecasting economists. Yes, risks are out there. Yes, the European sovereign debt crisis could end in a very ugly way. Yes, Iranian actions to destabilize oil flows in the Strait of Hormuz could impair the economy by forcing oil prices temporarily higher. Yes, an Israeli or U.S. (or coordinated) attack on Iranian nuclear facilities could sharply raise global tensions.

Here is a mostly useful piece of advice. Ignore the forecasts of economists. After all, forecasting the future is not easy. Economists make forecasts of the future not because we know what is going to happen, we make forecasts because we are asked to.

A big difference.

They do look at what the stock market is saying. This is where the real brains are. The stock market, with the Dow Average at 13,000 — a four-year high — suggests that there is enough underlying strength in the U.S. and global economies to weather the storm, weather the risks that the market can see.

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