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Well,
I follow Prechter's writings since 1984, and this man is quite interesting in that sense
that he keeps unearthing theories you wouldn't think of normally. Actually, in his
global thinking on macro forces, his calls are not that far off the mark, and the recent
flight to cash is clearly along his scenario, as were emerging markets, and other
issues.
It is mostly in the translation into market levels that his interpretations go a bit
sour. I think he is so scared by the implications of things sometimes, that he filters
out all the positive aspects and also the capacity of reaction and adaptation of the
human species. The worst is not always the only outcome possible even though premises
are correctly stated. It goes the same with the age old prophecies about mankind etc.
Even if they do materialize, sometimes it does not necessarily look and feel that bad.
The fear of something is usually worse than that something.
Also the more one concentrates on something, the more it is likely to happen. So if we
collectively believe it is going to be bad, then guess what, people will start adopting
"depressive mode" of fearful behavior, and things can indeed only get worse. But the
opposite is true as well, and the scare of something bad can provoke a strong "away
from" motivation to improve things by all means and costs, which in turn can generate a
quantum leap in the areas we were investing in.
So whether Prechter's analysis is right or wrong does not matter indeed, but how we deal
with it does:
- we can ignore the feelings of those that are scared, but it won't change their
behavior, and hence the negative outcome of their actions,
- we can adopt their fearful mode and accelerate the materialization of the dreaded
outcome,
- we can accept some or many of us are afraid to some extent and use this as an
incentive to tackle what needs to be tackled, ie stay in the "action mode". We all know
doing something is most often better than just sitting there and waiting for disaster to
hit. After all it ain't finished till it's finished, and until then we still have a
chance.
So my conclusion is that, yes, there may be large forces working against the markets,
but then also maybe not. In any case, if there are, we are better off working hard to
tighten the bolts of our civilization, trying to improve things everywhere we can, which
after all might still leniate the negative impact of macro forces by applying positive
forces against them.
And if there are no negative forces, and Prechter's theories are a pure product of
personal fears, well, then we still can only benefit from working hard to improve
things.
IE, we have nothing to lose continuing to do our best each one of us, individually, and
collectively, and has to be will be, but we can tilt it. It is useless to worry, which
doesn't change the outcome, it is however very useful to stay focused in the present and
keep tooling on our individual levels for improving ourselves and our little
surroundings.
Confused??? Never mind, these are only mind games... Just keep on doing your best,
mates!
Gwenn
steven poser a écrit:
> Objet: Is Bob Prechter's long-forecast economic and market collapse finally at hand?
> la date: Sat, 24 Oct 1998 17:36:59 -0500
> De: "James Bianco" <jbianco@xxxxxxxxxxxxxxxxxx>
> Répondre-A: "James Bianco" <jbianco@xxxxxxxxxxxxxx>
> A: "Arbor List" <arbor@xxxxxxxxxxxxxx>, "MTA" <mta@xxxxxxxxxxxxx>
>
> October 26, 1998
> www.barrons.com
> Ride That Wave!
> Is Bob Prechter's long-forecast economic and market collapse finally at
> hand?
> By Jonathan R. Laing
>
> It was like old times for the once-lionized market technician Robert
> Prechter at Jim Blanchard's New Orleans Investment Conference earlier this
> month. Attendees mobbed a conference table following a speech by Lady
> Margaret Thatcher to pepper Prechter with investment questions. The
> following morning Prechter riveted an overflow crowd in the Hyatt's main
> meeting room with a half-hour riff on the gory prospects for the U.S.
> economy and stock market now that the greatest mania in stock-market
> history -- the 12-fold increase in the Dow Jones 30 Industrials from the
> 1982 low of 777 to its record close on July 17 of 9337 -- had apparently
> breathed its last.
>
> "There's an electricity in the air at this year's conference and among
> investors generally that one hasn't sensed in a long, long time," Prechter
> observed at one point during his speech. The words seemed all the more
> freighted with import, given the eerie detachment of Prechter's delivery.
> For lying dead ahead, according to Prechter, is a U.S. stock-market crash of
> unprecedented proportion, accompanied by economic collapse. In fact, just
> last month, Prechter changed the chart on the front of his monthly
> newsletter, the Elliott Wave Theorist, from "Depression Ahead" to
> "Depression Beginning" to reflect what he contends is the ominous morphing
> of disinflation into runaway deflation.
