By Christopher M. Wright

Name: Harry S. Dent, Jr. Title: Founder and CEO, HS Dent Born: 1953 Experience: After graduating from the University of South Carolina with a degree in accounting, Dent went to work as a consultant for Bain & Company. He later received his MBA from Harvard Business School. He consulted on business strategy for Fortune 100 clients and served as CEO for several entrepreneurial growth companies. His next book, "The Great Crash Ahead: How to Prosper in the Next Great Depression," is expected in late December. Dent also manages investment accounts for financial advisors, a growing part of his business.

According to Harry S. Dent, Jr., professional prognosticator, another Great Depression is coming, and commercial real estate may be one of the areas hardest hit. Dent, who believes that demographics determine all, foresaw the great stock market run-up of the late 1990s but was famously wrong in saying the Dow Jones would reach 40,000 by 2008.

Recently, Portfolio sat down with Dent to discuss baby boomer spending, the future of the economy and the art of forecasting.

Portfolio: You've studied the baby boom spending wave. What's your theory and how do you know it works?

Dent: We can, through consumer expenditure surveys, document that people spend the most money between the ages 46 and 50. We just move forward the birth index, which we adjust for immigration, and it shows you a wave of when a generation is going to be earning and spending the most.

You can also see when overall consumption will start to fall. People in their 50s and 60s save more and don't spend as much—they don't buy houses because their kids are in college or have left the nest. The wife often leaves the workforce and overall consumption goes down—leisure and travel don't cost nearly as much as houses and raising kids.

The baby boom generational spending wave has been rising since the early 1980s. The economy and the stock market have followed it very closely. That's how we know the theory works. The wave will start to turn downward approximately in 2010. Over time, when you see a peak in the birth index, it's followed by a peak in the stock market some 40 to 50 years later. For example, look at 1929 and 1968, and we're calling for another peak around 2009. We used this method in the late 1980s to predict that Japan was going to decline. People thought we were stark raving mad, but demographics went against Japan and you saw the result.

Portfolio: You have forecasted "The Great Crash of 2010" followed by another Great Depression lasting until 2020 or 2024. What should stock market investors do during this period?

Dent: Short-term, we see the last leg of the bull market lasting another four to seven months or so. Investors should be in emerging markets, the NASDAQ 100, other growth sectors and health care. The commodity bubble will resume after likely taking a break for most of 2008. Oil may go to $200 a barrel, and that'll start to break markets around the world between mid- and late 2009. That's just about when baby boomer spending will start to fall off anyway.

By about April 2009, investors should get into cash and wait for the crash. It may be 2012 before we see good buying opportunities again. Then you move back into good sectors for a bear market rally, which is what usually happens in depressions, like from 1932 to 1937. At that point, the world's your oyster.

Then you get conservative again for the lesser downturn at the end, which we expect to occur from roughly mid-2017 to early 2020. Only after that will the next great bull market begin.

Everything I've said so far is for aggressive investors. Conservative investors should look at fixed annuities and high-quality bonds, although you need to be careful about moving into bonds initially because some companies and governments won't be able to pay back what they borrowed.

Portfolio: You've said that commercial real estate will first take it on the chin, then provide some strong buying opportunities later. Can you elaborate?

Dent: The market for commercial real estate tends to correlate with the size of the workforce. Unemployment was 25 percent in the 1930's. We don't expect joblessness to reach that extreme because of today's more diversified global economy. It will be more like 12 percent to 15 percent in the worst part of the crash from 2010 to 2012. Obviously, that would back up on commercial real estate.

As for other buying opportunities, those who have cash after the first downturn will be able to pick up commercial properties inexpensively when the bear market rally begins after 2012 or so, but buyers should think about unloading those properties ahead of the final downturn which we expect to start around mid-2017. We don't expect commercial real estate to be a real strong market again until 2020 or 2023.

Portfolio: What could happen that could derail your prediction for a crash and depression?

Dent: I can't envision it not happening. We have too many cycles that will start pointing down by 2010 or so—baby boom spending; computer, wireless, and broadband technology spending because those markets are getting saturated; and the economy is already more leveraged with debt than at any time in history. We have three bubbles bursting or about to burst—housing, stocks and commodities. Bubbles never last and they never, ever end easily. There's no way around this, in our view. The only questions are the timing and the magnitude.

Portfolio: One school of thought holds that markets generally price securities efficiently, consistent with their intrinsic worth and new information. Cycle theories are invalid because there is no clock or secret mechanism controlling asset prices. How do you respond?

Dent: Markets aren't just driven by fair value or new information. History has shown time and again that once a strong trend gets going, people just jump on it irrationally. That's what bubbles are about. Once something starts going up, people abandon all pretense of valuation and pile on so they don't miss out.

For example, America Online was at 400 times earnings in late 1999. It was absolutely impossible for the company to grow to a size that would have ever justified that price, but the bubble sucked in everyone from astute mutual fund managers on down to everyday retail investors.

Markets do process new information but, because of human nature, they can be way off the mark, especially at long-term turning points like the one we're at now. We've been talking about a downturn at the end of this decade since 1989, but it's the kind of thing markets miss.

Portfolio: What have you learned about the art of forecasting?

Dent: A couple of things. There's a huge difference between deterministic and probabilistic theories. You can project generational spending like a life insurance actuary. Elliott Wave (a form of technical analysis that attempts to forecast trends in the financial markets) is just pattern recognition and makes no claim about cause and effect. People put too much stock in Elliott Wave. Because there's no theory behind the pattern, different theorists interpret the waves differently and reach different conclusions about where we are in a cycle. We use Elliott Wave only at the end of our process to refine our sense of timing—when things will happen—when we can count the waves in light of where our fundamental analysis shows long-term turning points ought to be—in this case, around mid-to-late 2009 because baby boomers will start spending less as a group.

We don't always get the timing precisely right. We often revise our short-term forecasts. But we're better at timing than magnitude, which is much harder to predict. We saw the 2000 crash coming, but didn't think it was going to be all that bad at first. Stocks did eventually make new highs afterwards, but the Dow didn't go to 40,000 as we predicted.