Will Stocks Peak One Year After Bonds?

March 9th, 2014

There are financial parallels between the 1920s and today - is history set to repeat?

When the financial media mentions the late 1920s, they usually mean the 1929 stock market top and the market crash that followed. But today’s investors can also learn from what happened in 1928. That was the year that the bond market topped, while commodities peaked even earlier.

You can see this for yourself in a chart published in the September 2013 issue of Robert Prechter’s Elliott Wave Theorist.

In the deflationary crash of 1929-32, commodities fell from lower peaks, not higher peaks; stocks fell from all-time highs down to the bottom; and bond prices fell from an all-time high a year earlier.

The Elliott Wave Theorist, July-August, 2013

These markets could see a similar outcome in the near future: Commodities peaked in 2008, while Treasury bonds topped in 2012. The high in the Dow Industrials remains December 31, 2013.

Of course, history doesn’t always repeat itself. Whether December 31 proves to be a long-term high in the Dow remains to be seen. The stock market rally since March 2009 has been doggedly persistent. Prices have surged several times just as the indicators suggested the uptrend was over.

Bad Start for Stocks in 2014: Buying opportunity or more pain to come?
You can benefit greatly from looking at charts that take a historical look at what’s going on in the financial markets. Robert Prechter has just released an issue of his Elliott Wave Theorist publication that includes 15 charts of the S&P 500, NASDAQ, gold, and mutual funds — along with his analysis.

With this information, his Elliott Wave Theorist subscribers are now prepared for 2014. And you can be, too, because you can get the full issue, FREE.

Download your free 10-page report here Don’t delay!

Deflationary Forces Preventing FED’s Rescue Efforts

December 14th, 2013

The Federal Reserve’s efforts to rescue the economy have been historically aggressive, starting with the initial round of quantitative easing in 2008 and continuing through 2013. Much money has been printed, despite what Bernanke says. M1 has been more than tripled. Yet Gold is down, commodities market is down, and inflation is still at historic low levels!

The central bank’s assets have skyrocketed due to the Fed’s bond purchases, which you can see clearly in this eye-opening report that Robert Prechter presented to the Market Technicians Association and his Elliott Wave Theorist subscribers.

Editor’s Note: Visit Elliott Wave International to download the rest of the 8-page, free report, How to Protect Your Money When the U.S. Debt Bill Comes Due.

The main reason investors are expecting runaway inflation is illustrated in [the chart above], which shows the value of assets held at the Federal Reserve. The Fed has been inflating the supply of dollars at a stunning 33% annual rate over the past five years. … [N]o wonder investors expect inflation and have aggressively positioned for it.

Look just about anywhere else, however, and you will see subtle evidence of deflationary pressures. Given knowledge only of the Fed’s inflating, many people would expect the Producer and Consumer Price Indexes to be rising at a rate of 33% annually. But, as you can see in Figure 2, the PPI’s annual rate of change is stuck at zero and the CPI has been rising at only a 2% rate.

The Elliott Wave Theorist, July-August, 2013

In an interview at the recent San Francisco Money Show with financial author Jim Mosquera, EWI’s Chief Market Analyst Steven Hochberg explains why the Fed has gotten so little in return from its stimulus programs. Here’s a brief excerpt from the interview published on Aug. 18:

Question: The Fed wizards have been pushing buttons and pulling levers rather furiously since 2008. The discount rate is rock bottom, and the Fed balance sheet has swelled to the tune of trillions. What button is left for them to push?

Steve Hochberg: That is a really interesting question the way you phrased it because the fact that they have been pushing buttons and have gotten very little in return tells us … that the Fed is not in control. The Fed does not control the markets, and it doesn’t control the economy. Both are bigger than the Fed.

You say they have been doing this furiously. They have been doing this historically! Yet if you look at inflationary measures, such as the Personal Consumption Expenditures, which is the Fed’s favorite way of measuring inflation, it’s bumping along at 1%.

We have had historic fiscal and monetary stimulus and yet no inflation. Why? The forces of deflation are overwhelming the forces of inflation. The Fed dropped interest rates in 2000 to 2002 and that did not stop the Nasdaq from dropping 78%. The Fed dropped rates from 2007 to 2009 and it did not stop the Dow from going down 59%. There is historical evidence that the Fed does not control the markets but that the markets control the Fed.

As the next leg of the bear market starts unfolding, they are going to do more unconventional things. Things will accelerate to the downside when the public realizes the central banks aren’t in control.

