Rannita Aing January 27, 2012 Econ 3502 Professor J.

Dileonardo HS Dent- January 2012 Update: In this January 2012 update, Harry Dent of HS Dent has uploaded his thoughts on what is in store for markets in 2012. Harry Dent makes based on demographic trends and their effect on the economy. He provided us with his insight and offered his expert advice on what to do in a market like this. The first thing Dent talked about was the artificial rally. According to Dent, we are currently waiting for the artificial rally to come to an end. This rally is from the federal & government stimulus. Dent mentioned that baby boomers have peaked in their spending around 2007. Our 42 trillion $ in debt is starting to de-leverage but that is due to the government throwing in trillions of dollars (for example, loan guarantees) to stop the financial system from melting down. What this did was push more money into the banking system. This was money that had not been lent but reinvested in higher leverage investments. The higher leverage investments created a third bubble, such as commodity, bonds, & junk bonds, are all increasing in value. This is referred to as risk on trade. The 'risk on trade' is due to finish in Jan or by mid- March. In looking at the SP500, Dent thinks 1294 is a sell signal. Although 1371 will

be a very clear signal to sell, he feels it is better to be safe than sorry and people should get out of stocks ahead. Dent feels the risk on trade getting ready to come to an end and we need to get out of stocks now. U.S. shares could take a hit if the money stops flowing. This was his warning to investors because the baby boomers peak of spending is age 46 (2007). They are getting ready to hit a plateau at age 50 in 2012 so spending will drop. Because the economy is better than expected, there will be a rise in spending so that has kept the feds from further stimulus. Without stimulus, due to baby boom slowing and deleveraging, this economy would be dead. The best plan right now is to be strict. In his point of view, austerity is the right policy, even if it means short term pain, but can help avoid long term insolvency. The Germans wont bail us out unless we cut spending and raise taxes. Looking at the short-term point of view, Europe will continue into recession. As Europe and the US economy slows, affecting Chinas exports, other countries exporting commodities to China will be affected and a global slowdown will take place. There are 4,000,000 foreclosures currently and expected to take place. Banks have been trying to hold these foreclosures down because they do not want to hurt a market that is in a fragile condition. They had their hopes set on the Federal government for aid. They hope the Feds could assist the economy so the prices of homes would go back up. With the prices of homes

going back up, they can sell houses and not have to write off bad loans but Dent believes this will not happen. If we go into a slowdown, Banks are forced to jump more foreclosures on the market because they are in need of money. Our US Dollar and treasury bonds have also been going up.