Bob Prechter

Top 2. Jun 12, 2002 8:07 AM

» Kirk - Conquer the Crash

.
<img src=http://images.amazon.com/images/P/0470849827.01._PE_SCMZZZZZZZ_.jpg width=97 height=140 align=left>Conquer the Crash: You Can Survive and Prosper in a Deflationary Depression
by Jr., Robert R. Prechter

Hardcover: 320 pages
Publisher: John Wiley & Sons; ISBN: 0470849827; 1 edition (June 14, 2002)

Book Description

"A must-read book."
—Martin D. Weiss PhD, author of the best-selling Ultimate Safe Money Guide

Will deflation and depression really happen?
What causes deflation and depression?
Can the Fed prevent deflation?
Where can you find the few exceptionally sound banks, insurers, gold dealers and other essential service providers that can help you protect your wealth?
How should you arrange your finances and your life in order to survive the depression, prosper while it's happening, and take advantage of the unprecedented opportunity coming at the next major bottom?

Not one in ten thousand investors will think to ask these questions, even as their financial institutions may be lurching toward insolvency.

You will find the answers in this book

"This book outlines brilliantly and simply the rationale for how and why the bubble developed. Prechter will go down in history as a legend for having predicted the secular bull market and now having provided a lucid description of the economic cataclysm that unfortunately lies ahead. I urge you to read this book and give it to your loved ones. It provides great tactical advice on how to prepare yourself financially. Reading this book could make the difference between agony and comfort over the next 20 years."
—David Tice
President, Prudent Bear Funds

Hmmm... well I am not surprised the super bears like Tice like the book! smile

I wonder if we will point to this book someday as we point to the "DOW 36,000" book as the top of the bubble?

-- posted by Kirk

Top 3. Oct 21, 2002 6:44 AM

» Kirk - Prechter Sees Bear Market Deepening

.
Prechter Sees Bear Market Deepening
Sun Oct 20, 4:24 PM ET
By Haitham Haddadin

NEW YORK (Reuters) - Losing sleep worrying about your battered stock portfolio? Read market guru Robert Prechter Jr.'s recently published book "Conquer the Crash," and you'll instantly feel better. Well, sort of.

The technical analyst once dubbed "guru of the decade" for calling the bull run of the 1980s, is back with a vengeance.

Prechter, 53, now paints an almost apocalyptic future for Wall Street. His vision makes a cub of the three-year bear market that so far consumed $8 trillion in investor wealth.

The good news? It's not too late to get out, says the Ivy League-grad technical analyst, who heads Elliott Wave International, a Georgia-based forecasting firm that covers global financial markets.

He has previously gone out on a limb with bold and incisive calls, such as warning of the 1987 market crash. But he missed out big by turning bearish in 1995, while the bulls staged their big stampede.

Now, in no uncertain terms, Prechter proclaims the demise of equities, not the rebound Wall Street is looking for.

"Over five years we get the biggest bear market, soaring unemployment, a big depression ... but then it's over," he told Reuters in a interview. "Then we go up for 20 years."

ROCK N' ROLL

Prechter's "rebel" streak has roots in his days as a rock n' roll drummer and guitarist. From the late 1960s to the late '90s, he provided the beat on Top 40 hard rock and classic rock songs.

"A lot of technicians, it turns out, are musicians," says Prechter, who played drums on one 1970s version of "Some Guys Have All The Luck," which was a Rod Stewart hit in the '80s.

"The ones that are musicians tend to be more independent," adds Prechter, who uses the Elliott Waves method of technical analysis, or making market calls by analyzing price charts.

The basic tenet of the Elliott Wave, developed by R.N. Elliott in the late 1930s, is that major market trends are divided into five waves: an up wave followed by a down wave, then a major up wave followed by another decliner, with the cycle then typically completed by a smaller fifth wave.

Prechter first heard of Elliott's analyzes as a student at Yale in the late 1960s before adapting it into his own methodology. He says the bull market top in 2000 completes a major up fifth wave. That's why stocks will be in an extended bear market that could last for another four years, he says.

DOW NEAR 4,000

While many on Wall Street see a market rebound, Prechter warns of a coming deflationary depression deeper than the 1930s Great Depression that followed the market crash of 1929.

The blue chip Dow Jones industrial average (^DJI - news), Prechter thinks, will sink to about 4,000 within the next six months, and ultimately to below 1,000 before the bear market is over. The first plunge would require halving the index from its Tuesday levels above 8,000, vs. an all-time high at 11,722 reached in January 2000.

"There will not be any value (at Dow 5,000)," Prechter told Reuters. "Even if earnings don't deteriorate, stocks will not be cheap in dividend terms, earnings terms, in book (value) terms."

Prechter's views are in the minority. Still, investors burned by the nasty bear market grinding on since early 2000 seem to have taken note: As the Dow sank, sales rose for Prechter's book, which hit the No. 1 spot on Amazon.com.

Now that stocks made new five-year lows, the economic reports will show a weaker economy because the economy lags the stock market, Prechter says, arguing the bear case.