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15 Eye Popping Charts Reveal 2014 Forecast

December 14th, 2013

Gold is down despite the printing press! Commodities are down! Peak OIL is not the topic anymore. Home prices have moved up with record low cost of lending and tremendous FED help. Stock market defied gravity in 2013 and is holding up so far. But how far can it go? Is the turn near once again? The financial community always wonders the answer to such question but there is no crystal ball. Though technical analysis may help us understand the landscape so that we may adjust our expectations. So what is the landscape like today? I may not be Santa Claus, but I have an early present for you this year. It’s 15 charts of financial markets with analysis by Robert Prechter, the president of Elliott Wave International.

He created these charts – which cover markets like the S&P 500, NASDAQ, gold, and mutual funds – to explain where financial markets have been and where they are headed. These are not your typical price charts. They combine history and patterns to tell the story clearly, all from his distinctly different point of view. With this information, his Elliott Wave Theorist subscribers are now prepared for 2014. And you can be, too, because you can get the full 10-page issue, for free.

Elliott Wave International hasn’t offered a free issue from Bob in quite some time, but they feel that the message of this issue is extremely important and can provide you with an outlook for 2014 that you shouldn’t miss.

Prechter says that “charts speak the truth.” Here is your chance to see what truths these charts are telling. If a picture is worth a thousand words, then this publication is like reading more than 15,000 words of his market analysis.

Pointer: Be sure to check out one of the interesting charts, which shows how Main Street investors actually see the markets better than Wall Street.

Click here to download a  free copy of the 10-page issue of The Elliott Wave Theorist now.

Happy investing!

P.S. It’s a once-in-a-blue-moon opportunity. And it’s free. See these 15 eye popping  charts now.

Deflation Warning

July 19th, 2013
Money Manager Startles Global Conference.
History shows that the U.S. should pay attention to economies in Europe.

The economy has been sluggish for five years. There’s no shortage of chatter about “why,” yet few observers mention deflation. Bernanke has been printing trillions. ECB and Bank of Japan has joined the reflation efforts and promised to print to achieve inflation, but inflation is nowhere to be seen. There is some price movement in credit dependent sectors such as housing, mainly fueled by hope and greed to not miss the bottom. But this can also reverse and leave scars for investors and home owners. After so much money printing, and extending the FED’s book to unprecedented levels, why is inflation not happening? Are we not supposed to have hyper inflation by now? Why is gold and silver crashing at a time when it is supposed to be their moment of victor against the evil paper currency called the US dollar?? Most people thought and still think inflation is our destiny.

One exception is a hedge fund manager who spoke up at the recent Milken Institute Global Conference.

The presentation by Dan Arbess, a partner at Perella Weinberg and chief investment officer at PWP Xerion Funds, was startling because of how deeply it broke from the standard narrative.

We’ve been wrong to assume that the economic crisis is over, Arbess said. … The threat of deflation is once again rearing its head.

“The persistent risk in our economy is deflation not inflation,” Arbess said.

CNBC, May 2

Deflation appears to be more than a threat. Consider what’s already happening in the U.S. and in Europe.

Industrial production declined in April by the most in eight months, indicating American manufacturers will provide little support for an economy beset by weaker global markets and federal budget cuts.

Bloomberg, May 15

Europe is slipping further into recession.

The euro zone economy shrank more than expected in the first three months of 2013 … as France returned to recession for the first time since 2009 and Germany barely edged forward.

It marked the longest recession for the euro countries since the currency was introduced in 1999.

New York Times, May 15

Here’s a relevant fact: The Great Depression of 1929-1932 started in Europe before coming to America.

The economic wave may be much bigger this time.

Robert Prechter made this observation:

Total credit will contract, so bank deposits will contract, so the supply of money will contract, all with the same degree of leverage with which they were initially expanded.

Conquer the Crash, second edition, p. 111

EWI published this chart in March 2012.

The enormous credit expansion that started in the early 1980s is due to be leveled.

You can prosper during the next economic contraction. Many people did just that during the Great Depression. Robert Prechter’s New York Times bestseller, Conquer the Crash, can teach you what you need to know to protect your portfolio during these high-risk financial times.

For a limited time, you can get part of Conquer the Crash for free. See below for more details.

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Is Deflation Possible?

