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Welcome Harry S. Dent, Jr. Rodney Johnson

Welcome Harry S. Dent, Jr. Rodney Johnson. Introduce Staff Terry Reid – Advisers Network Charles Sizemore – Research Stephanie Gerardot – Research Ashley Murnane – Research Intern Nicole Nonnemaker - Publishing. Welcome New Advisers. Alyse Marie Gerardot February 6, 2007.

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Welcome Harry S. Dent, Jr. Rodney Johnson

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  1. WelcomeHarry S. Dent, Jr.Rodney Johnson

  2. Introduce Staff Terry Reid – Advisers Network Charles Sizemore – Research Stephanie Gerardot – Research Ashley Murnane – Research Intern Nicole Nonnemaker - Publishing Welcome New Advisers

  3. Alyse Marie GerardotFebruary 6, 2007

  4. The Next Two DecadesForecast and Investment StrategiesPresented by Harry S. Dent, Jr.

  5. The Spending WaveBirths Lagged for Peak in Family Spending Source: H.S. Dent Foundation

  6. S&P 500 Earnings 5 3 4 1 2 Actual data through 9/30/06, S&P estimates through 12/31/07. Source: Standard & Poor’s (www.spglobal.com)

  7. Real GDP Growth Jul-07 Jul-08 Jul-09 Jul-01 Jul-02 Jul-03 Jul-04 Jul-05 Jul-06 Jul-10 Source: Bureau of Economic Analysis

  8. Historical Price of Oil1946-Present 5 5 3 4 3 b 1 2 a c 4 1 2 Source: Dow Jones Energy Service

  9. 29-30 Year Commodity Price CycleCRB Index (PPI before 1947) 2038-39 2009-10 1980 1920 1951 Source: Yahoo! Finance

  10. 34-36 Yr. Geopolitical CycleDow Industrials 20,000 Source: Yahoo! Finance

  11. Dow Channel1974-2010 5 50,000 20,000 3 10,000 4 5,000 1 1,000 2 2005 2010 1980 1974 2000 1985 1990 1995 Source: Yahoo! Finance

  12. Dow 1990s vs. Dow 2000s Target Range 18,000-21,000 18,000 Late 2009 15,000 Early 2008 Jan-06 Jan-05 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Source: Yahoo! Finance

  13. PPI Index1913-1923 Source: Bureau of Labor Statistics

  14. 5 B D E C A Nasdaq Composite1998-2025 Source: Yahoo Finance

  15. Mobile Phone S-Curve Innovation Growth Maturity 100 90% 90 80 70% 70 2005 65% 2004 60 Percent of Households 50% 50 47% 40 2000 30 13% 20 10% 1995 .1% 10 2% 1990 0 2001 1993 2009 Source:Infotrends Time Source: Infotrends

  16. Internet S-Curve Innovation Growth Maturity 100 90% 90 76% 80 2005 69% 70 2004 59% 60 2002 50% Percent of Households 50 44% 2000 40 31% 1999 30 22% 1998 20 17% 1997 10 10% 0 1982 1988.5 1995 2001.5 2008 2014.5 2021 Source:Internet World Stats Time Source: Internet World Stats

  17. Broadband S-Curve Innovation Growth Maturity 100 90% 90 80 70 63% 2006 60 Percent of Households 50% 50 37% 40 2004 30 22% 2002 20 10% 10 0 2001 2005 2009 Time Source: Pew Internet Source: Infotrend

  18. Dow Jones Vs. Automotive Stocks1924 - 1932 Source: Yahoo! Finance

  19. UK Home Price % Change Source: www.nationwide.co.uk

  20. Japan Residential Housing Price Index: Tokyo 23 Wards Source: Japanese Family Income and Expenditure Survey

  21. Decennial Pattern Since 1900Dow Industrials - Average 10-Year Decennial PatternWeekly Data 1/6/1900-12/31/1999 Source: Ned Davis Research, www.ndr.com

  22. 4th Presidential Year 1st Presidential Year 2nd Presidential Year 3rd Presidential Year Four Year Presidential Cycle Source: Ned Davis Research, www.ndr.com

  23. New Economy Cycle Growth Boom Innovation Shake-Out Maturity Boom Innovation Spending Wave We Are Here Innovation/ Inflation Stable Prices Stable Prices Inflation Disinflation Deflation Inflation 2038 1968 1978 1988 1998 2008 2018 2028 Source: H.S. Dent Foundation

  24. World Spending Wave India Pakistan N. Africa Mid East Saudi Arabia China 2 Russia 2 US 1 Europe Mexico SE Asia Sub-Saharan Africa Japan 2 S. Korea US 2 Indonesia Brazil China 1 Russia 1 Japan 1 Source: United Nations