Also, just as bull runs overshoot on the upside, bears go to extremes on the downside, he concluded after studying bubbles from the Dutch Tulip Mania of 1634-37 to 1980s Japan.

The crushing corporate and individual debt levels are also to blame. In the 1929-32 bear market, the Dow plunged 89 percent and debt levels were very high. Now credit has been built through 20 years to record levels, so it's within the realm of possibility to have a decline of such proportions.

Because of the looming deflation, now in its early stages, he urges avoiding most asset classes -- stocks, bonds, gold -- in favor of cash as the price of goods will be falling. But he recommends a move into safe Swiss bonds for those who afford it, and putting money in "safe banks" listed in his book.

[Kirk Comment: Wouldn't ya know it... He has a book to sell. I guess acting on his past market analysis has not made him rich so he can scare people to sell books. ]

YALE TO MERRILL

Teenaged Prechter got interested in stocks while watching his father read technical market newsletters. He got a scholarship from Yale and in 1971, graduated with a degree in psychology. He began work as a technician for brokerage giant Merrill Lynch, where he trained under the legendary Bob Farrell.

In 1979, Prechter started Elliott Wave International. From a home business publishing a newsletter run with his wife, the firm now employs analysts that cover global stocks, foreign exchange and commodity markets 24 hours a day. The subscriber base of 40 grew to 6,000 retail investors and 600 institutions.

[Kirk Comment: 6,600 x $100 = $660,000 and I bet he charges more than $100! There is a good market for being a bear, even if you have been wrong for a decade. ]

Those who heeded Prechter last year were rewarded. The day the market closed on Sept. 11 after the terror attacks on New York and Washington, D.C., investors fretted over the possibility of a market crash. Prechter predicted that stocks would quickly bottom, then rally strongly.

His calls over the years won him many fans.

The Elliott Wave "is the only theory that I am aware of that has correctly projected the move down in stocks from the March 2000 top," said Henry van der Eb, president of the $82-million Gabelli Mathers Fund.

Another well-known bear David Tice, president of Prudent Bear fund, who has endorsed Prechter's book, agrees.

"He is a brilliant guy, he understands both technical analysis as well as fundamentals and how important moods are to the markets," Tice told Reuters. "I don't think he is predisposed bearishly; he was bullish early in the 1980s."

[Kirk Comment: Yeah but... he turned bearish in 1995.... before one of the greatest bull runs in history.]

Prechter, born near Albany, New York, grew up in Atlanta. He has two children, a boy and a girl, both about college age.

"My wife made me swear not to introduce either kid to the stock market," Prechter says, laughing. So far, so good.

-- posted by Kirk

Top 4. Dec 4, 2002 8:38 PM

» Sinewave - Noted bear believes worst is yet to come in markets

In response to message posted by Kirk:

Wednesday, December 04, 2002
By Len Boselovic, Post-Gazette Staff Writer

Market pundit Robert Prechter Jr. says interest in his latest book, "Conquer the Crash: You Can Survive and Prosper in a Deflationary Depression," waxes and wanes with the stock market.

Giving the Dow Jones industrial average's 16 percent rise since the end of September, not many readers are curling up with Prechter these days. He predicts that's about to change.

"When the Dow hits 7,000, I think they'll be interested in picking it up again," Prechter said in an interview yesterday morning. The widely watched index "has a lot more down to go than that."

Prechter said the optimism defies the fact that stocks are still overvalued by traditional measures such as price-to-earnings ratios. His forecast: a depression along the lines of the Great Depression or the deflation that Japan has suffered since the collapse of that nation's go-go economy of the 1980s.

"If you are preoccupied with pedestrian concerns or blithely going along with mainstream opinions," Prechter writes in the book, "you need to wake up now, while there is still time."

Prechter, a former Merrill Lynch technical analyst and proponent of the Elliott Wave theory of economic forecasting that takes into account trends over centuries, gained fame in the 1980s for correctly predicting that decade's bull run in stocks. More recently, he's been predicting a massive crash in the stock markets that would dwarf the sell-offs of the past few years.

He noted that Japan has been struggling with a deflationary depression for 12 years, but said it wouldn't take the U.S. economy as long to work itself out of the coming depression.

His recommendations: find the safest bank and money market accounts you can because cash will be king. Be very careful when investing in bonds, even government bonds, because there will be many issuers who won't be able to make payments, Prechter said. Those who can handle the risk should make a bet on a market decline by shorting stocks.

"I think that's the safest speculation there is," he said.

post-gazette.com

-- posted by Sinewave

http://www.siliconinvestor.com/stocktalk...

Top 5. Jan 30, 2003 5:41 PM

» Kirk - Dissing the Elliot Waver

.
To:Jack Hartmann who wrote (4328)
From: Jack Hartmann Saturday, Jan 25, 2003 12:34 PM
Respond to of 4336

Dissing the Elliot Waver

I traded since 1987. I saw Pretcher and his people blew the great bull market of the 1990s.

