The Long Crisis

Posts Tagged ‘Robert Prechter’

Robert Prechter is the founder and editor of the Elliott Wave Financial Forecast and over the past 40 years or so has earned a reputation as a premier financial analyst. One of Robert’s most famous forecasts was his warning in 1987 that a stock market crash would soon take place. Of course, he was right and the market lost about 22% of its value in just a few days before rebounding.

Less than two weeks ago, Robert Prechter issued a rare emergency warning that the stock market was setting up for what he calls a super cycle crash. According to Prechter, super cycle crashes are rare events and the possibility that one could occur in 2010 must be taken very seriously. In a super cycle crash the direction of the market reverses in a most violent and severe manner. As is usually the case with any reversal in the stock market, the reversal takes place without warning and occurs when most stock market analysts and traders are at their most bullish and complacent.

Over the last two days the market has reversed from the high reached since the March 2009 low and quickly shed over 300 points on the Dow Jones industrial averages. The sudden losses in stocks have been accompanied by a surge in the strength of the US dollar, a fast drop in gold of over $40 an ounce, silver selling off by over one dollar per ounce, and a general rout in the price of commodities.

Robert Prechter has not only warned about an impending super cycle reversal in the stock market, but also about an intense long term deflationary wave that would affect not only stocks and commodities but all sorts of physical products, such as housing and commercial real estate.

While it is still too early to tell if the bear market rally in the stock market has been completed and a new severe down leg is getting under way, the price action of the last two trading days certainly suggest that at a minimum a long anticipated correction is underway. Should the move be merely a correction I would expect that the down move from the recent high would be on the order of 10 to 20%. Should the sudden drop be the beginning of Robert Prechter’s super cycle price 2010 will be a very rough year in the stock market indeed.

The next few trading days should give us a very good idea as to just how severe the drop may be. It is interesting that according to Robert Prechter’s technical indicators the stock market was ready for a severe sell-off just as president Obama felt that he was forced to play to the populist crowd due to the shocking results of the Massachusetts Senate seat election. He quickly decided to take a tougher stance against the big banks and their speculative trading practices. President Obama even brought Paul Volker out of the shadows to announce that there would be new rules and regulations designed to curb the speculative trading activities of banks.

Paul Volker, the chairman of the Federal Reserve Bank during president Jimmy Carter’s administration, is widely regarded as the man who broke the inflationary spiral of the late 1970s and early 1980s by raising interest rates. Paul Volker has been pushing for tougher regulations on the banks for some time but apparently was outgunned, until very recently, by Larry Summers and Timothy Geithner, who seem to be the best of friends with the banksters. It would be ironic, indeed, if new tough banking regulations proposed by president Obama, as suggested by Paul Volker, are the trigger for a super cycle stock market crash.

Putting the brakes to the bankers disgraceful and immoral activities may morally be the correct thing to do, and will certainly play well to disgusted and angry taxpayers, but a sharp drop in the stock market will further damage the prospects for an economic recovery, which will lead to even more frustration and anger by the American taxpayer. Really, there is no painless way out of the economic dilemma that several administrations, going back to at least president Reagan, have created for the United States of America.

Stay tuned to see if Robert Prechter is correct about a bearish rare super cycle kicking in. If he is correct, we won’t have long to wait. A super cycle move down will be severe enough to get our full attention.

Tweet This Post

It should be obvious to all who follow the financial news that we are living in unique and very dangerous to your financial health times. The stock market rally from the March 2009 lows has caused a lot of investors to lower their guard and to once again start wild speculation.

In July, Ben Bernanke told a town hall meeting, “I was not going to be the Federal Reserve chairman who presided over the second Great Depression.” According to New York Times columnist Paul Krugman in that regard he’s succeeded. Bernanke’s desperate rescue of the financial sector in tandem with the Obama Administration’s stimulus plan prevented a “full replay” of the Great Depression, the Nobel Prize-winning economist writes.

Robert Prechther says it will probably not be so fast and easy. Like President Bush declaring “Mission Accomplished” in 2003, Elliott Wave International founder, Bob Prechter thinks Krugman and Bernanke are premature in declaring victory over the credit crunch. Prechter, who famously predicted the 1987 stock market crash, tells Tech Ticker “the march towards depression, which is being fueled by a deflationary trend, is pretty well intact.”

Prechter believes that massive deleveraging from consumers, governments, and financial institutions, has a long way to go. In fact, governments around the world are adding to the over leveraged problem by throwing tremendous sums of cash that they do not really have at the world economy in a desperate attempt to reinflate the old popped credit driven bubbles. This hyperactive effort will fail as it is working against super cycle deflationary forces that will naturally run their course and will only make conditions worse.

You should be very careful about believing what you have heard about recovery and inflation, “we’ve only seen the first phase,” of the downturn according to Prechter. Next to come, is “a credit implosion” that will once again destroy the value of stocks, commodities and especially real estate. “The biggest area of overvaluation because of credit extension is the real estate area,” he says. “And if you’ll notice that’s the area that’s had the weakest of any kind of attempt at a recovery.”

When this next phase of “deflationary depression” happens the only investment advice he can give is: safety first. “Make sure as an individual you’re in the safest possible investments so you can ride this out.” And as discussed in a previous segment, that means investing in dollars or dollar equivalent assets.

It is a good idea to remember that in a depression “Cash is King”. With so many investors now thinking that the dollar is doomed the big surprise may be that a powerful deflationary credit implosion occurs and that pure fear makes the US dollar once again a refuge currency.

It’s a strange world we live in. The worse that the world economies become the more likely it is that the dollar will once again become cash king.

Tweet This Post

Robert Prechter has been in the forecasting business a long time. His career got a big boost in 1987 when he was one of the few forecasters who warned that the stock market was set up for a big crash just before the scary crash of 1987. More recently in March 2009 he advised his subscribers to cover their short positions just before the massive rally of 2009 took off.

Now Prechter warns that the current “Worst is Over” optimism sets up a volatile third Elliot Wave surprise. Prechter states that “The Dow has just entered the lower end of its upside target range we cited back in April; the S&P is close behind. Restored optimism for a lengthy recovery at worst – a new bull market at best – is one of several signs of an important peak. All the same markets that recovered together have now set the stage to decline together.”

Robert Prechter and his team of first class forecasters at Elliot Wave International are also warning that the US and the world economies are facing something far more serious than a recession.

If you haven’t yet given Prechter’s deflation argument your full attention, you should know now that yesterday was the best time to do so. You can download for free his 60 page well written document as to why the US is already in the early stages of a long term deflationary period, (can you think depression?) by going to Deflation Survival Guide.

As with any forecaster who has been around for awhile Robert Prechter is not always right with the timing or content of his forecasts. However, there are few forecasters who can match his long term record. And he always provides valuable insights into what’s going on and what to expect in stock markets, bonds, and foreign exchange.

Tweet This Post