A 100-year bear market?

[wayneL]

A 100-year bear market?
Today's headlines confirm Prechter's dark predictions

By Paul B. Farrell, CBS.MarketWatch.com
Last Update: 9:17 PM ET Oct. 13, 2004
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ARROYO GRANDE, Calif. (CBS.MW) -- Ten years ago Robert Prechter, a brilliant market technician and editor of the Elliott Wave Theorist newsletter, sent me a review copy of his book "At the Crest of the Wave: A Forecast of the Great Bear Market."

I've waited long enough. It's time to review it, along with the new two-volume work on his "New Science of Socionomics." Why now? Because, unfortunately for America, reality is rapidly catching up with Prechter's dark scenario ... whether we like it or not.

Let me explain: Back as early as 1978 Prechter predicted the beginning of the "raging bull market of the 1980s." Nobody believed him then either. Yet later he was named "Guru of the Decade" by the Financial News Network. He was a credible voice.

Then in his 1995 "At the Crest of the Wave," Prechter predicted the end of this raging bull. However, the market failed to cooperate with the guru. The Dow pushed through 4,000 for the first time. The bull continued roaring. The Information Technology Revolution took off. The Dow nearly tripled in five years.

Meanwhile, here was one of America's most respected market forecasters predicting that the market was going down, not up. He predicted a historic crash, with the Dow collapsing 90 percent to 400, and the world falling into a 100-year bear market. Worse yet for Prechter, Wall Street optimists poured fuel on the fire with book titles like Dow 36,000, Dow 100,000 and The Roaring 2000s. With near religious fervor, Americans embraced the New Economy's promise of everlasting global prosperity.

Then came the sobering realities of the new millennium: A collapse of the technology engine, a devastating bear market, out-of-control government debt, massive domestic problems, a worldwide energy crisis and an accelerating deadly war on terrorism.

Blind to the coming storm

Given this rapid, dramatic shift -- from the glowing promises of the '90s to the dark realities of today -- we felt forced to re-examine Prechter's predictions of a devastating market crash and a 100-year bear market.

Prechter's message never wavered: Recently he told me: "One thing I've repeated consistently is that the great bear market will take the DJIA at least below 1,000 and likely to below 400. Precedents for this severe a decline are the English stock prices in 1720-1722 and American stock prices in 1929-1932."

No, NO! Damn it, no red-blooded American, including me, wants to admit that this doomsday scenario is possible. Even if it is! Why? Our mindset: Optimism dominates the American spirit! Always has. Negativity this profound is against our nature, alien to our soul. We instinctively reject it, deny it, tune it out. Don't look, it'll go away. Right?

Wrong! While we could easily dismiss Prechter's predictions during the manic '90s, the truth is the world is becoming more dangerous, threatening and ominous every day. This sudden and dramatic shift suggests that while the timing of Prechter's predictions was off in the short-term, his core theories may still be deadly accurate: The world is racing headlong into a catastrophic market crash and a 100-year bear market.

Ahead of his time

Prechter is now looking like a genius who simply arrived ahead of his time. In 1978 he was four years early. In 1995 he was five years ahead of his time. This was even more evident when I reviewed his "New Science of Socionomics."

In this work Prechter applies the Elliott Wave principles to mass social behavior and forces us to step out of our quarterly earnings myopia to look ahead at the long-term, for decades and even centuries. This level of thinking is difficult if not impossible for investors today.

Prechter's work reminded us of the economics prize the Nobel committee awarded to psychologist Daniel Kahneman of Princeton in 2002. Kahneman deals with relatively simple microeconomic ideas, stuff investors intuitively understand. Prechter's ideas are in a more complex macroeconomic arena. Both, however, undermine Wall Street's time-honored "rational man" theory: individual investors make irrational decisions.

The differences are stark: In contrast to Kahneman's simple approach, Prechter's Elliott Wave Theories are loaded with esoteric mathematics, Fibonacci ratios, Kondratieff cycles and robust fractals. Technicians love all this stuff and maybe someday even the Nobel committee will. But, unfortunately, most investors on Main Street and even Wall Street get turned off by all numbers and formulas technicians rely on.

So, investors reject Prechter warnings for three reasons: His methods are too esoteric for a mathematically challenged nation, his predictions too dark for America's culture of optimism and his timing was off -- he missed the tail end of the raging bull.

When Prechter's "At the Crest of the Wave" arrived back in 1995 I was publishing a financial newsletter. I dismissed the book for all three reasons. I now believe that was a big mistake. Today he makes sense, even if psychologically I do not want to believe him.

Reality catching up with dark theories

The world has gone through a historic shift in the past five years. And while the credibility he earned in the '80s would be intact if he had simply not jumped the gun and used 2000 as the start date of the great bear rather than 1995, there is, nevertheless, a chilling sense that his world view is unfolding on a daily basis with terrorist killings, oil over $50 a barrel, America's huge $51 trillion debt and independent predictions of a global cultural war that will last decades, eventually escalating to a nuclear holocaust.

Today I see Prechter as the ultimate contrarian in predicting a dark scenario -- a 100-year bear market -- at a time when America was gushing with the eternal promises of the '90s New Economy and Information Revolution. His work parallels Kahneman's Nobel effort.

But while Kahneman's work essentially confirms what we already know about the value of asset allocation, buy-and-hold and indexing strategies for individual investors, Prechter's "New Socionomics" model focuses on mass behavior that has a life of its own, creating rather than reacting to world events. In Prechter's model, individual investors may be controlled by "subjective, unconscious, pre-rational impulses to herd determine financial values," but markets are still "patterned and probabilistically predictable."

So where does that leave us? Marching headlong into a 100-year bear market says Prechter. And while his predictions may still be unacceptable to you and me, the harsh reality is that the facts seem to be rapidly catching up with his theories. And that restores his credibility.

[ghotib]

OK it's time to review the book; so did he? Have you read it Wayne? What's the substance of it? Maybe it's complicated, but surely we can manage a bit more than "this is too hard for ordinary folks to understand, but it might be right".