Background:

Pretcher wrote a book in the late 1970s explaining why there would be a great bull market in stocks. He used an analytical tool called Elliot Wave Theory which said stocks move in a predetermine wave pattern. At that time the Dow Jones Averages had been stuck at a level below 1000 for the past 11 years. Prechter predicted a rally would carry the averages to 3,600. He was widely ridiculed for that prediction. He maintained his bullish stance during the early and mid eighties and even correctly called minor corrections (interruptions in the major up trend) of the bull market. In 1987 he correctly called for his followers to sell stocks ahead of the October 1987 crash. At this point his guru status was overwhelming. Unfortunately he maintained a bearish outlook from that point forward. He missed the entire bull market of the 1990s and his guru status was lost.

Let's look at some predictions recently.

Market Short Term Outlook
Oct 11 2002 12:05PM
Short Term ->Larger Trend is Down (Oops! Bull ran to end of November)

Larger Patterns (weeks-month)

The DOW is moving down in wave (B) of a flat pattern to 6200-7900.(7200-7500?) (Dow cruised to 8500)
The NAS is in wave (B) of a flat pattern down below 1150. (Nasdaq ralled 30%)

Smaller Patterns (days-week)
The DOW still has more downside in wave 4B to 7200-7600 [completed] then back up to 7400-8200 (7642-7800 probable) again in wave 4C, then wave 5 down to follow (6200-7200), then up to 8500-10000 in wave 2(C), then down in waves 3 of III. The big 2C rally coming is going to be followed by a fast moving downdraft. This rally will draw in investors one more time, only to clean them out again, unless they know when to sell. This rally can be used as the last chance to go to cash, (if not already) before lows are upon us that most would never think possible. We will probably not see these rally levels again in our lifetime.

(LOL! This shorting into E-wave cost them $$$$)

The NAS is moving down in wave 4B to the 1110-1160 area[completed] then back up to 1150-1250[current], then down in 5, below 1110, then up in wave 2(C) to 1400-1800, and then down in wave 3 below 1100. (Wrong again! Nasdaq 1400+)

Its moving fast, and is about complete. It appears a pullback in wave iv is in progress, with wave v to come to finish the rally off, possibly today, maybe Monday. We still have more downside coming in wave 5, before the larger rally. We could even see some capitulation for the fifth wave down.
(Finish the rally off! hehe)

The VIX is also giving indications of more upside in wave 3, with a pullback due in wave 4, and then more upside again in wave 5. A nice inverse relationship with the markets.
This was actual qoute on an E-Wave site.
http://members.attcanada.ca/~dsi/index.h...

Here is the excerpt from the April 1998 issue of Atlanta Magazine.

Q: I am interested in your goals, the arc of your career and how you perceive the future.

A: What matters to me is establishing the fact that social systems follow certain mathematical laws, just as do physical systems. The two sets of laws are different. I disagree with the conventional wisdoms, i.e., (1) that social mood and history are random or (2) that they simply follow physical laws of cause and effect, but are too complex to predict. Knowing the actual structure of social forces allows a framework for study that can yield useful knowledge about the social future, both general and
specific. I am finally beginning to make headway at this mission, but not through the media. In November, I made a presentation to the 21st Interntl. Conference on the Unity of the Sciences (ICUS) in Washington, D.C. Among
the speakers were the scientists who discovered quarks and quasi-crystals. It generated enough interest that I have been invited to speak in 1998 at another forum, the International Society for the Interdisciplinary Study
of Symmetry (ISISS) in Israel, another gathering of scientists from every field. My field is sociology, and I think that what R.N. Elliott discovered in the 1930s, which is being supported sixty years later by the new fields of fractal geometry and chaos, is of bedrock importance. It is to the successful study of aggregate human behavior what Newton's discoveries nearly 300 years ago were to the successful study of physics.

Q: Can you generally describe for the non-professional where we are now, primarily in terms of the U.S. stock market and also the global economy? Where are both of these headed in the near future? What significance do you attach to the market hiccup in October?

A: The U.S. stock market is in the grip of an investment mania. A mania is a persistent uptrend that attracts the public in large numbers and leads to historic overvaluation. In the past 300 years for which data is
available, no major stock market in the Western world has been as overpriced as U.S. stocks are today. The Japanese Nikkei index was valued slightly higher at its 1989 high, and it has dropped 65% since then. On the basis of dividend yield, U.S. stocks are 75% more expensive now than they were on the top day in 929. People dismiss yield as irrelevant today, but that is simply a psychological imperative. People always dismiss indicators of value
in manias. All manias end below where they started. I do not know where or when the high will be. All I am sure of is the ultimate outcome.

Q: Will the economic troubles in the Far East affect our market?