April 6th, 2013

To understand the deflation problem, one must understand the nature of money and the amount of total debt in the US economy. In a credit based economy, money is created when banks make loans. Our money supply is not what Bernanke prints, but it is what we borrow. Fractional reserve banking coupled with interest based monetary system is the cause of Kondratieff Wave which defines the economic booms as well as the busts.

The Unpayable U.S. Debt

The widely reported $16.1 trillion federal debt is a drop in the bucket.

Financial transparency is a must for U.S. publicly traded companies. But if the federal government had to abide by those same regulations, more Americans would know that the often-reported $16.1 trillion federal debt doesn’t come close to the truth about the nation’s liabilities.

In a Nov. 26 Wall Street Journal opinion piece, a former chairman of the Securities and Exchange Commission and a former chairman of the House Ways & Means Committee write:

The actual liabilities of the federal government — including Social Security, Medicare, and federal employees’ future retirement benefits — already exceed $86.8 trillion, or 550% of GDP.

The authors say that few people know about the $86.8 trillion figure because that figure is not in print on any federal government balance sheet.

Federal debt is staggering enough. Municipal liabilities also pose a danger to the nation’s financial health.

Illinois has an unfunded pension liability of at least $83 billion. It had 45 percent of what it needed to pay future retiree obligations as of 2010, the lowest among U.S. states.

Bloomberg, Aug. 29

The article also noted, “California, with an A-ranking, one level below Illinois, remains S&P’s lowest-rated state.”

Budget shortfalls in California and Illinois are just the tip of the municipal financial iceberg. Many other state governments are financially swamped.

How did municipal spending get so out of control? Well, a stupefying story out of Bell, Calif., provides a hint. On Nov. 26, CNN reports that the Bell police chief earned $457,000 a year, and “He is now asking for more money.” In 2010, the Bell city manager resigned after controversy over his $787,000 yearly salary.

States Are Broke and Approaching Insolvency

… States’ legislatures continue to blow money. For years,
state governments have been spending every dime they could
squeeze out of taxpayers plus all they could borrow. (The
lone exception is Nebraska, which prohibits state indebtedness
over $100k. Whatever Nebraska’s official position on any
other issue, by this action alone it is the most enlightened
state government in the union.) But now even states’ borrowing
ability has run into a brick wall, because the basis of
their ability to pay interest — namely, tax receipts –
is evaporating. … The goose — the poor, overdriven taxpayer
– is dying, and the production of golden eggs, which allowed
state governments to binge for the past 40 years, is falling.
The only reason that states did not either default on their
loans or drastically cut their spending over the past year
is that the federal government sucked a trillion dollars
out of the loan market and handed it to countless undeserving
entities, including state governments.

The Elliott Wave Theorist, November 2009

If there’s another leg of the economic downturn, expect a further dwindling of tax receipts.

Finally, consider the wobbly financial dominoes in Europe and what may happen in the U.S. after the first one falls.

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Can the Fed Stop Deflation? Should you rely on the
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more questions in Robert Prechter’s Conquer the
And you can get 8 chapters of this landmark
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Deflation and the Next Five Years of Financial Turmoil

The following is a sample from Elliott Wave International’s new 40-page report, The State of the Global Markets - 2013 Edition: The Most Important Investment Report

You’ll Read This Year. This article was originally published in Robert Prechter’s July 2012 Elliott Wave Theorist.

In the first five months of 2012, there were 20 times as many Google searches on “inflation” as there were on “deflation.” This is down from a ratio of 50 times in June 2008. If any theme has been overdone over the past six years, it is the theme of inevitable inflation if not hyperinflation.

Inflation reigned for 75 years, from 1933 to 2008. People are so used to it that they cannot imagine the opposite monetary environment. Bullish economists have been calling for recovery, which means more inflation, and bearish advisors have been calling for a crash in the dollar, which means hyperinflation. No wonder those are the terms on which most people have been searching.

But only one word allows you to make sense of what’s going on in the world, and inflation is not it. The secret word is deflation.

Deflation explains:

  • why interest rates on highly rated bonds are at their lowest levels in the history of the country;
  • why the velocity of money is the lowest since the 1930s;
  • why huge sectors among investment markets are down over 40%;
  • why the Consumer Price Index (CPI) just had its biggest down month since 2008;
  • why Europe is in turmoil.

