Kondratieff Wave

By Editorial Staff

In 2002, Elliott Wave International's president Robert Prechter published his New York Times and Wall Street Journal business best-seller Conquer the Crash, a prescient book that explained why a financial crisis was inevitable and predicted almost exactly how it would unfold.

Now in the 2nd edition, Conquer the Crash remains a very useful read. To give you an idea of just how useful, we are releasing 8 chapters of the book to all 150,000+ free Club EWI members. Here's an excerpt. (Details on how to read full report are below.)

Robert Prechter
Conquer the Crash
Chapter 23, "What To Do With Your Pension Plan," excerpt

Make sure you fully understand all aspects of your government's individual retirement plans. In the U.S., this includes such structures as IRAs, 401Ks and Keoghs. If you anticipate severe system-wide financial and political stresses, you may decide to liquidate any such plans and pay whatever penalty is required. Why? Because there are strings attached to the perk of having your money sheltered from taxes. You may do only what the government allows you to do with the money. It restricts certain investments and can change the list at any time. It charges a penalty for early withdrawal and can change the amount of the penalty at any time.

What is the worst that could happen? In Argentina, the government continued to spend more than it took in until it went broke trying to pay the interest on its debt. In December 2001, it seized $2.3 billion dollars worth of deposits in private pension funds to pay its bills. …

With the retirement setup in the U.S., the government need not be as direct as Argentina's. It need merely assert, after a stock market fall decimates many people's savings, that stocks are too risky to hold for retirement purposes. Under the guise of protecting you, it could ban stocks and perhaps other investments in tax-exempt pension plans and restrict assets to one category: "safe" long-term U.S. Treasury bonds. Then it could raise the penalty of early withdrawal to 100 percent. Bingo. The government will have seized the entire $2 trillion — or what's left of it given a crash — that today is held in government-sponsored, tax-deferred 401K private pension plans. I'm not saying it will happen, but it could, and wouldn't you rather have your money safely under your own discretion? …

Perhaps you have no such opportunity for a tax saving and do not want to pay the penalty attached to premature withdrawal. If your balance is high enough, you may wish to consider converting your retirement plan investments into an annuity at a safe insurance company (see Chapter 24). It is highly likely (though not assured) that such investments would be left alone even in a national financial emergency. …

If you or your family owns its own small company and is the sole beneficiary of its pension or profit sharing plan, you should lodge its assets in a safe bank or money market fund. As an alternative, depending upon your age and requirements, you may consider converting it into an annuity, issued by a safe insurance company. Such insurance companies are few and far between, but the next chapter shows you where to find them.

By Elliott Wave International

In the November 2009 issue of Elliott Wave International's monthly Elliott Wave Financial Forecast, co-editors Steven Hochberg and Peter Kendall published a careful study of Goldman Sachs history — and made a sobering forecast for its future.

In this special three-part series, we will release the entire Special Report to you free of charge. Part III is below. You can find the entire series here: EWI forecasts Goldman Sachs company troubles.

Get tomorrow's financial news today! To understand what that means, you must think and act independently from the crowd. Learn how by downloading Elliott Wave International's FREE 118-page Independent Investor eBook here.

Special Section: A Flickering Financial Star, Part III

With the market’s downtrend recently in abeyance, these transgressions failed to capture the imagination of the public or the scrutiny of law enforcement. But the extreme recriminatory power of the next leg down in social mood suggests that Goldman’s dealings will become a lighting rod for public discontent.

In January 2008, Elliott Wave Financial Forecast noted that Goldman’s success relative to the rest of Wall Street pointed “to the eventual appearance of a much larger public relations problem in the future. In the negative-mood times that accompany bear markets, conflict of interest charges will come pouring out.” The recent revelations about Paulson’s and Friedman’s actions are exactly that to which we were referring. Additional claims against Goldman — including front-running its clients and profiting from inside information — are already too numerous to mention. As the bear market intensifies, the firm will attract scrutiny as easily as it brushed it off in the mid-2000s.

Based strictly on the form of its advance, a July 2007 issue of The Short Term Update called for a peak in Goldman shares at $234. Goldman managed one more new high to $250 in October 2007; it then fell 81 percent to a low of $47 in November 2008. The stock market’s wave 2 rise brought Goldman back to $193 on October 14. Its affinity for marching in lock-step with the DJIA strongly suggests that Goldman will decline to below its November 2008 low.

Another key socionomic trait is for the most successful recipients of bull-market goodwill to be singled out for special treatment in the ensuing decline. Even fellow financiers are taking aim. In a not-so-veiled reference to Goldman, one Wall Street titan said that big profits made by investment banks are “hidden gifts” from the state, and resentment of such firms is “justified.” Let the bloodletting begin.

Let the Buyers (of Stock) Beware
Goldman’s heavy involvement in the hedge fund industry is another bull market asset that will become a huge liability in the next wave lower. In January, when some minor insider trading charges were brought forward, Elliott Wave Financial Forecast stated that they were only a first puff of “what promises to be a huge mushroom cloud.” The next much larger puff, and its ability to quickly envelop the financial markets, was put on display as the hedge fund Galleon Group went from insider trading charges to complete liquidation in a matter of days. The headlines are already pointing to a potential chain-reaction: “Galleon Wiretaps Rattle Funds as Insider Trading Targeted.” Reports indicate that the Galleon investigation actually began in November 2007, one month after the start of Cycle wave c.

Back in 2007 when Elliott Wave Financial Forecast talked about the “conspicuously tight knit” nature of hedge fund participants, we added that in bear market times, these “men will turn on each other out of a need to survive.” According to reports, that is exactly what happened. The central witness “who brought down the hedge fund” suffers from “financial woes” and “is working with law enforcement in hopes of receiving a lighter sentence.” The bear market is already squeezing the most aggressive bulls from every angle. New legislative and administrative initiatives are being proposed, and in some cases enacted, that will reduce executive pay at bailed-out financial institutions by up to 90% and attempt to shift the cost of bailouts from taxpayers to other large financial companies. The most far reaching “reforms” probably won’t take effect until later, when the decline is over or nearly so.

Finance led the way down in 2007; so we shouldn’t be surprised by its apparent willingness to do so again. … This time however, the decline will be a third wave at Primary degree, which should be far more intense than the initial Primary-degree decline from October 2007 to March 2009. Stay tuned.

Get tomorrow's financial news today! To understand what that means, you must think and act independently from the crowd. Learn how by downloading Elliott Wave International's FREE 118-page Independent Investor eBook here.

By Vadim Pokhlebkin

April 16, (Reuters) - Goldman Sachs Group Inc was charged with fraud on Friday by the U.S. Securities and Exchange Commission in the structuring and marketing of a debt product tied to subprime mortgages.

Shocked? Most of the subscribers to Elliott Wave International's monthly Elliott Wave Financial Forecast probably weren't. In the November 2009 issue, the EWFF co-editors Steven Hochberg and Peter Kendall published a careful study of Goldman Sachs' history — and made a grim forecast for the firm's future.

In this special three-part series, we will release the entire Special Report to you. Here is Part I; come back Wednesday for Part II.

Special Section: A Flickering Financial Star
At the Dow’s all-time peak in October 2007, Goldman Sachs Group Inc., was the undisputed heavyweight champion of the financial markets. And, thanks to its bailout by Warren Buffett and the U.S. Treasury as well as the liquidation of rivals Bear Stearns and Lehman Brothers, its reign lives on. Come December, earnings and bonuses will reputedly approach the record levels of 2007. If the market can hold up, it might happen. But as the stock market retreat grabs hold, Goldman Sachs will experience an epic fall.

To understand the basis for this forecast, we need to review the firm’s history in light of socionomics.

At the beginning of the last century, Goldman Sachs originally made a name for itself with its first initial public offerings, United Cigar and Sears Roebuck. The deals came as the stock market made a multi-year top in 1906. Within months, the panic of 1907 was on, and a U.S. Interstate Commerce Commission investigation of the Alton Railroad Company bond offering, in which Goldman participated, was in full swing. According to The Partnership, Charles Ellis’ history of Goldman Sachs, the deal was “long remembered as ‘that unfortunate Alton deal’.” The bond issue allowed a considerable cash surplus to be paid out to shareholders in the form of a one-time dividend, a standard financial maneuver in the preceding bull market. In fact, the deal was unknown to the public until it came before the ICC in 1907. “Then, probably to the surprise of the syndicate, the verdict was practically unanimous against them. They were tried before the bar of public opinion and found guilty,” said author William H. Lough in Corporation Finance. Lough added that syndicate members “ought not be too severely criticized for they merely acted in accordance with the custom of the period.”

So it goes when social mood, and concurrently the market’s trend, changes; customary Wall Street devices are invariably recast as the instruments of evil financiers.

Another bear market problem is that Wall Street firms are just as susceptible to negative mood forces that tear away at even the most close-knit social units. From 1914-1917, a major rift emerged between the founding Goldman and Sachs families, and the Goldman side of the partnership left the firm. The tension endured through several generations, and as late as 1967 it was said that “hardly any Goldmans are on speaking terms with any Sachses.”

Larger degree social-mood reversals create larger bear-market complications. The firm’s biggest and most devastating setback came after the Supercycle degree top of 1929.

Leading up to the market high, Goldman Sachs Trust Company took off, playing a role in the then-financial mania similar to the one that hedge funds perform today. With the help of successively higher levels of leverage, GSTC issued a quarter billion dollars worth of new shares the month before the September 1929 peak (many of which were held in its own account), leaving it completely exposed to the decline that followed. The firm survived only because a quick-witted former mailroom employee, Sidney Weinberg, took charge and used the stock market rally in early 1930 to jettison many of the firm’s equity positions. Weinberg also turned out to be an investment banking savant. While the firm made no money for the next 16 years, he served on the war production board and carefully cultivated key relationships in business and government. In the middle of Cycle wave III in 1956, Goldman completed the largest IPO in history, delivering Ford Motor Company into the public’s hands.

The firm was not yet a major force on Wall Street, but by hiring MBAs from top schools, fostering a reputation for fair dealing and maintaining a partnership structure that aligned the ownership of its principals with the long-term success of the firm, Weinberg laid the foundation for rapid growth. In the words of Gus Levy, Weinberg’s successor, Goldman Sachs was “long-term greedy.” Another Levy secret was to be certain that positions exposing capital were “half-sold” before they were entered into.

Come back Wednesday for Part II of this three-part Special Report from Elliott Wave International (EWI). In the meantime, get more free and insightful analysis from EWI in the Market Myths Exposed eBook. The 33-page eBook takes the 10 most dangerous investment myths head on and exposes the truth about each in a way every investor can understand. You will uncover important myths about diversifying your portfolio, the safety of your bank deposits, earnings reports, investment bubbles, inflation and deflation, small stocks, speculation, and more! Learn more about the free eBook here.

PLUS — don't miss Bob Prechter's just-published forecast for 2010-2016 in the new, April Elliott Wave Theorist. Get it here.