>
> Prechter: "If I'm correct, then my premature exit won't matter ultimately."
>
> Such lurid forecasts make Prechter easy to dismiss. After being accorded
> guru status on Wall Street in the 'Eighties for being one of the few
> prognosticators to predict the huge 1982 liftoff in the stock market and to
> stay aboard for most of the ride until just before the 1987 Crash, Prechter
> has been dead wrong about the market practically ever since. For he has
> remained timorously invested mostly in Treasury bills for the past 10 years,
> blowing better than 200% gains in the Dow and the S&P 500 Index. According
> to numbers compiled by the Hulbert Financial Digest, the Elliott Wave
> Theorist timing strategy would have yielded a 12% annual return from the end
> of 1982 through August 31 of this year, compared with 15.6% for the
> value-weighted Wilshire 5000 and the 16.6% annual return logged by the S&P.
> That's a huge underperformance, even taking into account the fact that
> Prechter's strategy was only half as risky as being fully invested at all
> times.
>
> His rejoinder to such cavils isn't entirely satisfying, least of all to his
> subscribers, who have canceled in droves over the years. (Circulation to the
> $233-a-year letter dropped to 4,000 in 1996, from about 20,000 in 1987,
> before popping to about 6,000 currently.) "Certainly I'm guilty as charged
> of underestimating both the duration and dimension of the current stock
> mania," he concedes, "but it's because I see what's coming on the other
> side. If I'm correct in my forecasts, then my premature exit won't matter,
> ultimately."
>
> Likewise, the scenario he lays out is so outre as to strain the credulity of
> even the most unregenerate bears. For a while early this fall, he raised the
> possibility that the Dow might go into a death dive that would take it to
> support levels of either 3675 or 2365 by the first week of November. The
> buying panic of the past two weeks that enabled the Dow to retrace more than
> 1,000 points of its October drop, back to 8500, has led him to push forward
> his forecast day of reckoning to early next year. In the meantime, investors
> should regard the current rally as a "golden opportunity" to get out of the
> market before the deluge, says Prechter.
>
> And that won't be the end of the bear market, according to Prechter.
> Eventually -- around the year 2003, by his current reckoning -- the Dow
> could reach a "triple-digit level" bottom of between 1000 and 570, wiping
> out virtually the entire up move since 1974. "That's the fate of all manias,
> whether the Gouda Tulip Bulb Craze of 1636, the South Sea Bubble of 1720,
> the Roaring Twenties bull market, the surge in the Nikkei between 1974 and
> 1989 or the post-1982 stock market today," Prechter insists. "The only
> reason the Nikkei has yet to complete a retracement and is only 65% of the
> way is because it was all alone in a crash mode in the midst of a worldwide
> stock-market boom. But its decline is far from over."
>
> In Prechter's view, no market collapse of this proportion would be complete
> without the onset of economic depression. His 1995 book, At the Crest of the
> Tidal Wave, fairly bristles with grim prophesies of economic apocalypse.
> Deflation will send the prices of all asset classes, from stocks and bonds
> and collectibles to residential real estate and gold, careering lower. Sales
> and corporate profits will likewise be sucked down the deflationary vortex.
> Prices and wages in the service sector will suffer as mightily as those in
> the goods arena, since services tend to be more discretionary items than
> necessities.
>
> Financial Paralysis
>
> Unemployment could soar to 30% or more. Bank failures, moratoriums on
> mutual-fund redemptions and other calamities could cause the financial
> system to seize up.
>
> Government policy measures, whether fiscal stimulation or monetary
> reflation, will prove powerless to keep the economy from augering into the
> ground. According to Prechter, a depression is in the end a psychological
> phenomenon not amenable to mechanical policy adjustment. In a
> depression-induced credit contraction, for example, lenders get too cautious
> and borrowers and consumers too fearful about the future to behave normally.
>
> Only those investors who heed these warnings and ignore today's investment
> nostrum of "buy and hold" will have a chance of being raptured up to
> financial heaven, Prechter believes. And then only by taking prudent steps
> like staying completely in cash, choosing the strongest financial
> repositories (perhaps outside the U.S. banking system) and selecting the
> strongest short-term government debt instruments in the safest currencies
> will investors be able to view the unfolding Great Bear Market "as if
> floating overhead in a balloon, unaffected, watching a slow-motion
> earthquake take place below." Or, at least, that's what At the Crest of the
> Tidal Wave argues.