A: The situation in the Far East should not necessarily be construed as having predictive value. After all, Japanese stocks topped on the last day of 1989, fell 65%, and threw that country's economy into deep recession. Since the day that market topped, the Dow has tripled. So there was no effect. Social mood is independent of cause and effect. However, technically speaking, the more components of a market that drop out of an old trend, the closer it is to reversal. On a world scale, all of Asia has now dropped out of the bull market. That makes the world bull market that dates back to 1974 a much thinner one, and therefore one closer than ever to reversal.

Q: If I may be permitted to simplify, you have been generally very bearish about the stock market for most of this decade. In 1992, you told Barron's we were stair-stepping into a depression and some of your forecasts
are terrifying. Yet, the market risen steadily during that time. To the lay investor, that translates into the conclusion that you have been, to put it bluntly, wrong for a number of years. How do you answer that? Is being
right or wrong in this kind of context really the point of what you are trying to do?

A: Sure, I'd like to be right all the time on markets, but I'm not. I hope this is not a revelation to anyone. Here is how I see it: In the 1990s, I have consistently missed the extent of the stock mania, which is what some people gripe about. It is a perfectly justifiable gripe, in
context. The context is that The Elliott Wave Theorist is the only publication that predicted a mania in the first place, using exactly that term, in 1982-1983, after 17 years of a sideways trend. Manias are so rare that they barely happen once a century, and never has anyone announced one before it took place. Suppose it is the early 1600s, and someone observes that tulip bulbs, which have traded between 15 and 30 cents for two decades, are about
to undergo a mania that will take prices to $10 and then all the way back to 30 cents. People dismiss the outlook as delusional. Prices climb year after year, finally reaching $10. Then they go to $15. Then $20. The forecaster is
judged stubborn, wrong and delusionally bearish for having missed the last doubling. Prices finally peak out at $30 and then collapse to 15 cents. What was more harmful, missing the final phase of advance or missing the overall message of the big picture? Was the forecaster wrong or did he have a unique insight? Is it valid to expect him to have told you at the outset that the high would be $30? If he had an insight, is the method worth investigating?
Obviously, if this analogy is to apply to today's stock market, then the aftermath, whenever it comes, has to reflect original expectations, and that is something that remains to be seen. The context also includes looking
at other markets. The Elliott Wave Theorist is the only publication (that I know of) that has consistently predicted the bear market in gold. In contrast, we turned bullish on silver when it bottomed at $3.51 in 1993.
At The Crest of the Tidal Wave (1995) predicted deflation at a time when the only fear was inflation. Suddenly, we are beginning to see international discussion of the possibility of deflation. These are sea-change trends,
and I think the Wave Principle gives advance warning often enough that there is nothing more valuable. That is all the defense I am willing to play. If I bothered answering every sideline critic, I wouldn't have time to do what's important.

Q: Your company does a lot of forecasting in markets and assets other than stocks. Are those markets more significant than U.S. stocks? If so, why?

A: Currencies and bonds account for more money than stocks, so they are more important on a financial basis. On a sociological basis, stock averages, which reflect people's aggregate valuation of their own productive enterprise, are more important. The averages reflect social mood, which
is the main shaper of history.

Q: Is it fair to say that at the end of the day, you are struggling to make sense out of something that is essentially unknowable? If so, that is quite an intellectual challenge. What drives you to try? Where does money fit into the equation? Is it just a way of keeping score, of testing your theories and understanding, or is it the main reason for doing everything else?

A: The stock market is knowable, but it is knowable only on the basis of probability or contingency. You can know that there is a 70% chance of something happening, but that is not certainty. OR you can know with virtual certainty that something will happen, but not be able to say exactly
how and when it will develop. For instance, my co-author and I first called for the Dow to quintuple in 1978, but it took four more years for it to begin to happen. Similarly, I am convinced that the coming bear market will retrace the entire bull market. As in 1978, it is taking longer to begin than I thought. But as with the bull market, I think the fact that it will happen is more important than the details (which are important, just less so). People who think otherwise will not be on the sidelines when it matters.

Q: As an analyst, you are primarily known for reliance on technical numbers and historical trends, but then you also seem to pay attention to and place some emphasis on more subjective readings of cultural indicators, like music, movies and fashion. It seems usually the case that analysts are one or the other. How do you reconcile these two approaches and blend them together?

A: The stock market is one reflection of social mood. People communicate ebullience by buying stocks, wearing certain fashions, voting for certain candidates, and buying certain types of music. People communicate depression by behaving in opposite ways. When there is a preponderance of activity at one end of the scale, it suggests a social mood extreme. We usually don't use popular cultural trends as predictors of the stock market. They are coincident trends. In 1985, I simply pointed out the correlation. Political
and economic news lags social mood trends because such actions result from mood change, and the mood has to be well along before social actions are taken. For instance, peace treaties and reconciliations abound at major tops, whereas wars occur during or immediately after the second down phase of a bear market. Economic activity lags mood trends as well, so after stocks rise, the economy expands, and after they fall, it contracts. Forecasting the tenor of social action such as this ultimately matters more than where stock prices are going, and it is a lot easier to do.

Q: What does your reading of today's cultural indicators tell you about the markets?

