If Harry S. Dent is right, we may be headed into something not seen since the Great Depression: a prolonged period of deflation.
Deflation, an economic funk marked by falling prices and falling wages, is particularly vexing because it could feed on itself. Consumers see prices falling so they hold off on making purchases, betting that prices will be even cheaper down the road. Less demand slows production, leading to more layoffs and less consumer spending. And so on.
"This next decade is one of those unique times in human history when we can unlearn the very principles that have brought us such great and unprecedented success," Tampa investment adviser Dent writes in his upcoming book, The Great Crash Ahead.
It's hard not only for those trying to make a living, but for anyone trying to find safe havens to save for the future.
Dent and his co-author, Rodney Johnson, offer some survival tips ahead of their predicted economic winter:
• Don't chase short-term investment gains. Preserving capital is more important in a climate like this than trying to make a quick buck. Many investments can turn sour quickly.
• Don't bank on a pickup in the stock market or real estate. Rather, consider the U.S. dollar as a safe place to park your money before the deflation cycle takes hold.
• Develop high-quality, steady streams of income once deflation sets in. "If you have streams of income, you have the ability to keep your income at a certain level as prices go down so you're in a better spot," Johnson said.
One option: buying U.S. Treasurys. Eventually. Dent and Johnson predict U.S. Treasurys will go up in yield in the next three or four months as people worry about the U.S. debt, and then they'll make more sense as an investment.
• Pay down debt sooner rather than later. If there's a short-term period of inflation, as Dent forecasts, the dollar will go further to pay down credit card balances, student loans and mortgage debt.
• Consider renting instead of buying if you plan to stay in a house for only a few years.
• Don't give up your day job without some promising alternatives. With wages stagnant or falling, it may be tempting to walk away, but consider that you're not the only one suffering through the wage cycle.