This was one of the lead-off articles in Reuter’s this morning. Curious to hear what AF’ers think about Mr. Prechter’s predictions: _______________________________________________________________ NEW YORK (Reuters) - The next leg of a bear market in stocks has probably started and gold and corporate bonds are likely to slide as the U.S. economy suffers long-term weakness, technical analyst Robert Prechter said on Monday. Prechter has previously said he believes the 2007-2009 markets crisis and U.S. recession were harbingers of a severe, longer economic downturn. His book “Conquer the Crash” first published in 2002 , warned about the dangers of a deflationary depression and Prechter maintains the United States economy will struggle for years to come. “We probably have begun the next phase of the bear market,” said Prechter, president of research company Elliott Wave International in Gainesville, Georgia and known for predicting the 1987 stock market crash. The U.S. S&P 500 index has fallen about 5 percent since hitting a 15-month peak on January 19 as some investors started to worry about the possibility of a double-dip recession. Although many stock analysts expect a short term pullback of about 10 or 15 percent in U.S. stocks, Prechter, known for his bearish views, expects a steeper, longer term fall. Within the bear market Prechter says started in 1999, this latest stock rally “is the third I think final peak,” he said in a telephone interview with Reuters. For investors in equities, this is “the last chance to get out with the Dow in quintuple digits,” Prechter added. Prechter adhered to his earlier forecasts U.S. stocks will fall below 12-year lows hit in March 2009, with the S&P 500 index .SPX falling below 666 points as the economy worsens, and as investors’ recent optimism about risky assets fades. Last year “was a respite for anyone who was stuck in corporate paper, municipal paper, stocks and commodities,” he said. Now, along with stocks, corporate bonds are set to fall to lower levels than in the market panic of 2008, he said. U.S. corporate bonds rallied spectacularly last year as investors regained their nerve in the aftermath of the global financial crisis. Most bond analysts do not expect investment grade corporate bond yield spreads to revisit all-time wides over government bonds hit in late 2008. That was when investors panicked over a potential rerun of the Great Depression and demanded a huge premium for the risk of holding corporate debt. Prechter expects U.S. investment grade corporate bond yield spreads to exceed the 656 basis point record of December 2008. NO GLITTER FOR GOLD? If deflation – an environment in which prices of everything from houses, to cars, to wages fall – does set in, gold, which in some respects is a hedge against inflation, is likely to fall precipitously in value, he expects. Gold “is over-owned and overvalued and is about to resume a bear market, if hasn’t already,” said Prechter. “I think it could drop at least 40 percent from its peak value,” he added. Spot gold was trading at about $1,095 per ounce on Monday, after hitting a record high of around $1,226 on Dec 3., hurt by a firming dollar, and investors’ ebbing confidence about economic growth and inflation prospects. DOLLAR SILVER LINING? Prechter reiterated his longstanding advice to investors to shelter in Treasury bills until between about 2014 and 2016 when he expects the unwinding of the biggest debt bubble in history will start to abate. “The bear market (in stocks) has a number of years left to run: four to six more years,” he said. “It makes it prudent to stay in the safest cash equivalents till it’s over,” and perhaps keep some money under the mattress as well in case of problems in the banking system, he said. Over about the next year, the dollar should continue gaining against the euro Prechter said. In October, Prechter said the dollar was bottoming. The dollar has rallied nearly 5 percent against a basket of currencies .DXY since a November 26 low amid expectations of higher U.S. interest rates given strong economic data. (Reporting by John Parry; Additional reporting by Gertrude Chavez-Dreyfuss, Ellis Mnyandu and Frank Tang, Editing by Andrew Hay)
Gold could be better considered a “Crisis Hedge” rather than an “Inflation Hedge”. It actually has a fairly low correlation to inflation and a moderate correlation to expected inflation. As for the rest of the article…yes we are probably all screwed for a while but lucky for me most of my liquid net worth is in my retirement plans and therefore enjoys a very long term time horizon.
i don’t believe that minor cooling in the chinese already steaming credit and loan market, is the “event” that will spark a major bear market. i think we need to see something a little more convincing. he took the first 500 pt drop in a long time and he’s looking for publicity. a real man would have made this call on the 19th when we just hit a 15-month high.
From a technical perspective, we touched the support with the lows on the 20th and we smashed through and closed below the support on the 21st… I would add a picture if I knew how to (if possible)…
We were at the apex of a rising wedge…
I think there is about a 50% chance that the market will go down.
Hello Mister Walrus Wrote: ------------------------------------------------------- > I think there is about a 50% chance that the > market will go down. i’ll take that bet, if you give me 51/49 odds.