A: Recent articles describe a cultural phenomenon that reflects a time very late in an extended bull market in social mood and its results: affluence (which is good) and the belief in never-ending affluence (which is
bad). It is very much a Gatsby era. There are countless examples from every field, but any detailed presentation would probably have to be condensed beyond recognition, so let's omit this topic.

In October 1998, in the collapse of the Long term scandal and the market was teetering Pretcher again talked to barrons. His call was that the long awaited Bear market has finally started and that the DJIA will now work its way below 4,000 - a 50% plus decline from where it is today. Prechter further predicted that when the Bear is finally finished in 2003 or 2004, that the DJIA will then be under 1,000. Clearly wrong again using the Elliot Wave.

Lastly is from Barrons again.
Barrons, November 4th, 2002

Bear-Market Genius
Bob Prechter called the market top in 1987 -- and has continued to ever since

By JONATHAN R. LAING

There are few second acts for stock-market forecasters who blow major market moves. Who today talks about, let alone remembers, technician Elaine Garzarelli who purportedly called the 1987 stock market crash and then flamed out once she began to run real money? And what fate awaits Goldman Sachs' Abby Joseph Cohen, the doyenne of the 'Nineties Bull Market who since has been blindsided along with almost everyone else by the past three years' fierce market slide?

And then there's stock market timer Robert Prechter. After more than a decade of relative anonymity, Prechter, 53 years old, is red hot once again.

He was literally everywhere in the media early last month when the Dow Jones Industrial Average and Standard & Poors 500-stock index slumped some 35% and 50%, respectively, from their all-time highs. His smiling visage even appeared on a front-page article on the bear market in USA Today. Favorable reviews of his latest book "Conquer The Crash: You Can Survive and Prosper in a Deflationary Depression" have recently appeared in outlets as varied as Business Week, the Reuters Financial Wire and the Motley Fool's Personal Finance and Investing Website.

For Prechter, it was a trip back through the time warp to the 1980s when he achieved guru stature by being among the few who saw the post-1982 bull market coming long in advance. He also succeeded in keeping his subscribers in the market for virtually the entire ride up to the August 1987 peak in the Dow of over 2700 and getting them out before the crash that October.

At that point, however, his career went awry. Prechter decided that the 'Eighties bull market had been a mania and that the 1987 Crash was just the opening act in a collapse that would send the stock market into a tailspin and the U.S. economy into a depression. And he has stuck to that forecast ever since, recommending the haven of treasury bills during a 13-year period -- 1987-1999 -- that saw the Dow and S&P rocket up some six-fold and the Nasdaq soar more than 10 times. While he claims -- and institutional clients confirm -- that he got a lot of other markets right during that period, including gold, collectibles, Japanese stocks and the dollar, it really doesn't matter. He'd missed the greatest show on earth.

It cost him big-time. According to numbers compiled by the Hulbert Financial Digest, Prechter's timing strategy from the end of 1982 through August of this year would have yielded an average annual return of 10.4%, compared with an average annual return of 13.1% for the S&P. The bear market of the past three years has muted some of the indexes' outperformance of Prechter. Nonetheless, the discrepancy in performance is yawning -- 599% compared to 1,025% -- after taking into account nearly two decades of compounding.

Likewise, the circulation of his monthly newsletter The Elliott Wave Theorist and ancillary publications collapsed to 4,000 from a high of 20,000 in 1987. The recent bear market, however, has helped push the number back over 7,000. His 70-person operation, headquartered on two floors of the former Dixie-Hunt Hotel in Gainesville, Ga., was only able to survive the slow times by attracting institutional clients to its short-term timing service in various stock indexes, currencies, interest rates, commodities, oil and the like.

It's easy to dismiss Prechter's forecasts on yet other grounds. His primary predictions over the past 14 years have been so outre as to put him in the extreme outlier of the super-bear camp. He thinks that the Dow, currently at 8400, will slide through 4000 by next spring on its way to an ultimate low in the range of 500 to 1000. Moreover, Prechter, who holds a psychology degree from Yale and who trained as a technician under the redoubtable Robert Farrell at Merrill Lynch, is convinced that the U.S. is headed for a shattering economic depression. U.S. industrial production and corporate profits will plummet, he predicts, and unemployment will rise to rates that will exceed the 25% jobless rate during the Great Depression.

He's somewhat tentative on the timing of this final Gotterdammerung (twilight of the Gods) for the stock market and economy. If the U.S. follows the contained, compacted pattern of 1929 through 1932, the final washout should come by 2004. Otherwise, it could take place later in the current decade of the new millennium, reminiscent of the U.S. stock market and economy's long day's journey into night between 1835 to 1842. Then again, Japan's 13 years of economic narcolepsy also argues for a longer-term denouement. Like any astute prophet, Prechter always leaves himself plenty of wiggle room.

Current conditions argue against his apocalyptic visions. For one thing, the economy would have to more than double dip -- it would have to fall off the cliff -- for his economic forecast to come to pass. Also the stock market is in the midst of a spirited rally of 15%-plus off the Oct. 9 lows.

