November 21st, 2014
As early as 2011, our analysis warned that Europe’s deflation was coming — here’s why
For the economies of Europe, the past few months have felt like one long ice-bucket challenge that never ends: A perpetual state of shock induced by the bone-chilling fact thatdeflation
“…has become a reality in many European countries.” (Oct. 24, New York Times)
At last count, eight European nations are now in outright deflation, including:
- Italy’s -0.1% annual inflation, the country’s first descent into deflation since 1959
- Spain’s -0.3% annual inflation, the most serious deflation of any larger eurozone economy
- France’s near 0.0% core inflation, the lowest in modern history
And no, in case you were wondering, it’s not the warm and fuzzy kind of “good deflation” being touted here in the United States, where the only consequence is lower prices. In Europe, it’s the
“…pretty awful kind.” “Titanic Europe headed for shipwreck” KIND OF awful (Nov.14, The Telegraph)
So, we ask you: What could possibly be scarier than deflation? How about — not even being able to foresee it?
Yes, deflation was a surprise to the financial authorities. Says one Oct. 12 financial blog post:
“It seems the entire world is cooling off in ways most political leaders and central bankers never saw coming. Global finance ministers are now up against a beast none have known in their professional lives.”
That’s what should keep adults like you and me up all night — the “never-saw-it-coming” part. Just how safe is our future if the people whose job it is to keep the world’s economies stable lack the tools to predict one of the most dangerous economic conditions?
This recent lack of foresight jives with what former Federal Reserve chairman Alan “The Maestro” Greenspan said in 2008:
“We can tell a bubble only after it burst.”
It also jives with what some big wig at the Organization for Economic Co-operation & Development said in 2012:
“The responsibility of the ‘latest’ financial crisis, which no one saw coming, should be borne by all of us.”
But the fact is — there was — and is — a way to see these deflationary economic sea changes coming.
This chart of the UK Consumer Price Index is a reliable bellwether for inflation in Europe. You can see that price expansion peaked in September 2011 at 5.2%:
At the time, the “D” word was completely off the mainstream radar. Soaring oil, grain, and commodity prices, alongside a stimulus-happy European Central Bank fueled widespread fears of runaway inflation.
One month before the top, Elliott Wave International’s August 2011 European Financial Forecast laid the opposing groundwork:
“We maintain our stance, however, that the looming threat is not inflation but deflation. Far from a sense of relief, the Banks’ paramount feelings should soon develop into an unrelenting dread.”
Here’s what made us take a contrarian stance (among many other reasons):
[In the August 2011 issue,] for instance, we showed a chart of eurozone manufacturing production and British GDP growth. Both were falling, not rising, indicating Europe’s likely return to economic contraction.
[This] chart is another key piece of deflationary evidence… It shows the relentless downward trajectory of Swiss, German and British 10-year bond yields, which is one of the thorniest problems for those who take the inflationist worldview.
Bond yields aren’t just falling: 10-year Swiss, German and British yields collectively dropped to record lows last month. The unrelenting demand for Europe’s safest debt is a smoking howitzer that is blowing the inflationists’ case to pieces.
– The European Financial Forecast, Sept. 2011
However, the widespread call for inflation only continued to intensify in the mainstream finance. In fact, in February 2012, when the U.K. producer price inflation came in higher than expected, it prompted this word of advice from economists:
“PPI: Another wake-up call for apoplithorismosphobes, the clinical term for those who fear deflation. We recommend that sufferers ’seek therapy.‘” (March 12, Wall Street Journal)
Yet, our July 2012 European Financial Forecast remained committed to its counter claim:
“Our models say that inflation rates will keep failing until they’re again measuring the rate of deflation as they last did briefly in 2009.”
So, it’s now 2014 and deflation in Europe is no longer a specter or a figment of an unbalanced imagination. Here’s a comment from the September 2014 European Financial Forecast:
“The central bank’s latest deflation-fighting contrivance is a €400 billion package of targeted LTRO loans, which are designed to compel banks to lend to ordinary business owners… The ECB has slashed its main refinancing rate to 0.15% and now charges for banks’ overnight deposits. The result? Shown below, Europe’s largest economy, Germany, just contracted 0.2%; French economic output has ground to a halt; and Italy just entered its third recession since 2008.”
Now that deflation in Europe is a reality, the question is — will it get better? Is this just a temporary economic condition that will be soon replaced with another one — the condition that economists are much more familiar with, inflation?
We don’t think deflation will surrender quite so easily. Want to learn more about deflation before it could potentially affect your investments?
Today, we invite you to read a free report from Elliott Wave International titled, What You Need to Know About Protecting Yourself from Deflation. This 10-page report will help you understand how you can better prepare yourself for its devastating effects.
Follow this link to get your free report - and start reading immediately!
October 26th, 2014
When the market goes up, or when it goes down, the mainstream media often explains via events or earnings. But very often, the morning headline gets stale by the afternoon on the same day. In the morning it goes something like: XYZ earnings disappoint investors, stocks are crashing! Then by the afternoon they have to change the headline: Investors shrug off bad news. Stocks are soaring! Why does that happen? Is it not that news and earnings move stocks?