I searched quickly for this, but I recall doing some reading that Prechter is a prognosticator with a poor track record. There was a brilliant article showing how wrong this guy is about everything. This is the jist of it and someone might be able to dig something up better. I originally found the link to a more detailed analysis on elitetrader a few months back. But this is of the same substance. http://www.erictyson.com/articles/20090616
jobless recovery => unsustainable => correction => the market will go down.
phBOOM Wrote: ------------------------------------------------------- > jobless recovery => unsustainable => correction => > the market will go down. Agree 100%!!!
Guys, the market increase is relative to 2008/2009, when even people with jobs were too scared to spend money… we’re still down a lot from 2007.
Let’s put things in perspective. Back in the tech bubble, S&P hit 5000. It has never recovered and now is less than half of the all-time hight. Similarly, with the historical magnitude of this housing bubble + weakness in the general economy, trillions of marked up wealth simply evaporated. Little reason to think Dow is going up to hit 15,000 again, at least not this year. I think 8000 is a good indication of the fundamentals. If so, we are now at a 20% premium already.
“Back in the tech bubble, S&P hit 5000. It has never recovered and now is less than half of the all-time hight.” Uh, what?
phBOOM Wrote: ------------------------------------------------------- > Let’s put things in perspective. > > Back in the tech bubble, S&P hit 5000. It has > never recovered and now is less than half of the > all-time hight. Similarly, with the historical > magnitude of this housing bubble + weakness in the > general economy, trillions of marked up wealth > simply evaporated. Little reason to think Dow is > going up to hit 15,000 again, at least not this > year. I think 8000 is a good indication of the > fundamentals. If so, we are now at a 20% premium > already. Agree 100%! If you take out the stimulus package, we would still be where we were 1.5 years ago. Granted, the government helped, but eliminating that stimulus, we are not strong enough to move forward. I don’t believe the “Jobless Recovery”. People need to have money to spend…
That’s it, I’m out of here.
soxboys21 Wrote: ------------------------------------------------------- > phBOOM Wrote: > -------------------------------------------------- > ----- > > Let’s put things in perspective. > > > > Back in the tech bubble, S&P hit 5000. It has > > never recovered and now is less than half of > the > > all-time hight. Similarly, with the historical > > magnitude of this housing bubble + weakness in > the > > general economy, trillions of marked up wealth > > simply evaporated. Little reason to think Dow > is > > going up to hit 15,000 again, at least not this > > year. I think 8000 is a good indication of the > > fundamentals. If so, we are now at a 20% > premium > > already. > > > Agree 100%! > > If you take out the stimulus package, we would > still be where we were 1.5 years ago. Granted, > the government helped, but eliminating that > stimulus, we are not strong enough to move > forward. > > I don’t believe the “Jobless Recovery”. People > need to have money to spend… Bannning offshoring of jobs/ impose heavy taxes on Companies that offshore might go a long way. I still believe our economic malaise can be significantly attributed to the offshoring of manufacturing and services jobs.
I think we are going to see some stagnation for a while. With the fed funds target rate at 0, well below what are level of savings can justify if with the Asian savings glut it seems that we still have a lot of deleveraging to do. I would be interested in figuring out some other good indicators of macroeconomic leverage in addition to national debt as a % of GDP. Any excess debt indicator suggestions are most welcome.
soxboys21 Wrote: ------------------------------------------------------- > phBOOM Wrote: > -------------------------------------------------- > ----- > > Let’s put things in perspective. > > > > Back in the tech bubble, S&P hit 5000. It has > > never recovered and now is less than half of > the > > all-time hight. Similarly, with the historical > > magnitude of this housing bubble + weakness in > the > > general economy, trillions of marked up wealth > > simply evaporated. Little reason to think Dow > is > > going up to hit 15,000 again, at least not this > > year. I think 8000 is a good indication of the > > fundamentals. If so, we are now at a 20% > premium > > already. > > > Agree 100%! > > If you take out the stimulus package, we would > still be where we were 1.5 years ago. Granted, > the government helped, but eliminating that > stimulus, we are not strong enough to move > forward. > > I don’t believe the “Jobless Recovery”. People > need to have money to spend… you don’t have to believe, economy is more complex than you think. It just happens before your eyes. If it was “no jobs no recovery” we were still living in caves eating raw meat. http://www.aheadofthecurve-thebook.com/11-03.html http://www.aheadofthecurve-thebook.com/11-06.html bottomline, it’s not different this time.
There is a fine difference between doom and gloom and going back to the caves and a correction in the stock market. We are not saying that the world is going to hell, simply that there is no reason for the stock market to go higher in the short to medium term before fundamentals improve.
Structural unemployment cannot be solved by loose monetary policy. How about people start their own businesses and watch the equity value in their own company go up vs. the work of other companies? Then no one can downsize you.