Here are some details: Ten-year Treasury notes pay out less than 1.5% annually, their lowest rate since the founding of the Republic. Treasury bills yield essentially zero, their lowest level ever. The velocity of money failed to rise during the past three years of partial economic recovery, and it recently made new lows. Real estate prices have fallen 45% in the past six years. Commodity prices — as measured by the CRB Index — are down 39% over four years. This group includes oil and silver, two of the most hyped investments of the past decade. Remember in March when articles quoted analysts calling for $5, $6 and $8-per-gallon gasoline? In just three months since then, gas prices have fallen 15%, knocking the CPI into negative territory.

Deflation also explains why European loans are at risk, why Germany is tapped out, why Greeks are protesting in the streets, and why U.S. corporations’ overseas profits are down. Deflation lets you make sense of the world.

What is deflation? Economists define it three different ways, but I find only one definition useful: Deflation is a contraction in the overall supply of money and credit.

Why must deflation occur? Answer: There is too much unpayable debt in the world.

As argued in Conquer the Crash, it ultimately does not matter what the authorities do; they can’t stop deflation. This prediction is being borne out. Since 2007, the Fed has monetized $2 trillion worth of debt; the federal government has borrowed another $7 trillion; and it has pumped out $1 trillion worth of student-loan credit. Yet real estate and commodities slumped 40% anyway.

These drunken-sailor-type policies have indeed succeeded in nearly maintaining the overall volume of money and credit.

But in the long run you can’t fight a systemic debt overload by piling on more debt. The Fed and the government are shifting the burden of trillions of dollars’ worth of debt obligations from reckless creditors onto innocent savers and hapless taxpayers. The ploy might work if the public’s resources were infinite, but they aren’t. Perhaps this policy temporarily prevented a series of big institutional disasters, but it was only at the ultimate price of a gigantic public disaster.

Such actions have become politically less palatable. Some observers realize that the student-loan program of lending at below-market rates is exactly the model the government used for housing loans, which ended in a spectacular bust. Others know that the government cannot continue to borrow at the current pace and expect to stay solvent. Politicians on both sides of the aisle are tired of the Fed’s bailing out of highly leveraged financial-speculation institutions.

But whether these policies continue or are curtailed is irrelevant to the outcome. If the government slows its borrowing, the overall value of debt will fall. If the government maintains or increases its present pace of borrowing, interest rates will eventually turn up, and the overall value of debt will fall. There is no escape from deflation.

Ironically, investors in the past decade have been doing exactly the opposite of preparing for deflation. Convinced of perpetually rising prices, they have bought every major investment. They chased real estate up to a peak in 2006. They bought blue chip stocks into the high of 2007. They pushed commodities up to a peak in 2008. They chased gold and silver up to highs in 2011. And through spring 2012, they continued to buy stocks and commodities on any rumor that promised inflation: European bank bailouts, Operation Twist, the Greek election, Group-of-8 summits, Fed meetings, Bernanke press conferences, improved economic numbers, predictions of QE3, central-bank interest-rate cuts, you name it. Meanwhile, the U.S. Dollar Index hasn’t made a new low for four years. During deflationary times, cash is king, and by far most investors have chosen to own anything but cash.

Deflation is still not obvious to the majority. Even now, most economists expect continued recovery, mild inflation and a rising stock market. But the essays on deflation.com are 180 degrees apart from conventional thinking. It may be too late for you to get out at the top, but there’s still time to learn how to sidestep the worst of the crunch.

People will be using the secret “d” word much more often over the next five years. By the end of that time, they will also be using its cousin “d” word, depression.

Two Signs That Deflation is Far From Over

The federal government defines the Producer Price Index (PPI) as “the average change over time in the selling prices received by domestic producers for their output.”

With help from the Federal Reserve’s massive inflationary policies, the PPI has climbed even as the economy began to fall in 2008-09.

All the while, the financial media persisted with stories of an economic recovery. EWI analysts offer an independent perspective.

The New York Times declares, “Economic Gloom Starting to Lift.”

Corporate America, however, is not so sure. This chart of producer prices [wave labels removed] probably illustrates why. After years of largely uninterrupted growth, the Producer Price Index appears to be on the cusp of a critical reversal that should turn into a steady decline in wholesale prices.

The latest Financial Forecast published Dec. 7,
and the latest evidence reinforces the message of the chart’s
title. The PPI elevator has already descended to a lower floor.

The Labor Department said its seasonally adjusted producer price index slipped 0.8 percent last month, the second straight decline.

November’s drop in wholesale prices was the sharpest since May.