But Prechter, whose calm manner stands in stark contrast to his apocalyptic message, insists that the latest rise is merely another bear market rally destined to flameout, as did the 29% jump in the Dow between September 2001 and March of 2002 and the 17.5% rise in the average from July to August of this year. Each was followed with a new low in the Dow, he points out. "This time around, I'm fighting a lot of seasonal and historic forces pushing the stock market higher," Prechter tells a visitor in his office, just off Gainesville's main square. Outside, a weekend festival is in full swing featuring bluegrass and country music, funnel cakes and boiled peanuts.

"October is typically a bear-killer month. We're at the bottom of the four-year and 20-year cycles, the decennial pattern bottomed this summer and we're going into the third year of the presidential election cycle next year which is traditionally good for stocks. Finally, we're on our way to our third year in a row of down markets which is almost unheard of. Yet despite all of this I feel good about remaining a bear. It's at least my belief that the wind is at my back."

Watching the waves

Prechter's grim predictions arise from a methodology called the Elliott Wave that many mainstream market commentators and economists regard at best as a meaningless projection of spurious patterns on random events and at worst as voodoo. The progenitor of the theory was an accountant and corporate reorganization expert by the name of Ralph N. Elliott, who spent his retirement years during the Depression and after studying the stock market. He died in relative obscurity in 1948, having produced just a couple of monographs and a smattering of stock-market letters. There was little interest in the stock market then with the Crash such a recent memory and real stock market returns so dreadful during the 'Forties.

Elliott Wave proponents claim that financial markets and, indeed, other economic, political, social and cultural trends are governed by recurrent and measurable waves alternating between optimism and pessimism -- confidence and fear. Man, after all, is a social animal who from primordial times survived by following the herd, say, in flight from a saber-tooth tiger.

Elliott believed in inherent human progress, but that it never came in a straight line. Mass psychology instead dictated that financial markets and all human phenomena follow a similar five step wave-advancing pattern of up, down, up, down and up. Counter-trend corrections in turn limn out a three-wave pattern. So altogether there are five steps up and three down in a complete Elliott Wave.

Elliott claimed to discern such identical wave patterns in time spans from less than an hour to market periods as long as a century or more. The waves occur on 10 to 11 different time scales, each one fitting like a Russian nesting doll inside the wave that's the "next degree" higher in size.

What has Prechter and his fellow Elliott adherents in such a white heat these days is the conviction that 2000 saw the climatic fifth wave of a grand super-cycle going back to the dawn of the republic in 1784, the super-cycle that began its ascent in the 1932 depth of the Great Depression, the cycle that started its rise at the 1974 market low, the primary cycle dating back to 1990 and the intermediate cycle from 1998. In other words, the five greatest degrees of Elliott Waves came together in one huge, portentous crescendo.

Stock markets are the most sensitive and earliest registers of shifts in mass psychology or, in Elliott jargon, "social mood." Bull markets are not only leading indicators of good economic times. They also issue in periods of international comity, free trade, tolerance, benevolence, upbeat popular music and films. Bear markets by contrast spawn protectionism, xenophobia, international conflict, class polarization, slasher and horror films, angry music, separatism and terrorism. It's social mood that dictates events and trends and not vice versa, however.

The sheer unconventionality of Prechter's market views makes him interesting and sometimes incisive. For one thing, Elliott Wave theory nicely ties the present to the past. It promises and, at times, seems to deliver big picture predictability. How else did Prechter sense with such conviction back in the late 'Seventies just before Business Week ran its famous cover proclaiming the "Death of Equities" that the stock market was about to explode upward?

The Elliott Wave's one major flaw, according to Prechter, is that it provides only the pattern and not the duration of market moves. Thus he's been frozen at the controls since the 1987 Crash waiting for a grand super-cycle fifth wave collapse to ensue because he thought that the 'Eighties bull market, similar in time span and amplitude to the Roaring 'Twenties bull market, constituted the full fifth wave. He had no historical reference points that told him differently.

But now Prechter is convinced that the fifth wave mania is over and the Big Kahuna of market collapse and deflationary depression is now bearing down on an unsuspecting America. The major market averages have all been in free fall since early 2000. This Spring saw the last hold-out, small cap stocks, give up the ghost. To Prechter, the pattern is now in place and the endgame begins.

Most important, claims Prechter, is the acknowledgement that over the past two decades an unprecedented bubble market extended far beyond the high-tech-dominated Nasdaq Composite. In fact the Dow -- whether measured from its low of 570 in 1974 or 777 in 1982 -- enjoyed an epic rise of 20 times and 15 times, respectively, to reach its record close of 11,750 in January 2000. No other stock market move comes close to this. The Dow only rose slightly more than fivefold in the 'Twenties, to 386 in 1929 from 63.9 in 1921; the Nikkei rose 11-fold between 1975 and late 1989, and the South Sea Bubble Market in England jumped eight-fold in just three years during the 1720s.