Ghoti (incurably curious)

[wayneL]

ghotib


but surely we can manage a bit more than "this is too hard for ordinary folks to understand, but it might be right".

I did not read that implication into the article, just that most folks aren't into technicals, which is very true.

I have read this and several other of Prechters works. His main study is Elliott waves on a macro scale, psychology(of which he has a phd in), social mood, and how all these fit together. His observation is that there is a deep depression every 70 or so years and we are due the next one.

Currently, there are several worries in the western economies; any one of which, or a confluense of factors, may push us into the abyss. (e.g. oil, personal debt/interst rates, terrorism/war, etc etc)

Of course it may not be imminent, but I have a reason for posting such views.

Most peoples investing method relies totally on strong growth, which we have been lucky enough to have more or less since the early seventies.

But what if.......?

What happens to your investments? How protected is your capital? How long would your finances last if your income suddenly stopped?

The argentinian people now know the answers to these questions...through experience. Our Grandparents also know.

But few people these days even contemplate such things. I have friends who would be bankrupt within 2 months without income...and thats being generous.

I have a plan in case of economic meltdown, even if the entire financial sytem collapses. Do you?

Cheers

[Porper]

Well WayneL,

I think that if you believe in all this hype about the meltdown of the Western economy and the Dow going down to 400 you may as well cut your throat now.If this were to happen the world would be almost at an end anyway.

I mean, come on the law of averages says that some of these idiots predictions will get lucky now and again.when they then come out with all this doom and gloom that is where their credibility is thrown out of the window.

Maybe this guy has bought a lot of puts and is trying to scare the market down, who knows, but I can assure you that it isn't going to happen unless there is some extraordinary event like a nuclear war, and that wont happen in our life time.

Learn to relax and get out more would be my advice.Sorry to be so black and white but really, these people need to get a grip !!!

[clowboy]

Porper,

Oh my goodness.

Comments like that scare me.

On one hand you have said how ridiculus a prediction it is that the dow won't go below 400 (granted I know little about the dow) and on the other you have said that a disaster such as a nuclear holocast will not occur in our lifetime. Please Please Please, I beg you what are the lotto numbers for the next bonus draw?

I for one would agree with you in your comments that if the dow did fall to such an extreme it pretty much wouldn't matter anyway but I certainly wouldn't rule it out.

I mean who would have thought that 9-11 would occur (or that more wouldnt happen) - what if the millenium bug had of been a diasaster?
What if I finish this post, get up and go to get the paper and get hit by a truck and die? What will it matter what MUL (or the rest of the market does)?

Of course ones age makes a difference in these matters also.
WayneL would seem to be fairly young (like myself) and I would agree that if a disaster did occur many of us would be instantly bankrupt - the question that remains is - Would a bank remain.

In short it is interesting looking at other ppls ideas and predictions but like porper said it is not something we should spend all our time stressing over.


I have a plan in case of economic meltdown, even if the entire financial sytem collapses. Do you?

Without being to harsh, I seriously doubt that.
If the entire financial system colapses then we would be reduced to third world countries. Unless you have a bunker stocked with food supplies etc you will be just like the rest of us - just trying to survive.

Personally I really dont know how long I could survive in a bunker anyway - We value our freedom more than anything and being couped up in a bunker is hardly free.

Anyway lets all hope we have many years of prosperity to come


:)

[Porper]

Clowboy,

Firstly it is a ridiculous suggestion that the Dow will go down to 400, that would mean more or less any given company anywhere, not just in the US is worthless..........totally, for all intense and purposes anyway.

secondly, you mention 9-11, yes a major catastraphe in anybody's eyes, but we are talking about the Dow and the western "meltdown" here and as we all know there was only a brief and small sell off, soon to be on the rise again.

Thirdly I myself am young, hopefully another 50 yrs at least to live and what is the point planning for a nuclear attack, if this happens we will all be either dead or wish that we were.

We can all live by "What if's" but we would be very dull sad people, probably like this guy Pretchter, who I have never heard of by the way.

I reckon he's trying to scare the market and make a bob or two on put options !!!

As for telling you the Lotto numbers ........ sorry, if I did that then there would be two of us winning !! Although with me being an English man living in New Zealand that gives us 3 chances.

Have fun over the weekend and don't think about the doom and gloom too much, I have enough to worry about with Mul to worry about nuclear war !!!!

[wayneL]

Porper,


Firstly it is a ridiculous suggestion that the Dow will go down to 400, that would mean more or less any given company anywhere, not just in the US is worthless..........totally, for all intense and purposes anyway.

Do yourself a favour and take a look back into history...There is numerous instances of the dow colapsing 30...50....even 80 odd %


secondly, you mention 9-11, yes a major catastraphe in anybody's eyes, but we are talking about the Dow and the western "meltdown" here and as we all know there was only a brief and small sell off, soon to be on the rise again.

9-11 was a minor tragedy on a world scale, think big son, the terrorists are! (whoever the real terrorrists happen to be)


Thirdly I myself am young, hopefully another 50 yrs at least to live and what is the point planning for a nuclear attack, if this happens we will all be either dead or wish that we were.

I was young once ance thought much like you. A series of reality checks alerted me to the fact that **** happens...and will happen again. It's how prepared you are to cope that matters. Have a plan B.


We can all live by "What if's" but we would be very dull sad people, probably like this guy Pretchter, who I have never heard of by the way.

Quite the contrary; the philosopher Licious Annaeus Seneca advises us to confront worst case scenarios in order to actually alleviate stress and live more happily...It works.


I reckon he's trying to scare the market and make a bob or two on put options !!!

Ludicrous!


Have fun over the weekend

Another philosopher, Epicurus, admonishes us to do just that...so as usual, I did have fun :)

Clowboy,




I have a plan in case of economic meltdown, even if the entire financial sytem collapses. Do you?

Without being to harsh, I seriously doubt that.
If the entire financial system colapses then we would be reduced to third world countries.

Third world country? Not quite! We did pull out of the great depression ok. Some people even prospered. But believe you me, in the case of trouble, I am prepared.