Want to Know the REAL Reason Why the Stock Market Turned Down?
The rout in stocks is no “jinx”
In case you’ve been roving Mars for the past month, you’ve missed quite a fiasco from the world’s leading stock market:
“Since it topped out last month, the Dow has suffered eight triple digit losses! Add it all up, and the Dow has slid about 7.5% percent from its peak, the biggest retreat in more than two years. It also means the Dow has now given back all of its gains for the year — and then some.” (Daily Finance Oct. 15)
Now, according to the mainstream experts, there are 3 key causes for the market’s sell-off:
On September 19, China’s e-commerce behemoth Alibaba Group launched its $25 billion initial public offering on the New York Stock Exchange — the largest I.P.O. ever in the history of all things, everywhere. An October 13 Bloomberg article calls the BABA reveal a giant, panda-sized sell signal and writes:
“The abundance of investor confidence needed to get Alibaba’s record $25 billion initial public offering off the ground was but one of several red flags that made the market feel top heavy.”
This logic sounds legit now. But back when Alibaba was going to market, the only red flag was the one taunting the wild bulls to charge. From the September 25 USA Today:
“Calling a top based on a big I.P.O. is probably the weakest argument the bears have made so far… While the market isn’t cheap, corporate earnings are still growing solidly, which should keep the bull alive.”
The next reason for the market’s sell-off is…
“A much bigger issue confronting the market is the spread of the Ebola virus. This is by definition, a situation with an unquantifiable outcome and that it would create market uncertainty should hardly be surprising.” (October 13 Bloomberg)
Again, this explanation doesn’t make sense, considering the fact that the Ebola crisis has been front and center in the news since the first outbreak was reported seven months ago — on March 19, 2014. The first 3 American victims of the virus were flown into the United States from Liberia in early August, to receive treatment at the Centers for Disease Control in Atlanta, Georgia.
The third and final impetus for the market’s insidious rout is…
(3) Voodoo Black Magic
Well, sort of. With no tangible trigger for the market’s sell-off, an October 15 news source sites an intangible one:
“It’s not unusual for the market to swing wildly in October… in what’s become known as the ‘Jinx Month.’” (Daily Finance)
Jinx, as in coming from the Greek word “iynx,” bird used in black magic.
At the end of the day, every single one of these efforts to explain the stock market rout occur after the fact – AFTER the Dow has already plummeted over 1000 points from its September 19 peak.
Prior to the market losing its footing, Elliott Wave International published an urgent Elliott Wave Theorist Interim Report. The date of publication: September 19, the day of the high. The report warned investors that the Dow had very good reason to kiss its all-time high goodbye:
“Our daily closing Dow projection of 17,280 was achieved today.”
“Our Flash service is short all three stock indexes.”
“Next week, the U.S. stock averages should decline.”
Once the market began to plummet, our October 10 Short Term Update showed subscribers 2 more objective technical reasons for the reversal.
Reason for reversal # 1:
“It’s now been one full year since October 9, 2013, the date that the Dow’s fifth-wave ending diagonal [Elliott wave pattern] started.”
An Elliott wave ending diagonal pattern is a 5-wave move usually occurring in wave 5. In all cases:
- They are found at the termination of larger patterns
- The indicate exhaustion of the larger movement
- They are followed by a dramatic reversal
Reason for reversal # 2:
“October 9, 2013 marks the start of the trendline that would eventually form the baseline of the diagonal, as shown on the daily chart. The market is signaling that this line is valid and important, as there have been six separate touch points over the past year.
“We’ve often said that trendlines are a meaningful facet of market analysis because we don’t draw them, the market does. All we do is connect the points on the charts to show what the market thinks is significant.
“Today, for the first time in a year, the Dow closed below the trendline, providing another key piece of technical evidence that the wave structure of the prior advance is complete.”
The next chart shows you how the Dow did, indeed, fall below this very important trendline as Short Term Update forecast:
So, to summarize what you’ve just learned:
Fundamental analysis cites Alibaba, Ebola, and/or a magic “Jinx” as the cause(s) for the market sell-off – after the fact.
– VERSUS –
Elliott wave analysis cited an important Fibonacci price target, a mature Elliott wave pattern, and a meaningful trendline as the causes – in advance.
Moving forward, the choice of how you protect your financial future is yours.
Read Our Newest Free Report: “This Is It”
It’s times like these when investors like you need to maintain a focus on the coming bear market that will take far too many by surprise. As Bob Prechter says, “bear markets move fast and are intensely emotional; investors and traders who are prepared have greater opportunities on the downside than on the upside.”
In this new report, you’ll read some of the recent analysis Bob Prechter and Chief Market Analyst Steve Hochberg wrote before the late-September turn — and some of what they have written since then.
August 2nd, 2014
Stocks Top When Everyone Feels Safe
Are the complacent investors heading for another cliff?