>
> Prechter's current forebodings arise out of his belief in the Elliott Wave
> Principle, propounded some 60 years ago during the Great Depression by Ralph
> N. Elliott, a retired Los Angeles accountant. As detailed in two obscure
> monographs and various market letters in the early 'Forties, Elliott
> believed that financial markets and, indeed, political, cultural and other
> social phenomena were governed by recurrent and measurable waves of
> alternating optimism and pessimism. Man, after all, is a social animal who
> tends to follow unerringly the ever-changing psychology or, as Elliott put
> it, "mood" of the crowd.
>
> Elliott believed in fundamental human progress. Yet it never came in a
> straight line, advancing instead in waves of growth punctuated by phases of
> "non-growth" or correction. The inherent pattern or sequence in all
> financial markets is "three steps forward, two steps back." In a bull market
> this process plays out as a rising, three-step, five-wave pattern-up, down,
> up, down, up-followed by a corrective, two-step, three-wave
> retracement-down, up, down.
>
> According to Elliott, this identical pattern can be seen over differing time
> spans, from less than an hour to market periods as long as several
> centuries.
>
> What has Prechter and fellow Elliott Wave adepts in a state of millennarian
> fever these days is their conviction that the July high in the Dow Jones
> Industrials may have marked incontrovertibly the concluding fifth wave not
> only of a bull market dating back to 1974 but, indeed, the Elliott Wave
> "supercycle" tracing back to the 1932 depth of the Great Depression. If
> true, under Elliott Wave theory one would expect a bone-shattering
> correction akin to that suffered from 1720 to 1722 in the British stock
> market with the bursting of the South Sea Bubble. The average stock lost
> more than 90% of its value in two years. The damage was even more grievous,
> though, if one also takes into account the dozens of companies that ceased
> to do business.
>
> The 12-fold increase in U.S. stocks since 1982, in fact, exceeds that of
> past stock manias by a goodly measure. Stocks rose but six-fold in the
> Roaring Twenties, for example. To Elliott Wavers, the bigger they come, the
> harder they fall.
>
> Many on Wall Street consider the Elliott Wave Principle to be voodoo.
> Detractors never tire of asserting that Elliott died both broke and insane,
> points that Prechter disputes. Critics are likewise put off by the theory's
> quasi-religious pretensions. Wave analysis in Elliott jargon becomes
> "interpretation." Fierce sectarian battles frequently flare among Elliott
> disciples over current wave count, though rulings by Prechter, given his
> stature in the field, are usually accepted as canonical. And as even
> Prechter will concede, Elliott Wave theory often proves wanting in the
> timing of major market moves. He should know, having been waiting
> fruitlessly for the Big Kahuna for the past 10 years.
>
> Yet one can't ignore Prechter's many forecasting coups over the years. He
> achieved cult status in the 'Eighties when he not only predicted the coming
> of a huge bull market but got his subscribers out of stocks just days before
> the 1987 crash. That year he was the subject of flattering profiles in The
> Wall Street Journal, Fortune and People magazine, among other publications.
>
> He first made his call of an impending bull market in a 1978 book on the
> Elliott Wave for which he was the co-author. The prediction was greeted with
> near universal derision. At the time, inflation and interest rates were
> soaring out of control. Stagflation reigned. A second gasoline crisis hit.
> President Jimmy Carter worried about a crippling "national malaise." Each
> stock-market assault on 1000 in the Dow seemed to end in what was called at
> the time a "massacre." In a famous 1979 cover story, Business Week declared
> "The Death of Equities."
>
> But Prechter hung tough and was ultimately vindicated. He feels similarly
> confident about his current bearish stance. The scorn and derision being
> heaped upon him yet again are, in Prechter's view, telling signs of the
> top-of-the-market euphoria that will soon be dashed.
>
> Likewise, Prechter has built a thriving business with some 70 employees in
> Gainesville, Georgia, offering a dozen printed and online publications
> applying Elliott Wave analysis to currencies, commodities and global stocks
> in addition to the U.S. equities market. His company also boasts a number of
> institutional clients that take his advisory service mainly for shorter-term
> market calls. He nailed the recent high in the dollar, for example. Clearly,
> at least some customers deem his work to be of value.
>
> With each passing month, Prechter sees more signs of the coming apocalypse.
> Back in 1995, he warned in At the Crest of the Tidal Wave that deflation was
> the menace and not the inflation that was the media's and Wall Street's
> continuing obsession. Now suddenly, economists and other pundits are joining
> his camp in droves.
>
> In the book, he also prophesied an epic global credit crunch with soaring
> risk premiums on all but the most blue-chip debt, defaults by foreign
> governments, a stampede to quality and an eventual seizing up in the global
> credit system. Just such a scenario has started to unfold with the Asian
> economic crisis, the Russian debt default last month and the widespread
> damage wreaked on fixed-income markets of late by Long-Term Capital
> Management and other overleveraged hedge funds.
>
> Finally, the CRB commodity index, gold, junk bonds and several other markets
> that he sounded a bearish note on in 1995 have continued to take gas. He
> even adopted a biblical cadence in his recent newsletter, observing that
> these and other forecasts "have now come to pass."
>
> To Prechter, market and economic fundamentals are mere reflections of the
> shifts in social-psychological moods rather than causative factors. It's the
> collective unconscious that dictates events, not the opposite.
>
> Yet he ascribes much moment to the fact that the economic fundamentals that
> undergirded the economic and stock market expansions from World War II to
> 1966 were so much stronger than those underpinning the economic expansion
> and stock market surge since 1982. The numbers bear out his contention.
>
> Annual real growth in gross domestic product during the earlier period
> averaged 4.3% a year, compared with just 2.8% a year since 1974. Similarly,
> industrial production enjoyed a 5.5% annual gain from 1949 to 1966, while
> from 1982 to 1998 it grew only 3.2% a year. Likewise, the monthly
> unemployment rate from 1949 to 1966 averaged 4.9%, besting the 6.7% of the
> 1982-1998 period.
>
> Measures of debt and liquidity are also skewed in favor of the earlier
> period. At the end of 1966, for example, household liquid assets stood at
> 161% of liabilities, according to Prechter. Today households have less cash
> on hand than their total liabilities. Total debt as a percentage of GDP
> stands at 258% as of mid-1998, compared with 148% as the bull market peaked
> in 1966. Huge current-account trade deficits during the 'Eighties and
> 'Nineties have transformed the U.S. from net creditor to net debtor nation.
>
> One can argue that some of these measures, such as the current U.S. debtor
> status, ultimately don't much matter. But Prechter contends that the
> discrepancy in the vitality of the U.S. economy between the two periods is
> important in several respects. For one, it exposes the manic characteristics
> present in the post-1982 market surge. Stock prices managed far greater
> gains on far less salubrious economic fundamentals than in the first two
> decades after World War II. As a result of this obvious speculative froth,
> investors' expectations are fated to be cruelly dashed. Extreme
> disillusionment is the stuff of ugly bear markets and complete retracements,
> according to Prechter.
>
> One More Year, Michael
>
> Much of the fun in Prechter's musings comes from his tying cultural,
> political and social developments to the Elliott Wave periods. Bull markets,
> in his view, are invariably accompanied by higher hemlines, comity in
> domestic politics and foreign relations, happy, upbeat music and movies,
> strong attendance at sporting events and the like. Bear markets spawn the
> opposite.
>
> So far Prechter sees little in the zeitgeist to substantiate his conviction
> that the tide has turned for the economy and the market. Music groups like
> Hanson and the Spice Girls continue to top the charts with the same kind of
> happy, bubble-gum music that flourished in the 'Fifties and 'Sixties. Even
> country music these days remains more upbeat and pop-like in its themes than
> traditionally. Yet the dark side may be impending, according to Prechter.
> NBA basketball, the supreme symbol of the feel-good 'Nineties sports scene,
> is now threatened by the possible breakup of the heroic Chicago Bulls and
> the scrapping of the current season.
>
> One can only hope that Michael Jordan plays yet another season and a labor
> settlement is quickly reached. For the very health of the U.S. stock market
> and economy may be at stake.
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