I am even prepared in the case of a raging bull market. Either way I will do alright.

http://www.gold-eagle.com/editorials_04/north080204.html

[Porper]

Waynel,

Sorry, This argument or discussion is going nowhere fast, and to be honest I find it tedious and quite tiresome.

I have better things to do than think about what the "terrorists" may or may not do.

I will leave you with my honest belief that the Dow will not get anywhere near 400 ever again...........end of story !!

As for the philosopher Licious Annaeus Seneca, I have no idea who he is and have no intention of finding out.

Having said that, I hope your "plan B" is never used.

Have fun.

[markrmau]

Interesting, read this in the NYtimes. "Private Investors Abroad Cut Their Investments"

http://www.nytimes.com/2004/10/19/business/worldbusiness/19dollar.html?oref=login

I am not worried about forseeable events (terror strikes, oil spikes). I am worried about things that only become evident after they have happened...

[clowboy]

This post is getting to hard to follow with all the quote's
Quote's of people quoting people.

Anyway, wayneL my statement regarding the financial system colapsing has nothing to do with recesions etc but is in the context of an event such as a nuclear war.

i.e. money no longer has any real value.

Just to clarify as it would seem you took it to mean that the markets crashed or the likes.

[wayneL]

Waynel,

Sorry, This argument or discussion is going nowhere fast, and to be honest I find it tedious and quite tiresome.

I have better things to do than think about what the "terrorists" may or may not do.

I will leave you with my honest belief that the Dow will not get anywhere near 400 ever again...........end of story !!

As for the philosopher Licious Annaeus Seneca, I have no idea who he is and have no intention of finding out.

Having said that, I hope your "plan B" is never used.

Have fun.

Interesting

First you find the article insulting enough to comment, now its tedious. The disinformation techniques you just used are classics, are you a politician?

I posted the article for interest and discussion and you decide to make it acrimonious. In fact it is indeed going nowhere fast because because of your attitude.

In the numerous discussions I have had on this topic, the people that have your reaction are usually the ones without a plan B, and the ones with most to lose if our economy has a recession.

Good luck...you will eventually need it.

[Porper]

Waynel,

Your quote "In the numerous discussions I have had on this topic, the people that have your reaction are usually the ones without a plan B, and the ones with most to lose if our economy has a recession.Good luck...you will eventually need it"


Oh, so now the plan B is just incase we have a recession, not the Dow reaching 400 and the meltdown of the western economy,along with the nuclear war and acts of terrorism.

A slight difference don't you think.

Sorry, not a politician, can't stand the lying toe rags, and the old saying "It doesn't matter which party wins, the government always get in" is about right in my opinion.

Just incase you have got the wrong end of the stick I am not trying to be rude in any way, if you wish to have your plan B that is fine, and I am sure there are a lot of people on this forum much more educated in the subject than myself to have a debate with.

Now I must go and sulk over poor old Mul losing me money..............again !!

Have a nice evening.

[Mofra]

I thought someone would've asked this question by now:

"If its not a single event that triggers the bear market, what would be the warning signs?"

I am not contemplating a rapid drop to 400 on the Dow, however with the global threat of terrorism (real or perceived - often doesn't matter to the markets), China's switch from a net oil producer to net oil consumer, new technologies making existing technolgies redundant (just for you MUL fans), the ASX near all time highs and many people on western countries leveraged to their highest levels ever with interest rates at historically extremely low levels, there seems to be conditions ripe for a crash or at least a retrace.

Can anyone offer other conditions that are worth looking for to pre-empt a change in global market conditions? A bear market can provide many opportunities for those who short the market to make plenty of gains, so if it is not a single event that triggers a fall, the prepared (those that have a plan) can profit whatever the market condition.

[wayneL]

Thanks Mofra,

This is the sort of discussion I had hoped to generate.

A lot of articles along these lines can be found at:

www.prudentbear.com

www.gold-eagle.com

The obvious caveat is that both of these have vested interests in a bear market occurring. But they are a start to further study and a balance against the mainstream "Wall ST cheerleading squad".

Of course reading Prechter and Dent, the two authors mentioned, could give more clues.

Dow 400 certainly is difficult to conceive for us in the present economy, but Dow 4000 is certainly possible.

Cheers

[Aussiejeff]

Thanks for those links, wayneL. Some interesting reading material and links at those sites for sure!

I'm feeling much better now, having shorted big-time over the last few days (thanks to tightening my stop loss margins!).

Managed to sell off most of my CSL, SGL, BHP stocks for a very nice profit, so I am cashed up as you might say - time to reflect on the increasingly volatile market situation(s) at hand and maybe wait for post US election and/or 2005 "bargains" to appear... time will tell I guess

;o)

AJ

[Aussiejeff]

Hmmm.

DJIA has plunged to 11 month lows overnight.
Yet Google rockets to crazy unsustainable heights.

Is market short-term paranoia setting in over in Wall St?

Weird stuff ....

Though I bet 5:1 on that Senor Greenspan is trundled out by GWB to pour his remaining snake-oil onto the churning waters if the markets start to hurt his chances. Fat lot of good that will do the REAL world though.

AJ

[Mofra]

WayneL,

Thank for posting those two links, I have to admit that my original question to you (which the links definately helped answer) was prompted by a story I was once told, something like:

A Current Affair discovered that Kerry Packer paid almost no tax, so they travelled to an outer Sydney suburb to interview locals on what they thought. Most of them gave the standard responses (oh thats wrong, he should pay etc etc) but one man said "That's fantastic, can you tell me how he did it?"

Its one thing to dismiss or worry about a scenario (or indeed abuse or ridicule the original poster), its another to contemplate a way to benefit from it. Surely if any drop/retrace is possible and you have a significant amount of money invested on market its worth spending just a cuple of hours to plan for a fall? Its happened before and it will again. Even if the drop is as dramatic as Prechter suggests, surely with pagers, news services & regular radio news breaks, it wouldn't take long to learn of such an event and quickly take up long put positions?

Thanks for startng such an interesting thread

[wayneL]

Still blowing bubbles - 75 years on from Great Crash

BILL JAMIESON


GENERATIONS on from the Wall Street Crash that began its spectacular unfolding 75 years ago today, the drama and its repercussions still haunt us.

On this day in 1929, America’s stock market was hit by a selling wave of more than 12 million shares. Five days later, on October 29, the daily selling total soared to 16 million shares.

The market lost 47% of its value in 26 days, and 89% by the time it finally bottomed on July 8, 1932. Within two years 12 million Americans were out of work, hundreds of banks and 20,000 companies had gone bust. It took 25 years for the market to recover.

Wall Street’s pre-crash peak of 381.17 on September 3, 1929, was not passed again until November 23, 1954.

History has treated the Crash as a freak and singular event, unique to itself and highly unlikely to be repeated.

But it scarred investors for more than a generation.

It was not until the 1970s that stock ownership was again to develop a mass following.

Yet time and again the US market has been hit by freak "never-to-be-repeated" shocks in defiance of the notion of "the tamed beast".

There was a 45% fall between 1973 and 1976. There was the fall of 36% in just two months in 1987. And there was the 37.8% fall with the bursting of the internet bubble between 2000 and 2002.

The market has yet to reach its pre-bubble peak.

So much for the notion that government intervention and regulation has made markets much less volatile.

Today, in a major reappraisal by mathematicians and actuaries, we are now discovering that equity markets are inherently more risky than millions of us were led to believe in the long boom years of the 1980s and 1990s.

Benoit Mandelbrot and Richard Hudson, in their newly published book The (Mis)Behaviour of Markets: A Fractal View of Risk, Ruin and Reward, argue that for more than a century financiers and economists have hugely miscalculated risk in financial markets.

"The odds of financial ruin in a free, global-market economy have been grossly under-estimated... The common man is right in his prejudice that - especially after the collapse of the internet bubble - markets are risky."

The book challenges the orthodoxy that market price changes follow the standard bell curve. This, the authors argue, fits reality very poorly. From 1916 to 2003, the daily index movements of the Dow Jones do not spread out on a graph like a simple bell curve.

Theory suggests that over time there should be 58 days when the Dow moved more than 3.4% a day. In fact, there were 1,001.

Theory predicts six days of index swings beyond 4.5%. In fact, there were 366. And index swings of more than 7% should come once every 300,000 years. In fact, the 20th century had 48.

This book could be easily dismissed as hindsight vision were it not for the wider reappraisal now under way about the nature of equity market risk and the problems that have built up for long-term insurance funds, which have caused researchers to resort to stochastic modelling.

The word comes from the Greek stochastes, a diviner, which in turn comes from stokhos, a pointed stake used as a target by archers.

So stock market investing really does come down after all to throwing darts at the wall? No, but in calculating the probability of extreme outcomes, stochastic modelling is coming up with some uncomfortable answers for insurance companies and pension funds on the liabilities side.

Rather than treating 1929 as a unique, unrepeatable episode of madness in the markets, we now more readily accept that bubbles and bubble mania are inherent in markets, driven as they are by those great emotional motors of greed and fear.

John Maynard Keynes came to distinguish two types of bubble: "Speculators," he wrote, "may do no harm as bubbles on a steady stream of enterprise. But the position is serious when enterprise becomes the bubble on a whirlpool of speculation."

That certainly seemed to be the case with the internet boom in the mid to late 1990s.

John Kenneth Galbraith, whose account of the 1929 debacle remains a classic, wrote that stock market booms and busts appear to be part of a "basic and recurrent process".

But that makes the second recurring phenomenon of markets all the more of a mystery: the tendency of brokers and fund managers to suffer a total collective collapse of memory just when it matters.

How else could investment institutions such as Standard Life, considered as "prudent" and "conservative", find themselves with equity exposure of more than 80% in their with-profits funds at the peak of the market?

After the long 2000-2003 bear market, do we need to fear such bubbles today?

John Calverley, chief economist of American Express, in his book Bubbles and How to Survive Them, says that housing is the new bubble and that "contrary to the widely held belief that house prices always rise in the long run" they are susceptible to sharp falls.

The UK, he argues, is in the final convulsions of its fourth housing bubble in 30 years and the previous three have all ended with painful corrections.

The conventional wisdom, of course, is that government controls and interventions have worked to moderate ‘market failure’ and that government management of the economy provides stability.

But this is a huge conceit. Bubbles, if defined as massive and sustained suspensions of disbelief, can be seen today, not only in oil and precious metals markets, but also across whole economies.

Indeed, America and Europe may be seen to be in a race to create the biggest bubble of them all as a direct consequence of government failure.

The US economy is now sustained by such levels of government and current account debt that claims to global economic leadership are gaining a suspiciously hollow ring.

America is the most heavily indebted country in the world, with the current account deficit as a proportion of GDP heading towards Argentinean levels.

The US Presidential election thus far has been about how to spend money that the US just does not have. But a reckoning looms.

How ironic that the final 15 months of Alan Greenspan’s tenure as chairman of the Federal Reserve Board could be marked by a looming explosion over debt.

Europe, however, is in no position to poke fun. The Growth & Stability Pact, put in place at the centre of the single currency eurozone to keep budget deficits within a ceiling of 3% of GDP, is a dead letter.

Coupled with the markedly poor performance of the eurozone economies, it is thus difficult for analysts and advisers to establish how safe or otherwise a euro government bond might now be.

An analysis this weekend by UBS warns that on current trends both Germany and France are likely candidates for credit rating downgrades from the major rating agencies.

If they do occur, spreads on German and French government bonds are likely to widen against other euro government bonds.

Such downgrades, it warns, "would almost certainly have a ‘shock and awe’ impact on policymakers and the populace".

Those who thought bubbles were a thing of the past, and confined to greed and fear on markets, should think again.

The world we live in is as bubbly as ever, no matter that the stable doors have been piously shut and lessons earnestly learnt.

It’s not that we haven’t gained in experience. It’s the collective memory loss that lets us down.

[Rafa]

I refer to a link posted in this thread to an article by Gary North : Another Great Depression?

In it, it says...

The Federal Reserve provides the banking system with a framework to settle inter-bank transactions. On two occasions it is very clear that interest rate increases severely stressed the banking system. When the inter-bank settlement system temporarily fails to clear transactions banks are effectively
"bouncing or kiting checks" to each other. The 9-11 event triggered the first failure of the settlement system. For technical reasons a statistic called "Settlement Fails" surged to epic proportions. At the peak of the technical problem it became impossible to settle $1.4 Trillion dollars of inter-bank transactions. The Fed was able to smooth the failure over.

The system failed in July and August of 2003 when an unexpected market driven spike in long-term interest rates occurred. Rates were managed downward and the problem was temporarily solved.

The same condition of failure occurred in May of 2004. The failure was directly related to the recent rise in interest rates. Increases in M3 liquidity could be "a fix" to this problem.

So, my question is...
Did the US rate rise on the 22nd of March 2005, caused the same problem again, and could that be attributed to the massive fall of the ASX (how have other markets performed?)

R.

[Smurf1976]

There is ALWAYS something that can go wrong with anything.

We have heard about nuclear wars and so on, but no doubt there are plenty of threats that few have even thought of.

Nobody seems to have mentioned any of these, for example:

1. Climate change reaches a critical point and the climate "flips". Some have suggested that such an event is possible.

2. The oil shock is permanent. This is CERTAIN with the only questions being (A) will it matter at the time (that is, will we have an alternative ready and simply stop using oil) and (B) when will it occur.

3. Meltdown of a nuclear reactor upwind of a populated area. This could contaminate, for example, most of the US.

4. A REAL terrorist attack. September 11 was not exactly a large event compared to what is possible, but look what the market did.

5. A political / constitutional crisis. What if a major Western leader decided to embrace communism, for example.

6. Uncontrollable disease outbreak.

7. Massive natural disaster. California disappears off the map due to earthquake and the resultant tsunami hits other countries big time. It is my understanding that such an event is possible.

8. Major civil unrest / riots. There must be a lot of people VERY )!$$@& off about house prices in Australia right now. A whole generation basically locked out of the market. For the first time in a very long time (if ever) 30 and increasingly even 35 year olds living at home with mum is socially respectable because it is now so common. A lot of anger there waiting to unleash if the housing market DOESN'T crash. Just ask your local activist for a list of other potential riot triggers. Howard's interest rate promise if people actually lose their homes?

9. One of the numerous financial time bombs goes off.

10. A credible scientific study forecasts catastrophic disaster. Something like, for example, the next asteroid is not going to miss Earth or the sun burning out. Would need to be from a respected source such as NASA in the case of the asteroid "...and we are not ready to handle this threat...All we can do is calculate where it will hit..."

And on I could go. The point is that NOBODY is in a position to say that disaster will not strike at any time. Are you even sure that your car, computer and hot water service will survive Easter? Of course you are not, yet determining the condition of machinery is relatively simple...

[Swaam]

A bit of an interesting thread this one, it's like religion (or anything in life for that matter), you can choose; who you believe; what you believe; why you believe; how you believe; etc, etc, etc. It could also explain why, even though we have the benefit of each others knowledge through forums like this one, we have vastly different investment portfolios.

[markrmau]

"I'm as bearish as ever," he said. "I'm all beared up."

Mr. Tice views stocks as being "in a topping process within a correction in a secular bear market," the next phase of which will be propelled by several factors, in his opinion, but especially one.

"We're in a credit bubble that is going to cripple the economy," he warned. That bubble has been driving up prices of assets like stocks and real estate, while interest rates and prices of goods and services have remained stable, creating what he sees as a false sense of economic well-being. We have been here before, he noted.

http://www.nytimes.com/2005/08/20/business/20values.html

[reichstag911]

Porper,

I strongly suggest you put the ENTIRE Dow index on a yearly chart and have a good look where we have been and where we ARE going.

All charts have retracements including VERY LONG TERM ones.

It's not a case of if this happens: it's just when - and the current Neo-Con junta are currently doing their very best to ensure they replicate the Roman Empire's demise with their aggressive imperial hegemony : )

It's a no brainer for those who have seriously studied all this.

fwiw my LONG TERM Dow/S+P says the party really starts early next decade.
(no it's not based on E.W.)

[Porper]

Porper,

I strongly suggest you put the ENTIRE Dow index on a yearly chart and have a good look where we have been and where we ARE going.

All charts have retracements including VERY LONG TERM ones.

It's not a case of if this happens: it's just when - and the current Neo-Con junta are currently doing their very best to ensure they replicate the Roman Empire's demise with their aggressive imperial hegemony : )

It's a no brainer for those who have seriously studied all this.

fwiw my LONG TERM Dow/S+P says the party really starts early next decade.
(no it's not based on E.W.)

You are certainly digging up old posts now, I haven't posted on this thread for almost a year.

I have never said that the Dow wouldn't retrace or the world economy won't go into recession. I from memory said that the Dow will not hit 400.However you interpret charts, you can't honestly expect anybody except a doom and gloomer to think this will ever eventuate.

Getting into the real world for a moment, debt is the biggest problem, whether it be countries or the individual, this needs to be addressed now otherwise a tiny percentage of what you predict may come true, but let's not exagerate too much, please. :silly:

[DTM]

Here is a link information about Kondratyev waves. Very interesting stuff I must add and a must read. Basically he outlines 50 year cycles of boom and bust and seems very accurate because it takes into account political and population growth and determination of mood. Looks a bit like Elliot waves to be honest but I'll leave that judgement to yourselves.

http://www.kondratyev.com/reference/theory_explained.htm

Make of it what you will but a MUST READ because some of the things he mentions are

quote:

"Accompanying growth is a shift in social demands. As wealth is accumulated and new innovation introduced great upheavals and displacements take place. The process of social unrest builds with growth culminating in massive shifts in the way work is defined and the role of the participants in society."

and then

"Primary Recession

Eventually, the continuation of exponential growth reaches its limits. Excess capital produces a shortage of key resources and the economy enters a period where growth creates a shortage of resources. An economy will only support expansion to the limits of its resources, both human and material.