  25. Europe Spending Wave Source: United Nations

  26. Eastern Europe / Russia Spending Wave Source: United Nations

  27. China Spending Wave Source: United Nations

  28. India Spending Wave Source: United Nations

  29. Spending on Drugs Source: Consumer Expenditure Survey

  30. The Pharma/Healthcare WaveBirths on a 76-Year Lag Source: H.S. Dent Foundation

  31. Starter Home WaveBirths on 31-Year Lag Source: H.S. Dent Foundation

  32. Vacation/Retirement Home WaveBirths on 63-Year Lag Source: H.S. Dent Foundation

  33. Economic Scenario: 2007-2035 • Mid 2006 – Late 2008: Stocks Boom – Dow 18,000, Nasdaq 4,300 plus • Mid 2007 – Late 2009: Last Oil and Commodity Bubble – Oil at $105 – Energy/Commodity and International Stocks dominate after late 2008 – Dow hits 20,000 Plus • Late 2007/Early 2008 – 2010: Minor Housing Recovery • Next Sharp Stock Crash Lead by Tech Stocks: Late 2009 – Late 2010 • Asian Stocks Rebound Strongest after First Crash • Second Broad/Extended Stock Crash: Mid 2012 – Late 2014 • Asian and Emerging Markets Rebound Strongest Again • Interest Rates Decline 2010 – 2023: 2.0%-2.5% 10-Year Treasury, 3.5%-4.0% 30-Year Mortgage Rates • Final Stock Crash and Bottom: 2018/2019 – 2020/2024 • Concerted Global Boom: 2020/2024 – 2035/2036

  34. Investment Strategy / Portfolio Changes • Strong Growth Portfolio Leaning Towards Tech Mid 2006 – Late 2008, with Increasing Additions for Energy and Emerging Markets • Late 2008 – Late 2009: Sell Tech and Switch to Energy, Commodities, Industrials/Multinationals, Emerging and Asia/Latin America • Late 2009 – Late 2010: Move 100% to High Quality Corporate, 30-Year Treasury and Strips • Late 2010: Selectively Back into Asia and Health Care Depending on Credit Risk Tolerance • Mid 2012 – Late 2014: Back into High Quality Bonds – at Worst Times in Economy Move into Money Market • Late 2014 – 2018: Move More Aggressively into Asia, Emerging Markets, Healthcare and Select Real Estate (Starter Home Builders and Retirement/Vacation) • Late 2018 – Late 2022: High Quality Long Term Bonds • Late 2022: Back into US Growth Stocks and Asia/India/Emerging Markets

  35. Break – 15 minutes

  36. Investing Is Riskier Than You KnowRodney Johnson

  37. The Normal Distributionaka, the “Bell Curve” Expected Return of 9% Source: H.S. Dent Foundation

  38. The Normal Distributionaka, the “Bell Curve” 68% fall within +/- 1 standard deviation Source: H.S. Dent Foundation

  39. The Normal Distributionaka, the “Bell Curve” 95% fall within +/- 2 standard deviations Source: H.S. Dent Foundation

  40. The Normal Distributionaka, the “Bell Curve” 99% fall within +/- 3 standard deviations Source: H.S. Dent Foundation

  41. Daily Price ChangesDJIA 1998 Source: Yahoo! Finance

  42. Chance of August 31st, 1998 – 1 in 20mm Chance of the 3 declines in August 1998 – 1 in 500mm Chance of October 19th, 1987 – less than one in 10 to the negative 50th power, a number that does not occur in nature Impossible Market Days

  43. Late 1990s / Early 2000s: High Volatility Returns vary wildly over time. Today: Low Volatility Low Volatility 1940s-60s: Low Volatility Roaring 20s and Depressionary 30s: High Volatility 1987 Crash: Unprecedented Volatility Daily Price ChangesDJIA 1928-Present Source: Yahoo! Finance

  44. Stock ReturnsNormal Distribution Assumed 1987 Crash was 20 standard deviations past the mean – a statistical impossibility if returns were truly normal! 1933 “impossible” one-day rally Monster Bear Market Rally in July 2002 Back-to-back “long tail” days during 1929 Crash Source: H.S. Dent Foundation

  45. Stock Returns1966-1970 Source: Yahoo! Finance

  46. Stock Returns1976-1980 Source: Yahoo! Finance

  47. Stock Returns1986-1990 Source: Yahoo! Finance

  48. Stock Returns1996-2000 Source: Yahoo! Finance

  49. “Average Return” is poor guide of what will happen – variance and standard deviation too great Returns are not “Normally” distributed, instead the distribution has “Fat Tails” Returns are not Independent, there is clear evidence of clustering of returns What We Know About Market Risk

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