Reuters, Dec. 13

The Producer Price Index decline is happening in tandem with a notable reversal in consumer sentiment.

The Thomson Reuters/University of Michigan’s preliminary reading of the overall index on consumer sentiment plunged to 74.5 in early December, the lowest level since August.

It was far below November’s figure of 82.7.

Reuters, Dec. 7

The Federal Reserve’s machinations — which includes the Dec. 12 announcement of $45-billion in monthly Treasury bond purchases — will not stave off a developing deflationary trend.

In the second edition of Conquer the Crash (p. 114),
Robert Prechter describes what generally happens, depending
on the position of the Elliott waves, near the end of the
Kondratieff cycle.

Near the end of the cycle, the rates of change in business activity and inflation slip to zero. When they fall below zero, deflation is in force. As liquidity contracts, commodity prices fall more rapidly, and prices for stocks, wages and wholesale and retail goods join in the decline. When deflation ends and prices reach bottom, the cycle begins again.

Can the Fed stop deflation? Should you rely on the government to protect you? Get the answers you need now — free! See below for full details.

Download 8 Chapters of Robert Prechter’s Conquer the Crash for FREE

This free, 42-page report can help you prepare for your financial future. You’ll get valuable lessons on what to do with your pension plan, what to do if you run a business, how to handle calling in loans and paying off debt and so much more.

Get Your FREE “Conquer the Crash Collection” Here.

Social Mood, Politics and the Stock Market

December 16th, 2012

Here is an interesting perspective on predicting the outcome of presidential elections. According to socionomic theory, bear markets come with a downturn in crowd psychology. When the crowd turns from optimism to pessimism, it is first seen in stocks, and then the rest of the economy, politics, culture. A president who is in the office during a bear market gets the blame. The aggregate anger turns against those at the helm. Economy suffers because pessimistic people do not expand economic activities. They contract. A president who is in the office during a bull market is praised. This is because the population’s aggregate mood is positive (as reflected in stocks) and the incumbent benefits from this social trend.

On Nov. 2, 2012, the latest research paper from the Socionomics Institute, “Social Mood, Stock Market Performance and US Presidential Elections,” published in Sage Open, a peer-reviewed journal of the social and behavioral sciences.

The paper’s authors, Robert Prechter and Deepak Goel of the Socionomics Institute, the late Wayne Parker of Emory University and Matthew Lampert of Cambridge University and the Socionomics Institute, have achieved an important advancement in the study of social mood’s influence on politics, and have received media attention from The New York Times, CNN, The Wall Street JournalForbes, and many other significant outlets.


The “Elections” paper shows a significant positive relationship between net changes in stock prices prior to Election Day and incumbents’ chances for re-election. The authors contend that the stock market does not reliably affect elections, and election outcomes do not reliably affect the stock market. Rather, they say, social mood regulates both.

The key point in the paper is the stock market’s performance in the years prior to Election Day. Consider this chart:

To watch a FREE presentation on the paper — given by Bob Prechter himself — at this year’s Social Mood Conference, simply follow this link.

The paper is available for free download from the Social Science Research Network - a vital resource for scholars, researchers and the educated public that currently boasts over 350,000 papers. “Social Mood, Stock Market Performance and US Presidential Elections” is SSRN’s 3rd most downloaded paper of the past 12 months and among its top 100 all-time. Download the paper from SSRN here.

Here is another video from Robert Prechter where he explains his view of cause and effect in the markets and how social mood drives the market behavior, instead of markets and events driving the mood:

Financial Tsunami Coming

October 25th, 2012

The size of the coming wave will surprise everyone

It has been 4 years since the 2008 crash, and we have mostly forgotten about the dark days of financial calamity that almost destroyed the world economy. It was later revealed that FED made tens of trillions of loans to ailing institutions to save the world. Now we feel safer, somewhat. Business goes on as usual despite the slow recovery.

If you’re a passenger aboard a ship in deep seas, you can’t detect a tsunami; the swells are indistinguishable from regular waves. Wave lengths can be hundreds of miles long, but only when this energy reaches shallow water on the coast does the mammoth tsunami wall form — and can wash over anything in its path.

So when forecasters warn “Move to higher ground!” it’s not wise to think, “Until I see the tsunami, I won’t believe it’s coming.” Once it’s visible, it’s probably too late.

It’s equally unwise to ignore signs of a financial tsunami.