Steve Hochberg on the state of retail money market funds vs. stock market capitalization, filmed at the 2014 Las Vegas Money Show
Editor’s note: The article below is adapted from the transcript of the live presentation above, originally recorded at the 2014 Las Vegas Money Show. It features Elliott Wave International Chief Market Analyst Steve Hochberg. Hochberg is co-editor of The Elliott Wave Financial Forecast, one of EWI’s flasgship market letters. Click here for a free excerpt from Hochberg’s latest issue.
This chart is a picture of retail money market funds as a percentage of market capitalization.
In other words, when people are super bullish, they don’t want to hold any money in money market funds. They want to invest it, right?
Because why hold money aside when you don’t think the market’s going down, when it can be in the market if you think it’s going up?
When people are super bearish, what do they do? They take money out of the market, and they put it into money market funds hoping to wait out what they view as a declining market.
Now look at the upward spikes in this chart.
You can see that there was a high percentage of money in money market funds as a percentage of market cap back in 1982 as the market was bottoming and starting that great bull market.
Shortly after the 1987 crash, people got really scared; and again in 2002 after the market had been down 38%, and also in 2009 after the market declined 58%.
We are now at a new all-time low in the percentage of retail money market funds relative of market cap at just 2.8%. In other words, people are fully invested.
Investors are so optimistic about the future, they see no reason to keep money in money market funds in case the market goes down.
This is a classic warning sign that a reversal is ahead. Have you made your logistic plans to pull out of the market on time? Remember: Stocks decline first, economic recession becomes apparent 6 months later which is usually too late to save your nest egg.
August 2nd, 2014
Not Inflation, But Deflation
The Elliott Wave Financial Forecast warns that the contracting U.S. economy signals deflation ahead
In June, the U.S. government, revising its previous number, reported that the economy shrank by 2.9% in the first quarter of 2014.
The steep plunge caught the bulls by surprise.
It was substantially worse than the preliminary forecast
for a 1.0% contraction, which itself was a far cry from the
initial 0.1% growth forecast in April.
As you can see on this chart, the last time the economy shrank was Q1 of 2011 (a 1.3% dip).
The [2.9%] decline was the sharpest since growth tumbled 5.4% in the first quarter of 2009 during the Great Recession. It was also one of the worst falloffs outside of a recession since 1960.
USAToday, June 25
The Elliott Wave Financial Forecast, the monthly
report issued by Elliott Wave International, the world’s largest
financial forecasting firm, which is well-known for calling
into question many mainstream forecasting methods, holds a
drastically different outlook from the government. If you
too don’t trust the government projections, EWI is a good
source of contrarian-minded research and analysis.
Financial Forecast co-editors Steve Hochberg and
Peter Kendall warn that investors are dangerously discounting
the potential for a market selloff. They say the economy is
slowly contracting and winding its way toward outright deflation,
and the recent government revision is evidence of deflation
in action. In their recent issues of the Financial Forecast,
they have documented more than two dozen measures of extreme
investor optimism, a classic reversal indicator for technical
After the government’s Q1 revision, the stock market hovered in positive territory. What’s more, the Consumer Confidence Index registered a six-year high.
But Hochberg and Kendall believe, in spite of all the optimism, that this latest revision should raise concerning questions among investors about the sustainability of today’s exuberant psychology — especially now that economic growth is inconsistent with the prevailing psychology. When so many sentiment indicators align in one direction, it’s a good time to check in on what the opposite side of the trend might look like. After all, markets never go in the same direction forever, and they tend to reverse alongside extremes in sentiment. Investors who are aware of and prepare for such turning points dramatically increase their chances of surviving them.
Click here for specific forecasts and analysis from Hochberg and Kendall’s latest, July Financial Forecast. You will get free access to a big chunk from their latest issue, complete with labeled technical charts.
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!
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.
How to Protect Your Money When the U.S. Debt Bill Comes Due
Read this new FREE report from Robert Prechter
The Federal Reserve has been inflating the supply of dollars at a stunning 33% annual rate over the past five years. You don’t want to be unprepared when that bill comes due! Read this free report from Robert Prechter, market forecaster and a leading opponent of the Federal Reserve, and learn how you can protect yourself. As a result, you will understand today’s biggest risks to stocks, commodities, precious metals and the economy — risks that most mainstream sources cannot see because they’re blinded by decades of inflationary Fed policy.
Download your FREE report by Robert Prechter now - for a limited time >>
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.
P.S. It’s a once-in-a-blue-moon opportunity. And it’s free. See these 15 eye popping charts now.
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.
||8 Chapters of Conquer the Crash — 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 8-Lesson “Conquer the Crash Collection” Now >>
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 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.
||8 Chapters of Conquer the Crash — FREE
Can the Fed Stop Deflation? Should you rely on the
government to protect you? What should you do if you
run a business? You can get answers to these and many
more questions in Robert Prechter’s Conquer the
Crash. And you can get 8 chapters of this landmark
book – free.
This 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 8-Lesson “Conquer the Crash Collection” Now >>
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.
- 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.
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
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.
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 Journal, Forbes, 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: