KUALA LUMPUR (June 11): The stock market could be in for a steep correction, resulting in a crash even worse than what investors saw during the Great Financial Crisis, reported Business Insider.
Citing economist Harry Dent as telling Fox Business Network on Sunday (June 9), the report said the Harvard Business School alum — who has been predicting a major crash and an ensuing economic depression for years — cast another warning on the state of the market.
It said Dent says stocks look like they’re in the “bubble of all bubbles”, thanks to overly loose monetary and fiscal policy that has inflated asset prices for the past decade.
When that bubble finally bursts, Dent estimates that the S&P 500 could lose as much as 86% in value, while the Nasdaq Composite could lose as much as 92%.
Additionally, Dent predicts that “hero” stocks, like chipmaker Nvidia could drop as much as 98%, implying a multi-trillion market crash.
“This thing has gotta blow. It’s showing signs of topping here.
“We’ve got to see a crash of about 40% to say, okay, the bubble’s finally let off steam. And once it gets that much momentum, I think it’s hard to stop,” said Dent.
Dent estimated that the bubble has been forming for the past 14 years, far longer than most bubbles in history, which typically last for five or six years before bursting, he said.
That’s partly because markets have been flooded with stimulus since the 2008 downturn, Dent said.
Markets have benefitted from around US$27 trillion in stimulus since the financial crisis, he estimated, based on accumulated budget deficits and the amount of cash printed since then.
Dent said interest rates, meanwhile, have also remained ultra-low for most of the past decade, which has helped inflate asset prices.
“It’s been stretched higher for longer, so you have to expect a bigger crash than we got in 2008 and 2009.
“This is really the second tech bubble version,” he said.
Dent predicted that investors could see the fallout early- to mid-next year, thanks to the US Federal Reserve’s rapid monetary policy tightening meant to control inflation.