Investors who wait … before acting will be too late. We have to anticipate developments, and the only way we can do that is to use tools that reveal signs of approaching trend change.

The Elliott Wave Theorist, March 2012

The most famous financial tsunami in modern history occurred in 1929-32. Almost no one saw it coming. For example, the observation below was made shortly before the 1929 Crash.

Stock prices have reached what looks like a permanently high plateau.

Yale Professor Irving Fisher, Oct. 1929

Other prominent people did not see the signs of economic trend change that led to the 1929-32 deflationary crash.

Fast forward to this July 18, 2012, CNBC headline:

Fed’s Bernanke: ‘We Don’t See a Double-Dip Recession’

When reading such comments, one might ask, “Is history repeating itself?”

Elliott Wave International believes only a relative few suspect the magnitude of the approaching economic wave, including the world’s financial authorities.

This largely undetected financial tsunami has been silently traveling for at least 80 years. Once ashore, the outcome may rival 1929-32.

A detailed description of that wave and its expected effects is in the bestseller, Conquer the Crash, now in its second edition.

Moreover, the book tells you how to be prepared. For a limited time, you can get part of Conquer the Crash for free. See below for more details.

Download 8 Chapters of Conquer the Crash for FREE

This free, 42-page report can help you prepare for your financial future. You’ll get valuable lessons on what to do with your pension plan, what to do if you run a business, how to handle calling in loans and paying off debt and so much more.

Download Your FREE “Conquer the Crash Collection” here

US Dollar Will Rise in Deflation

September 3rd, 2012

Before the 2008 crash, US dollar had been declining steadily. Everyone was on a borrowing spree. We borrowed and spent and inflated the money supply. Banks create money when we borrow. And more and more chequebook money was being created. Then we ran out of borrowers and deflation started. US dollar suddenly shot up. Once again, we are at a time when dollar is about to go up against everything else. But there is one currency that is most vulnarable right now. On the day when the Fed Chairman Ben Bernanke delivers his much-anticipated speech in Jackson Hole, we want to tell you about an emerging forex opportunity which…

…has nothing to do with Bernanke.

And that’s exactly what makes this opportunity so promising: Few traders know about it.

See, while most of the forex world is focusing on Bernanke, traders who are in-the-know are looking at what few people see: Elliott wave patterns.

The man who found this new opportunity for you is Elliott Wave International’s Jim Martens.

Who is Jim Martens?

Jim is Elliott Wave International’s long-time Senior Currency Strategist — and one of the very few top forex Elliott wave instructors in the world. A sought-after speaker, Jim has been successfully applying Elliott since the mid-1980s, including 2 years at the George Soros-affiliated hedge fund, Nexus Capital, Ltd.

Here’s why this forex opportunity is both so urgent and promising:

  1. This forex market’s daily chart shows complete waves 1 and 2. This is a textbook Elliott wave trade setup:
  2. What should come next is wave 3 — the strongest, longest and most explosive wave in an Elliott wave sequence.

  3. Wave 2 has already retraced .618% of wave 1 — a common Fibonacci reversal point.
  4. You risk is limited and well-defined: Under the rules of Elliott, wave 2 cannot retrace more than 100% of wave 1.

So your risk-reward ratio is at least 3-to-1!

Third waves are what every Elliott wave trader lives for. Catching 2-3 such moves can literally make your year.

See this Compelling FX Opportunity For Yourself — FREE — at elliottwave.com

For a limited time, you can see Jim Martens’ NEW 7-minute video featuring this high-confidence opportunity. Jim walks you through the Elliott wave evidence that every FX trader needs to see. Hurry! Free access to this video ends Tuesday, Sept. 4.

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Deflation and Kondratieff Winter is About to Intensify

August 23rd, 2012

After the crash of 2008-2009, Kondratieff Winter has eased. Money supply expansion has resumed with more borrowers stepping upto the plate. QE1 and QE2 has added to the base money supply and saved the banks - for now. But financial changes can happen at lightning speed in a way we do not foresee. History books call the period after the War of 1812 “The Era of Good Feelings.”

America was a young nation that had a sense of purpose. National political strife was at a minimum; optimism was in the air. Major advances in technology and engineering brought the country turnpikes for easier travel and “The Canal Craze” for more efficient commerce. Once the Erie Canal became an obvious commercial success, imitators borrowed heavily to build more. Eventually the U.S. had constructed 4,500 miles of canals.

Alas, the railroads arrived and made canals obsolete. Canal investors were ruined.