Yet some commentators still argue that the Post-1982 Bull Market was anything but a mania. They claim that much of the surge in stock prices was a reflection of solid economic growth, improved U.S. management techniques, the advent of productivity-enhancing technologies, the global triumph of free markets and liberal democratic values, and falling inflation and interest rates. Part of the bounce in stock prices also represented catch-up after 15 years or more of negative real stock returns and economic stagflation from the late-'Sixties to 1982.

Prechter finds such views ludicrous. Despite the fact that the post-1982 stock market dwarfed the bull market of the 'Fifties and 'Sixties, the economic fundamentals undergirding the latter period were far weaker than those underpinning the earlier era, he says.

The song remains the same

Take your pick of statistics. GDP, for example, grew at an average annual real rate of 4.5% from 1942 to 1966 compared to only 3.2% from 1975 through 1999. Industrial production? It showed an average annual gain of 5.3% in the earlier period, versus just 3.4% in the later period. The story is much the same for corporate profitability, capacity utilization and unemployment, among other measures. The earlier period trumped the later.

The same lackluster economic performance prevailed during other stock-market bubble periods, according to Prechter. Growth was much stronger during the Gilded Age of 1872 through 1880 and early industrial era of 1898 to 1906 than during the Roaring 'Twenties, for example. Japan enjoyed twice the annual GDP growth from 1955 to 1973 as it did during the subsequent 15 years of its celebrated bubble economy. Stock market manias are powered more by speculative fumes than by legitimate economic and corporate growth.

Ebbing market breadth is the final proof offered by Prechter that the post-1982 bull market was a bubble. During its 18 years of life, a far lower percentage of stocks participated in the surge of the averages than during the 1950s and 1960s. And the stocks that prospered in recent decades were more triumphs of financial engineering and manipulated expectations than companies producing real goods and services.

The point of all this to Prechter is that every past stock mania has ended badly, just as the latest bubble will. The average stock on the British market lost 90% of its value after the South Sea Bubble burst in 1722. Between 1929 and 1932, U.S. stocks dropped nearly 90% in value. During both periods many companies went out of business further damaging investors. The Nikkei and Nasdaq have both breached the 75% down barrier in recent months and will quite possibly reach a level 90% down from their highs at some point. A greater than 90% decline would take the Dow to below 1000 and the S&P to under 200. These numbers also happen to be Prechter's current targets for the two measures.
***********

He has made many mistakes and yet people still blindly use Elliot Wave. Beating the S&P consistently is the test of a trader. Pretcher and his Elliot Wavers have flunked this.

Jack

-- posted by Kirk

Top 6. Mar 11, 2003 5:10 PM

» Kirk - DOW 1,000 Prediction

.
Author: KLR
Date: March 11, 2003 4:33 PM
Subject: Q&A Bob Prechter...Dow going to 1,000
.
Bob, How can the psychology and events of hundreds of years ago have a direct influence on what happens today? - Bill Raddatz

The first two pages of Chapter 13 of The Wave Principle of Human Social Behavior explain how. Hint: Do you celebrate the Fourth of July (or equivalent date in your country)? How do you feel on that day? Why? Do you celebrate any religious holidays? Re-read your question. - Bob Prechter

Bob:Canada's central bank raised interest rates 25 basis points today, and cited inflation as the reason. Are they misreading the data? -Gary Lisch

The data of the past several weeks does indicate the effects of inflation, and that is what they are responding to. No mystery there. - Bob Prechter

What is the timeframe for your predictions of a meltdown in the Dow and the global economy in general. Is it a matter of weeks, months, years or decades? How do you answer your critics who point to the timing of some of your calls for a crash which were totally premature and thus missed most of the upside in the bull market? - David

We are IN a meltdown. People in the 1930s did not acknowledge that things were bad until at least 1931, many not until it was over.My critics are losing so much money that I’m surprised they have time to gripe. - Bob Prechter

The DOW and S&P 500 may be in 3rd wave patterns, but some analysts suggest that the NASDAQ is in a 5th wave pattern. Do you agree with these general counts? If not, what is your count? Is there a divergence between the NASDAQ and the blue chip indices? - Savas Fortis

I think the NASDAQ is like Japan. It will keep looking like a low to most people, but it won’t stop until it’s trading around 100 or 200. - Bob Prechter

Inflation vs Deflation. If the Fed proceeds with its plan to run the printing press - create money - and foreigners sell their dollar assets in response, driving the dollar's value lower, does that not have the affect of driving up prices for imported goods and commodities? We could have much lower prices for financial assets and real estate, but higher food, energy and metals prices. Are we not in a much different environment of large domestic and foreign deficits - much like Germany in the 20's - than in the 30's when the debt was mostly internal and we were a creditor nation? I have read much of what you have written on deflation, including your latest Theorist addressing the subject. However, Bernanke's speech has me fearful that the cash I have in the bank will lose value as more dollars are created to pay off debt. Thanks-Mark Niedzielski

