H.S. Dent Publishing: Bull Market Ahead; Stocks to Outperform Real Estate as Long-term Interest Rates Continue to Decline and Unemployment Stabilizes.

DALLAS -- The greatest equity buying opportunity of the decade is approaching predicts the October issue of the H.S. Dent Forecast newsletter. With the recent declines in long-term interest rates, stocks are becoming a better investment than real estate or bonds. Investors should increase stock positions in anticipation of a strong bull market.

Since the stock market anticipates economic trends by six-to-nine months, falling interest rates make stocks undervalued. "We expect a rally in excess of 40 percent over the next several years as the economy moves into the next phase of the powerful 2003 to 2009 bull market," said Harry S. Dent, Jr., president and founder of the H.S. Dent Foundation. "The Dow should hit new highs during the second half of 2005."

Compared to stocks, the real estate outlook is less certain. During the short-term, housing prices may continue to rise for the next few months; however, trends show baby boomer spending peaked around the end of 2003 on trade-up homes. "House prices will start to trend down in coming years, but not crash! Why? Because our indicators forecast a strong economy ahead with low inflation and continued low long-term mortgage rates, despite the slowing in demographic demand for housing," Dent said.

Anyone considering selling a home - especially an upper-end home - should do so by the spring of 2005. In this case selling sooner rather than later is prudent noted Dent. The only exception to declining real estate prices clearly seems to be in the Southeast where housing remains undervalued. The Southwest may continue to grow substantially as well, but housing prices are more overvalued.

Between late 2004 and 2010, residential real estate will increasingly under-perform stocks and the economy. The real estate market will erode substantially between 2010 and 2014 on a slight lag to stock prices Dent believes. Upper-end housing is expected to remain weak through the year 2023 in all regions of the U.S. except the Southeast and Southwest. Commercial real estate markets will be especially hard hit and could decline long-term due to rising unemployment and the slowing of echo boomers entering the workforce after 2010.

The good news is vacation/resort/retirement areas should stage a strong comeback - following some price erosion between 2011 and 2014. Rental and multifamily developments should also start to rally as early as 2012. Affordable low-end homes should benefit from low mortgage rates and increased demand from echo baby boomers purchasing starter homes around 2013.

Unemployment - How Bad Is it?

Always a hot topic, unemployment rates continue to baffle the masses. Are rates up or down, and does it matter? Rodney Johnson, president of H.S. Dent Investment Management and H.S. Dent Publishing explains, "Right now we have 5.5 percent of the eligible workforce unemployed. While this seems high, at the beginning of the great bull market in the early 1980's, unemployment was hovering around 9.5 percent. In light of the tech wreck, a loss of $8 trillion in equity value following the terrorist attacks on the World Trade Center, current unemployment rates are remarkably tame!"

Unemployment rates are actually mild because the economy continues growing. This growth is stimulated by the increasing demands from baby boomers that have yet to hit their peak spending years. Dent forecast models call for the current growth rates to last for another six years, ending somewhere around 2010.

Sector Updates and Allocations

The summer doldrums have had a negative affect on the equity market as stock prices continued to move sideways. The good news from Asia was offset by troubles in the semiconductor sector. In the end, markets are still holding at roughly the same levels, the yield curve has flattened, and high oil prices continue to concern investors. Prospects for the fourth quarter are much brighter as equity markets remain significantly undervalued.

The Asian markets have moved up; despite some anxiety connect with North Korea. The bond markets have rallied significantly during the third quarter due to the rebound in the financial services sector. Led by semiconductor stocks, the tech sector has experienced substantial volatility. "Even in the face of declining prices, we remain bullish on technology stocks.

"The Fed Model developed by the Dent organization continues to indicate that the equity markets are significantly undervalued. Current projections call for the Dow to hover around the 10,000 line for the remainder of 2004," Johnson said.

About H.S. Dent Publishing

H.S. Dent Publishing (www.hsdent.com) of Allen, Texas helps people understand change and prepare for its arrival through a variety of Dent publications, including the monthly H.S. Dent Forecast. The Dent methodology, which is based on the study of demographics, or the study of whole populations and their spending habits, takes financial forecasting out of the world of theory and into the realm of real-world consumer behavior allowing investors to make intelligent and informed economic decisions about their future.