Swift economic changes have happened throughout U.S. history. And they continue to happen still. Major economic changes come via technology: consider the automobile, telephone, radio, television, the computer and the Internet (to name a few). At other times, economic changes are systemic. The Next Major Economic Change May Come from the Credit Craze. Deflation is always accompanied by a preceding credit build-up.

The Era of Good Feelings came to a screeching halt when America’s first deflationary depression occurred from 1835 - 1842. Before then, credit had boomed. America’s second major deflationary depression was the Great Depression that began in 1929. That was also preceded by a credit boom. Today’s credit boom dwarfs those earlier examples.

The March 2008 Elliott Wave Theorist elaborates on the next potential shift in the financial markets.

Over the past 300 years the bigger the investment mania, the faster has been the ensuing collapse. The peaks of 1968 and 1835 led to deep bear markets of six and seven years, respectively. The wilder Roaring ‘Twenties, capping an 87-year rise, led to a deeper bear market, yet it was faster, lasting less than three years. The even more dramatic South Sea Bubble, which peaked in 1720, led to a still deeper bear market, yet it was even faster, lasting only two years. So given that the past ten years of topping has produced the craziest overvaluation, the largest number of bubbles and the most persistent period of market-related optimism ever, by a huge margin, I am more than ever expecting a swift resolution.

This excerpt is from an issue that published just a few months before the fastest financial changes to occur in the U.S. in the past 80 years.

The financial world doesn’t seem to feel major rumblings right now. And that’s why so many can be lulled into a false sense of financial security. Yet, EWI’s economic indicators suggest that the next slippage of the financial plates could unleash far more financial destruction than before. Now is the time to learn to prepare your portfolio by thinking differently
than the rest of the pack.

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Conquer the Crash in Kondratieff Winter

July 14th, 2012

Financial assets has still not recovered from the financial crash of 2008. One could argue we are still in Kondratieff Winter. But will it get better or will it get worse? Have we seen the stock market bottom in 2009? Is it safe to buy and hold stocks for the long run? Or is buy and hold dead?

In June of 2002, the terrible dot.com bust was making way for a powerful housing boom, the European Union was growing, and American involvement in the Middle East promised a “quick and easy victory.”

Yet when EWI President Robert Prechter’s first edition of Conquer the Crash published ten years ago on this date, he wrote:

  • “Home equity loans are brewing a terrible disaster.”
  • “What screams bubble — giant historic bubble — in real estate is the system-wide extension of massive amount of credit.”
  • “The Middle East should be a complete disaster.”
  • “Look for nations and states to split and shrink.”

Today, 10 years later, the U.S. housing market still hasn’t overcome its worst downturn since the Great Depression; the eurozone is in crisis, and the expected quick victory in Iraq became a drawn-out mess.

Prechter’s analysis - based on the Elliott Wave Principle and socionomics, the study of how social mood motivates social actions — enabled him to foresee these changes in the economic, social, and political landscape.

What other eye-opening forecasts do the pages of the Conquer the Crash reveal? How about:

Banks: “Banks are not just lent to the hilt, they’re past it. In a fearful market, liquidity even on these so called ’securities’ [corporate, municipal, and mortgage-backed bonds] will dry up.” (Remember the 2007-2009 “liquidity crisis”?)

Bonds: “The unprecedented mass of vulnerable bonds extant today is on the verge of a waterfall of downgrading.” (Remember the 2011 downgrade of the U.S. Treasury bonds?)

Credit: Credit expansion schemes — the primary role of the U.S. Federal Reserve Bank — “have always ended in a bust.” (Again, think back to the “credit crunch.”)

And — “Like the discomfort of drug addiction withdrawal, the discomfort of credit addiction withdrawal cannot be avoided.” (You could say that again.)

Anticipating “shocks” to the global system is a remarkable and true, decade-long achievement of Prechter’s Conquer the Crash. And on the 10th anniversary of its publication, we’d like to offer you 42 pages of excerpted material to commemorate Prechter’s work.

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Kondratieff Wave is once in a 50-70 year economic cycle and when the Kondratieff Winter arrives, it produces Great Depression kind of economic depression, typically with heavy deflationary periods. Today credit and the desire for credit is still at record levels. We have a debt bubble that has not yet deflated. The worst is still ahead of us. Take the time to read Conquer the Crash to judge the evidence yourself. So far it’s predictions are coming true in great detail.