The mood of affluence also brings a change in attitude towards work. As an economy gets closer to its limits inefficiencies build up

The imbalances of this period have been historically exaggerated by what can be labeled a "peak war". Examples such as War of 1812, the Civil War, World War I and Vietnam, came at the end of a very affluent period. These Wars produce strains on the economy increasing the impact of inflation. A dramatic drop in output, rapid rise in unemployment and unusually severe recession characterize this period. Although this primary recession is short lived lasting only three to five years, it is key in altering perceptions and the structure of the economy. No longer does excess create an abundance. The "Limits to Growth" now define a maximum level of economic activity that traps the economy into consolidation and tight bounds for the next 20-25 years. With the change comes a conservative shift in the popular mood reinforcing the limits."

Anyway, interesting stuff from a Russian who died in 1938. :2twocents

[DTM]

Something else that might be of interest.

By Stephen Schurr, Financial Times
Published: August 17 2005 20:30 | Last updated: August 17 2005 20:30

Sid Klein has built a career on calling the turning points in the US and Japanese markets. He proclaimed in late 1989 that the world should short Japan.

In January 2000 he said the US bull market was over and stock prices would halve. In October 2002, he called the US market's bottom almost to the day.

Now, the investment adviser and publisher of the Japan Asia Investments newsletter says he is "pounding the table" once again, and investors in the US and Japan should prick up their ears.

Mr Klein tells the Financial Times that the Dow Jones Industrial Average "has the potential for 6,500 in 2006", nearly 40 per cent below current levels.

Based on this, he suggests the easiest way to hedge or profit is to buy 18-month puts on the Dow, a bearish options trade similar to the call he made on Japan in 1989. Even more interesting is his recommendation as the port in the storm for investors: Japan. Or, more specifically, Japanese value stocks that are focused on the domestic economy.

To back up his bearish call, Mr Klein points to many of the same signs he relied on in 1989.

The principal one is valuation. The US stock market, Mr Klein maintains, sports a price-to- earnings multiple that has become unmoored from the underlying earnings growth.

He says a p/e of 18 makes no sense in the post new-paradigm era of declining interest rates. If stocks stopped trading at a premium to the forecast growth rate, the Dow would easily fall to between 7,000 and 8,000.

Valuation rarely serves as a catalyst for a major downturn, but Mr Klein sees other candidates. The price of oil is one. Since this spring, he notes, US equities have not followed their usual pattern of moving in the opposite direction to oil.

Unless crude prices suddenly collapse, a correction should be forthcoming. Another possible trigger is slowing growth in China, which could translate into more muted purchases of Treasuries; this could spell higher interest rates and a slowing economy in the US.

(Speaking of China, Mr Klein construes Beijing's tip to its citizens to buy gold as another ominous sign.)

Mr Klein says investors should be less concerned with identifying the trigger than with positioning themselves for the correction.

[wayneL]

The interesting thing about the paralell between kondratief and elliott, is that they both made their hypothoses independant of each other....from either side of the iron curtain.

I just think that lends a bit of credence to both of these gentlemen.

Cheers

[DTM]

Something else that might be of interest.

The principal one is valuation. The US stock market, Mr Klein maintains, sports a price-to- earnings multiple that has become unmoored from the underlying earnings growth.

He says a p/e of 18 makes no sense in the post new-paradigm era of declining interest rates. If stocks stopped trading at a premium to the forecast growth rate, the Dow would easily fall to between 7,000 and 8,000.

Valuation rarely serves as a catalyst for a major downturn, but Mr Klein sees other candidates. The price of oil is one. Since this spring, he notes, US equities have not followed their usual pattern of moving in the opposite direction to oil.

Unless crude prices suddenly collapse, a correction should be forthcoming. Another possible trigger is slowing growth in China, which could translate into more muted purchases of Treasuries; this could spell higher interest rates and a slowing economy in the US.

(Speaking of China, Mr Klein construes Beijing's tip to its citizens to buy gold as another ominous sign.)

Mr Klein says investors should be less concerned with identifying the trigger than with positioning themselves for the correction.

The other trigger of course is hurricane Katrina as dubbed "the perfect storm in the world economy" as outlined in the SMH.

quote:

http://www.smh.com.au/news/business/world-braces-for-the-ripple-effect/2005/09/02/1125302739843.html

World braces for the ripple effect
September 3, 2005

Katrina may start a perfect storm in the world economy, write John Garnaut and Los Angeles Times reporter Evelyn Iritani.

It's easy to think the full impact of the oil crisis is half a world away, where American motorists are paying double what they were three years ago for petrol, after the Gulf Coast was ravaged by Hurricane Katrina.

But the implications are far more global, and more complicated, than that. The most acute economic impact is being felt closer to home.

It is being felt by people such as Indonesia's President Susilo Bambang Yudhoyono, for example, whose year-old government faces a choice between ending fuel subsidies and risking serious political instability, on the one hand, and fiscal bankruptcy and a return to financial crisis on the other.

In Thailand, fuel costs are choking the economy and growth forecasts have been slashed by half. And high oil prices are forcing China's state-owned companies to start shopping for foreign oilfields, sparking new Sino-US rivalries.

Analysts are wondering how the world will be changed by the transfer of an extra $US100 billion ($130 billion) in oil payments from the West, Asia, eastern Europe and Africa to the Middle East and Central Asia.

Advertisement
AdvertisementAnd this week's record New York oil price of $US70.85 a barrel has probably arrested the global hike of higher interest rates as the US and China, the world's two great growth engines, face their most serious economic tests in years.

In Australia, where record petrol prices have thus far been greeted by an eerie calm, financial markets are flirting with the thought that this oil crisis will lead to a crunch for commodity prices, after an initial surge - as has happened with oil shocks that have gone before.

"One reason the [Australian] dollar dropped below US75c was markets were worried that high oil prices would hurt economic growth, and therefore demand for Australian commodities," says Peter Jolly, head of research at National Australia Bank.

Until now, however, the country's top policy makers have cautiously distinguished this oil crisis from its 1970s predecessors - which were mainly caused by the oil cartel simply turning off its taps.