I can’t make your fear go away. I have written to exhaustion on this subject. It’s Bernanke vs. 30 trillion in precarious debt. Let’s see which one wins. - Bob Prechter

Bob, It seems that one could make a case--at least anecdotally--for suspicious come-back days in the market. You know--a large, unnamed buyer in the futures pit, et cetera. Question: Why do you almost never address Fed/ESF manipulation in general? And can the intervention into our financial markets possibly alter the wave counts or damage some of our bearish positions? - Charles Slany

I answered this in Conquer the Crash. Forget it. If intervention happens, the waves will dictate the timing. And then it will fail. - Bob Prechter

You expect the DJIA to eventually fall below 1000. When do you think it will happen? The market has been remarkably resilient since October 2002 and we have not seen panic/capitulation so far. How far away do you think panic and capitulation is? - Suyog Bhobe

The market has been garbage since October 2002. The brief rally lasted less than two months and was not much better than a dead-cat bounce. Overall, it’s a holding pattern, not a rally. Panic will take place between Dow 7000 and 3700. When, I can’t say, but it’s very near in my opinion. - Bob Prechter

Current numbers for today's close:
.DJI 7,524.06
.IXIC 1,271.47
.SPX 800.73

-- posted by Kirk

Top 7. Mar 11, 2003 6:06 PM

» ap305 - Re: Prechter

Hi Kirk, It's been a long time. I see the B-man went long today, 25% on in one to three years. That would take the Dow back to 9375, Funny thing, the fourth wave of the previous impulse wave down, a common retracement, is right at 9400. Could the Bobster be converting to the Georgia bear he so villified in the late 1990's? Hardly. As Will points out elsewhere, Bob is creating a track record here, one without the QQQ's @ 84. BB is may things, but he is no idiot, he's making a calculated gamble and if proven correct, will likely exit the business in a flash of self-adulation.

But this thread is about Prechter. His book, "The Wave Principle of Human Social Behavior, is one to the great books of our times, highly reccommeded whether you agree with Prechter's market views or not. And since it's apparently just you and me here, wink, wink, nod, nod, yes, I agree with his market views as does Mr. Market, who has been following Prechter's forecast precisely, since his December, 1999 special report calling for the end of the great world bull market of the 20th century three weeks before the B-Miester shuffled his two-step equivication out of 60% of his equities..Prechter on the other hand was clear as a bell, as the honest and straight shooter that he is with a "Sell it all and go short for the next few years". By the way, the next market low will probably generate Prechter Buy as well, but it's not here yet.

It would be nice to see an active Prechter forum here, but my guess is the number of Prechter subscribers is less then two, including me. Just the way I like it.

-- posted by ap305

http://www.siliconinvestor.com/stocktalk...

Top 8. Mar 12, 2003 7:58 AM

» ap305 - Re: Dissing the Elliot Waver

In response to message posted by Kirk:

In response to the disser:

-- posted by ap305

http://www.siliconinvestor.com/stocktalk...

Top 9. Mar 12, 2003 8:15 AM

» Kirk - Re: Re: Dissing the Elliot Waver

In response to message posted by ap305:

It is much easier to cut and paste so we don't have to wait for screens to load. Just make sure to leave a link back to the original so we know who wrote what.

To:Jack Hartmann who wrote (4329)
From: Allan P. Harris Wednesday, Mar 12, 2003 10:48 AM
Respond to of 4442

"He has made many mistakes and yet people still blindly use Elliot Wave. Beating the S&P consistently is the test of a trader. Pretcher and his Elliot Wavers have flunked this."
Prechter SELL signal 1/16/03, traded with Rydex Dynamic Funds (RYTPX) is +31% through 3/11/03. His Major Sell in December, 1999 is up about 120% using same fund. These are Major signals, not short-term trading. He's nailed this Bear market better then anyone, bar none. He screwed up on the 1990's. A reason to write him off now? Read Wave Principle of Human Social Behavior, then decide.

PS.. Thanks for the clue to who ap305 is. smile

PSS: Nailing the Bear market is what you would expect a permabear to do in one of the worst bear markets on record. Sort of like how much money Kevin Landis, Abby Cohen and Joe Batapagalia followers made in the late 1990's.

-- posted by Kirk

Top 10. Mar 12, 2003 8:32 AM

» ap305 - Re: Re: Re: Dissing the Elliot Waver

In response to message posted by Kirk:

Nailing the Bear market is what you would expect a permabear to do in one of the worst bear markets on record

In his Elliott Wave Theorist issue dated December, 1999, he makes a most compelling case for an imminent market reversal, within 90 days, that would kick off a multi-year bear market. This was not his typical, "perma-bear" rant, this was 25 charts making his case in a persuasive, beyond a reasonable doubt, unequivical, "the TIME is now" treatise. He has since then occasionally gone to 200% SHORT in his monthly newsletter (the one RP writes, not his staff), all bullseye trades. Perma-bear or good trading? Whatever works.

-- posted by ap305