2010-06-17

Interesting quotes from Robert Prechter's May 2010 edition of the Elliott Wave Theorist

MarketWatch has published a commentary about Robert Prechter and quotes a lot interesting points from the latest newsletter:
"The topping process is over for the countertrend rally that started in the first quarter of 2009. The next leg lower that commenced in April should now deliver a decline that will ultimately be bigger than the 2007-2009 sell-off. ... Gold poked to a new high, but in doing so, likely completed a pattern in mid-May that will lead to a multi-month selloff. ... The U.S. dollar index  is fulfilling EWFF's forecast for a strong advance."

In a rare comment on individual stocks, EWFF says: "Google Inc. made its countertrend rally on Jan. 4, four months before the DJIA and Nasdaq, and appears to be locked in a decline the EWFF also forecast last August. Its early reversal is a bearish development for the broad market, as Google is an icon of the last great stock craze. The failure of its stock price to reignite is a clear sign that the animal spirits of the old bull market are all but gone."

"The only way for the developing configuration to satisfy a perfect set of Fibonacci time relationships is for the stock market to fall over the next six years and bottom in 2016."

"Stock market bulls and most economists think that a new bull market and economic recovery are underway. Most bears are looking for either a long sideways bear market à la 1966-1982, or a hyperinflationary run to infinity. Our Elliott Wave outlook opposes both of these scenarios. The most likely profile is a stock market crash of historic proportions."

"This bear market is of Supercycle degree, the biggest since 1720-1784. It should therefore include a decline deeper that the 89% decline of 1929-1932. A decline of 91.5% or more would carry it below 1,000."

"The 7.25-year and 20-year cycles are both scheduled to top in 2012, suggesting that 2012 will mark the last vestiges of self-destructive hope. Then the final years of decline will usher in capitulation and finally despair."

9 comments:

Dave Narby said...

I'm not convinced that gold will sell off in the next deflationary impulse.

I'm also not convinced it won't, so I say buy some gold now, buy more later.

This is because Prechter doesn't seem to recognize that gold can do well in deflation because it's not a commodity, it's money, and in addition to being money, it's a measure of distrust in fiat currencies.

PEJ said...

Well, it's really hard for me to try to guess what's going to happen to gold during a long deflation, because it's the first time in history that we'll have a deflation while currencies are not backed by gold.

Consequently, I don't know why people keep saying that gold will do well in deflation.

One thing is for sure, gold will do well while currencies are become more and more unstable and borrowers, specially sovereign ones, are defaulting.

Please also note: the amount of gold available is not deflating. What is deflating is the quantity of dollars available (and euros, etc.) due to the destruction by defaults, banks unwillingness to led to insolvent borrowers, consumers and corporations unwillingness to borrow because of too much uncertainty about the future.

PEJ said...

On the short term, gold is overbought and there's way too much bullishness about it for this rally and the prices to be sustainable

Anonymous said...

His comments on currencies have been good lately. He has been bearish on the market since 1998. Still if he's right its pretty depressing stuff. The world ends only once though, and you won't need gold, bonds or equities to see it through if that happens - you'll be dead! I bet for a brighter future where the new guys - China, India and Brazil land up doing what the old world did in the 60's.

PEJ said...

Anonymous — I am not predicting the end of the world, and neither is Prechter.
We are thinking that we'll go into a deep deflation, which is not only unstopable, but also needed. It will highly benefit — on the long run — people: who can be against lower prices, lower debt, and smaller governments?

Unfortunately, because of Keynesian brainwashing, people don't get this very simple and rational things.

My bet is brighter future, and lower prices :-)

Dave Narby said...

@PEJ

Gold is not a commodity.

It is money with no counter-party risk, and therefore also a 'no-confidence' vote in fiat currencies.

That is why it does well in deflation.

The last correction in gold was a result of desperate dollar-raising in order to prevent bankruptcies, and also selling paper gold to suppress the price, in order to prevent a flight from paper assets into physical ones.

While this could happen again, I think that too many will be expecting this trade to repeat, many sovereigns will be lining up at this last best chance to exchange their paper for gold, and thus and gold will hold up.

Silver usually sells off harder than gold because it is 1/2 commodity, 1/2 money. It is more likely to sell of in a deflationary impulse.

Once that impulse is over, I expect PMs to moonshot. Silver should do better as there is likely less of it in existence above ground than gold at this point.

Dave Narby said...

@PEJ

Agree short term gold is over bought.

Not expecting enough of a correction to imply the bull run is over, however.

fred said...

Dave Narby, very good points about gold during deflation. I agree with your view. And I saw this article below about David Rosenberg's outlook that the news out of China today is much less important than the deflationary aspects that remain in the world economy. And Rosenberg remains a gold bull as well:

http://www.goldalert.com/stories/Gold-Price-Plummets-Chinas-Move-No-Panacea

pej said...

Please check out my latest post for a reply to your points: http://realitylenses.blogspot.com/2010/06/what-is-gold-and-what-is-it-not.html