In his latest public appearance, Reserve Bank governor Ian Macfarlane said the oil price rise was happening because "the world economy is just growing so fast".

He argued the impact on consumers had been muted by the exchange rate, saying Australia would benefit on the whole, because it is a net energy exporter.

"There is enough similarity between oil prices and the prices of other hydrocarbons like coal and gas that when the dust settles, we gain more in income than we pay out in extra expenditure because of the higher price of oil," Macfarlane told a Parliamentary Committee on August 12. "For the country as a whole, the oil price shock is not directly harmful.

"It is only harmful in so much as it might cause the rest of the world to slow down; but it is not harmful to our industries. If you add up all of the industries, the ones that benefit, benefit more than the ones that lose."

High oil costs played no small part in this year's enormous coal price rises for BHP Billiton and Rio Tinto, as Chinese industry shifts away from small diesel power generators to massive new coal-fired plants.

Oil prices are also linked to huge gas and uranium price rises, and even the Government's opening the way for new uranium mining and exports to China.

The oil price surge is part of the wider commodity boom - which is more of a boon to Australian miners than a tax on consumers. "Most of the same reasons that oil is flirting with $US70 a barrel are the same reasons that coking coal is $120 a tonne - Australia is taking a lot with one hand and handing [some] back with the other," says Chris Richardson, a director of Access Economics.

But, as Macfarlane also warned in last month's parliamentary appearance, there will be a point where even Australia's energy-exporting economy will begin to hurt.

"At some point, it clearly does become important, and then the interesting issue is the policy response," he said.

That point seems to have arrived this week, in the form of a hurricane.

"It's clear that the short-run effect is now unambiguously negative," a senior policy official told the Herald on Friday.

"It's getting a bit scarier now."

One remarkable thing about oil prices now, compared to previous surges, is that markets expect prices to stay this high for most of this decade.

And for the next six months the oil futures market is in an unusual state of "contango", with prices rising for deliveries for each month until March.

Regina Schleiger, an economist with well-connected interest rate analysts Medley Global Advisers, says it is wrong to talk about an oil price shock, or spike, because those terms connote a temporary phenomenon.

Global demand is so strong, and supply so limited, that oil prices will have to rise far enough to choke its own demand, in a brutal self-correcting cycle, Schleiger says.

"That means 'demand destruction' - a polite way of saying a sharp economic slowdown in the world's key growth engine economies - becomes the only means to bring prices down," she says in a recent client report.

And that was before Hurricane Katrina.

Beyond the enormous human cost and dislocation, Katrina has pushed oil rigs across the Gulf of Mexico and smashed eight Gulf Coast refineries out of production. That stretch of coast produces one-third of US oil.

Average petrol prices have jumped US55c towards $US3 a gallon (a gallon is about 3.8 litres) in a week - unprecedented in the US experience.

Ben Bernanke, who recently left the Federal Reserve to advise the US President, George Bush, told Bloomberg that American consumers should expect to pay $US3 a gallon or more for at least "the next six to eight weeks".

He noted oil futures markets project petrol prices will average $US3.25 a gallon this month and a similar price for October.

Global markets have spent little time pondering the appropriate policy response to this type of demand shock.

Unlike in the 1970s, when central banks raised interest rates to curb oil's inflationary effects, investors are confident Federal Reserve chairman Alan Greenspan will halt his "measured" march towards higher rates - immediately.

"There's no way in the world the Fed's going to hike rates again in the near term," says Rory Robertson, debt market analyst at Macquarie Bank.

"The one thing we know is [oil] is negative to growth. What we don't know is whether the damage is modest or massive."

Markets across the world judge that inflation and wages are compliant, leaving central bankers to deal with oil's dampening effect on demand and growth.

"In the space of two days we have seen one of the biggest reassessments of Fed policy I've ever seen," says Jolly, at NAB. "They have taken out 1½ rate hikes in the past 24 hours."

Yields on two-year US government bonds tumbled this week to 3.7 per cent, suggesting that the official 3.5 per cent rate will remain broadly where it is for the foreseeable future.

Australian bond yields have tumbled even faster, responding to diminishing growth prospects across the Asian region.

The export-led growth prospects for the Asia-Pacific region, including Australia, depend on how the oil crisis plays out in Indonesia, Thailand, Japan and, above all, China.

The Asian region demands more oil but produces less than other economic centres. Countries such as Japan and Korea import 100 per cent of what they consume.

"The Asian region consumes three times more oil than it produces," says Richard Grace, an analyst at Commonwealth Bank.

"They're under a little bit of pressure now."

Economic growth in the Asian region is far more oil intensive than the global average, largely because of China's early stage of industrialisation.

The global economy has typically grown three times faster than oil consumption, but the dominance of Chinese growth last year dropped that ratio to 1:1.

Skyrocketing oil prices are "a heavy tax on most Asian economies", says William Overholt, director of Rand Corp's Center for Asia-Pacific Policy.

Asian governments are taking steps to cushion the economic effect of energy costs.

Some have imposed emergency energy restrictions in hopes of avoiding more draconian, and unpopular, price hikes. Filipino workers have been ordered to take three-day weekends. Japanese salarymen are wearing short-sleeved shirts and abandoning their ties so they can turn off their air-conditioners.

Ifzal Ali, chief economist at the Asian Development Bank in Manila, says those steps have simply delayed the pain for countries such as Thailand and Indonesia, which will experience much slower growth in 2006.

"Countries have been in denial, and now it is gradually sinking in that this is here to stay for the foreseeable future," he says.

As oil prices have risen, many Asian governments have spent billions of dollars to avoid raising prices for kerosene and other fuel.

But those expensive subsidies are eating away at governments' reserves and forcing them into debt to maintain them, says William Belchere, chief Asia economist at Macquarie Securities in Hong Kong. "At some point, that will begin to grind into their economies," he says.

That has already happened in Thailand, which was forced to abandon price controls on diesel fuel this summer after spending $US2.5 billion in subsidies, says Eugene Davis, managing director of Finansa, a Bangkok investor group. He says the government's mishandling of the energy situation has contributed to a loss of investor confidence and put pressure on the currency.

