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Recession or depression?

The 2008 financial crisis sparked the Great Recession, which is widely considered the most severe economic downturn since the Great Depression.

According to Dent’s prediction, the ongoing bubble will lead to more than just a recession.

“Bubbles are not followed by recessions, they're followed by depressions,” he stated.

Dent drew parallels to historical episodes of depression.

“When you hear the Great Depression, or the long depression of 1873 to ’96 — those followed major bubbles. And the other one was the Great Depression of 1836 to 42 — that followed a major bubble back then. So bubbles don't end well, and this is the largest and longest bubble,” he explained.

To be sure, stocks still seem to be on an upward trajectory. The S&P 500 has climbed 14.5% in 2024, while the tech-heavy Nasdaq Composite is up 19.5% during the same period.

Dent said that when the U.S. Federal Reserve implements stimulus monetary policies or starts tightening, it can take up to two years for the impact to manifest in the economy. He noted that the stimulus continued for 14 years until March 2022, when the Fed began raising interest rates. According to Dent, the cumulative 525-basis point rate hike by the U.S. central bank will “hit the hardest” in early to mid-2025.

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Ultimate safe haven?

If you share this concern and believe that the market is heading for a crash of historical proportions, you are probably wondering where to find refuge during the storm.

Dent has one asset in mind: “There really is nowhere to hide except the safest bonds in the world.”

He’s referring to U.S. Treasury bonds. The reason has to do with the size of the U.S. economy and the Fed’s ability to print money.

“We’re the largest economy in the world. We will endure this downturn. And if they can print money to create a bubble, they can print money to pay off their bonds,” he stated.

This isn't the first time Dent has suggested this asset class. In the interview with ThinkAdvisor, he described Treasuries as the best safe haven, arguing that the U.S. “is the best house in a bad neighborhood” in the event of a downturn.

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Jing Pan Investment Reporter

Jing is an investment reporter for MoneyWise. He is an avid advocate of investing for passive income. Despite the ups and downs he’s been through with the markets, Jing believes that you can generate a steadily increasing income stream by investing in high quality companies.

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