Best-selling author and economic expert Harry S. Dent has published an intriguing special report on a phenomenon he describes as the “Economic Winter”. The Economic Winter is, essentially, a natural seasonal cycle in what Dent proposes is a generationally-driven recession. While most of us have a tendency to see economic cycles in months or a few years, this article outlines a much longer – and virtually unavoidable – cyclical phenomenon, where each economic “season” lasts for decades and has its own distinguishing trends/characteristics.
Looking at our current recession, there is some support for that thesis. While a spike in consumption and a corresponding credit bubble may have been the factors that tipped our economic fortunes over the precipice a few years ago, Dent suggests that the aging/retiring baby boomer demographic may be the bigger problem. Approximately 70% of our domestic economy is consumer spending, and once the largest and most influential demographic group begins to spend less and save more for retirement, that will inevitably influence our economic fortunes—and not in a good way. Factor in the deepening national debt, and you can see why things might be getting chilly. From a savings and retirement perspective, this doesn’t mean that you need to panic, just to think differently.
The best way to respond to this is to turn to investments that make sense in a sustained downturn. Rely less on equity markets and prioritize safe and steady streams of income, purchasing individual bonds and annuities. The bigger picture here, however, is that anyone waiting for things to turn around in a profound and significant way might be waiting a long time. If this theory is correct—and there are a number of good reasons to take the ideas behind it quite seriously—then we might all need to bundle up…because it is going to be chilly for quite some time.