Davis says Thailand's growth could slow to 2 per cent this year, less than half its projected level.

Elsewhere, high oil prices are extracting a political price.

In Indonesia, there were nationwide protests this spring when the government raised fuel prices to cover soaring energy costs. Indonesia's kerosene and petrol price ceiling means the government directly pays the bill above that point.

The subsidy policy was difficult to fund eight years ago, when Indonesia was a net exporter and oil prices were a third of what they are now. The International Monetary Fund even used the issue to help shoe-horn president Suharto off his 30-year pinnacle.

But the Indonesian government recently warned that fuel subsidies could double this year to $US15.3 billion if prices hold at current levels - an astonishing 5 per cent of GDP.

"The subsidy is now worth six times the combined central government expenditure on health and education," says Professor Hal Hill, economist and Indonesia expert at Australian National University.

"[President Yudhoyono's] first term administration will be judged by how he handles this," he says.

President Yudhoyono this week postponed outlining reforms until next month, as the rupiah resumed a deep fall.

In India, where state-owned energy companies are running huge losses, the government will soon be forced to raise fuel prices, says Amitabh Dubey, an analyst at Eurasia Group in New York.

He predicts energy will be a hot issue in next year's elections in the communist-controlled states of Kerala and West Bengal. "There will be political instability," he warns.

Energy prices also have become a problem in China, where fuel prices are heavily subsidised, says Jason Kindopp, a China specialist at Eurasia Group. Last week, the government dispatched extra police to Guangzhou after service stations ran short of petrol and motorists were forced to endure lengthy waits and rationing.

Kindopp says the shortages occurred because some of the state-owned refineries have trimmed production or exported their petrol because they were tired of operating at a loss under the government's strict price controls. Since the start of the year, retail petrol prices in China have risen by 15 per cent, while global oil prices have risen by 50 per cent, he says.

To avoid future shortages, the Chinese government may have to raise retail prices, which not only will be politically unpopular but also will stoke inflation and put a brake on the economy.

"It'll certainly have a dampening effect," Kindopp says, "because so much of what is driving China's economic growth relies on low-cost inputs."

[wavepicker]

I think many are missing the point of what Prechter has done here, and the point Wayne is expressing. He has looked into history and found that people are people whether today or 100 years ago, and that emotional manifestations of fear, greed and hope is what the markets really all about. These human traits have not changed throughout history and never will. People today are repeating the same mistakes their ancestors did in the markets 100 years ago.

If we look into the history of markets we will see that:

- major historical events do not significantaly influence the stock market over the long term.
-Very little stock price change is random in nature
- smooth, underlying trends are a result of mass psychological views of investors/traders coupled with fundemental factors related to the growth of the economy and of specific industries and companies

A chart of the DOW or any market today displays similiar characteristics in terms of patterns and patterns of the trend when compared to one of 50 or 100 years ago.
Why?

In 1990 when the Nikkei 225 was 40,000 every man and his dog was pouring money into Japan "Into a sure thing" saying Japanese manufacturing processes would revolutionize the world. If you said that the market would fall to 8000 13 years later then you would be called a looney BUT IT DID!!

If you said the same thing about the Property prices in Japan falling from a median of $1.3 million to $375000 in 10 years you would be called a looney BUT THEY DID!!

The same happended in Hong Kong !!!

I was called a looney by friends in April of 2000 saying that the nasdaq would capitulate to 1000 from 5000."This time it's different they said, new economy hype, BUT IT DID!!! Just like everyone is raving on about Chinas thirst for resources today. Who knows what tommorow holds?
What caused all of the above to crash? It was not wars or natural disaster etc

Yes 400 points on the Dow does sound unrealistic and I too would never beleive it, but 3000 or even 4000? Hey as history has proven anything is possible Best to stay open minded and and not get caught up in mania trends

Good luck to all

[WaySolid]

Markets do tend to like doing the unexpected.

Articles and websites supporting your particularly conspiracy theory (mega bull or mega bear) are like grains of sand on the beach. Read a few goldbug websites or peak oil sites and you will be stocking up on canned food and blankets for your bomb shelter. You can always find something to feed your bias on the net.

I follow US sentiment via trade blogs and the view there is just bleak. One fundy I particularly like is in NZ at the moment scoping out investment opportunities in our neck of the woods.

My take on the markets is that the US property market might be close to a correction, there has been selling in the areas that have seen large speculative growth recently by people who have a track record of decent market timing.

Where will the flow of liquidity and boomer money go then? Not long till retirement now.. My guess (thats all it is) is that there will be a really nice bull market in US equities in 06 and 07. A similar scenario has unfolded in our markets 03-05.

One key point I would make is it's ok to be negative but don't let it stop you investing.

[wavepicker]

who ever said anything about stopping to invest anyway? There are mega opportunities out there both in bull and bear markets

[WaySolid]

Well my view on a US bull market has yet to eventuate almost a year on.... The DJ is near record highs, but in inflation adjusted terms it's yet to do anything worthwile.

I might have some crystal ball glass to eat on that particular prediction, thought there is just the sort of negativity around at the moment that would be perfect for a Harry Dent 36k Dow surge, though that is looking increasingly fanciful the closer we get to 2010. In the meantime Harry can continue picking up his 100k speaker cheques and spreading his brand of wisdom. Wonder if Prechter gets paid more or less being a perma bear? Or do Perma Bulls make all the money? :)

I have had real CG in my property (just by sitting and doing nothing) in Bris and the GC over the last 2 years, and of course Aus stocks have done ok over that same time period, so if you were the sort of person to let the perma bears scare you then you wouldn't be the happiest person around at the moment.... Though the next crash is getting closer day by day..... beware... of unescessarily negative sentiment I say. Just invest the best you can anyway.

[Ageo]

well as long there is an economy and a stock market quite frankly i dont care which way it goes.

Although a bear market would mean expenses get reduced big time.

so it would most likely benefit me more hehe.

[Captain_Chaza]

This was a good read!!

Crikey! "What a title!"

Salute and Take Care