Most investors don’t
take seriously warnings about the future of the economy and the
financial marketplace, but those who did avoided the dreaded “Cs”
of finance: the Credit Crisis and Crash of ’08. What warnings are
we talking about you might ask? Well, it was the headlines of
several years ago screaming that a ‘Category 6 Fiscal
Storm’, ‘Debt-Driven Meltdown’, ‘Systemic Banking Crisis’,
‘Financial Train Wreck’, ‘Wild Ride’, ‘God-Awful Fiscal Storm’,
‘Major Upheaval’, ‘Rude Awakening’, ‘Great Disruption’, ‘Debt
Bombshell’, ‘Major Upheaval’, ‘Unwelcome Economic Spiral’, ‘Perfect
Financial Storm’, ‘Serious Collapse’, ‘Drastic Fall’, ‘Financial
Disaster’, ‘Major Bear Market’ and/or an
‘Economic Earthquake’ was in store for the U.S.
and, indeed, the global economy in the very near future. And the
future is now!
Some Predictions do Come
True
These warnings and
predictions were often derided as just negative nonsense coming
from alarmists, ‘party poopers’, ‘Chicken Littles’, ‘perma-bears’,
‘doom and gloomers’ and the like rather than from the insightful
economists and financial and market analysts who made them. To
their collective credit they were all substantially correct in
their prognoses of what we could expect to happen as exemplified by
what has occurred (and is still occurring) over the past 6 months.
It has cost many investors 50+% of their stock market investments,
20 - 30% of the value of their home or even the loss of their house
itself. Perhaps we should have paid more attention to what they
said and as I compiled in the 6-part series back in 2006 regarding
the “Ominous Warnings and Dire Predictions of World’s
Financial Experts” followed up by a 4-part series entitled
“Warning! Fiscal Hurricane Approaching! Is Your Portfolio
Secure?”
Once again warnings and predictions
are being put forth about the next crisis to befall us and
this time round it behooves us to pay more attention and make sure
that we are better positioned to survive and prosper whatever comes
our way. Below are major market forecasts and investment advice
based on drastically different analytical styles (demographic,
fundamental, technical and ‘socionomic’) from forecasters who have
‘been there, done that’ successfully in the past and are once again
forecasting what their research indicates is in store for us over
the next decade. It should be ignored at our
peril.
Harry S.
Dent Jr., the author of ‘The Roaring 2000s’, ‘The Roaring
2000’s Investor’, ‘The Next Great Bubble Boom’ and his latest book
entitled ‘The Great Depression Ahead’ states that
“The most important cycle change
for your wealth, health, life, family, business, and investments is
just ahead during the first and last depression you are likely to
experience in your lifetime.”
Dent makes it clear
that his predictions, while almost always contrary to most
economists and expectations, have almost always proved to be
correct because his predictions are based on the same sound and
quantifiable logic insurance actuaries use with a high degree of
accuracy to predict, decades in advance, when people will die. Dent
says he applies the same science to predicting what things will
happen in between birth and death – such as when people enter the
workforce, get married, spend, are most productive, borrow, invest,
retire, buy houses and so on. He believes that such a study of
demographics and other key cycles allows him to determine the
future based on the facts of the present and of demonstrated
behavior so he can see the pig, or the pigs, going through the
python. With that understanding of the basis for his forecasting he
goes on to predict (and I paraphrase) that:
Dow will Rebound to 10,000 – 13,200
within 6 Months
A likely massive
stimulus plan will bolster the economy somewhat into 2009 for a
likely rebound in the Dow to between 10,000 and 13,200. A projected
bullish scenario puts the Dow between 12,000 and 13,200 between
April and September 2009 if the Treasury rescue plan takes hold
with the markets anticipating a recovery. A projected bearish
scenario assumes that if the recovery is at best rocky, or at worst
that we were to move more into a depression in 2009 than a serious
recession, that the Dow would only get back to 10,000 to 11,000 and
not last as long.
Oil will Increase to $180 – $215+
by 2010 and then Decline to $40 - $60 by
2015
Oil prices will
likely rise to a commodity bubble peak of between $180 and $215,
possibly even more, and if not that high then, at an absolute
minimum, retest its 2008 high of $147, between late 2009 and
mid-2010 unless the economy implodes earlier in 2009. We should
then see a major crash in oil prices, beginning in 2010, back into
the $40 - $60 range, and possibly even lower, between 2012 and 2015
which will continue for years.
Commodities will Peak between 2009
and mid-2010
Commodities in
general, including gold and other precious metals despite their
crisis hedge qualities in the past, will likely peak between mid-
to late 2009 and mid-2010. It will probably be 2020 or 2023 before
we see the next sustained commodity boom and bubble which should
last into 2039 – 2040.
Dow will Fall to 3,800 – 4,500 by
2012
The next accelerated
stock crash, led by emerging markets, Asian stocks, financial
stocks and tech stocks – and finally by oil and commodity stocks -
will likely occur between mid- to late 2009 and late 2010, when
most of the damage will occur, and continue off and on into mid- to
late 2012. The Dow will fall at least to 4,500 and more likely as
low as 3,800 by mid-2012, the 1994 low where the stock market
bubble first began.
Nasdaq will Fall Below 1,100,
its 2002 low, by late
2010 or mid-2012 at the latest.
Market will Rally from 2012 until
2017
A substantial bear
market rally will likely occur between around mid-2012 and early to
mid-2017 and then a less severe downturn will occur from around
mid-2017 into early 2020 or as late as early 2023.
Economy will
be in a Depression by 2011
The worst of this
next depression is likely to hit between mid-2010 and mid-2013,
especially around early 2011, but if the banking system continues
to implode a deep downturn or depression could begin sometime in
2009 instead of 2010.
Note: According to a
recent research paper on “Stock-Market Crashes and Depressions” by
David Barro, a professor of economics at Harvard, there is a 20%
probability that a stock-market crash such as what we are currently
experiencing will result in a minor depression - where the economic
decline is between 10% and 25% - and a 28% possibility if it is
associated with a major war of the magnitude of World War 1 and
World War ll. Conversely, if a minor depression occurs first we can
expect a market crash to follow 69% of the time and 83% of the time
if the depression is major i.e. the economic decline is in excess
of 25%. As such, should our current recession escalate and
culminate in a minor or major depression by 2011 it may well follow
that we will indeed experience another major stock market crash in
2012 as Dent forecasts.
Unemployment could Increase to 12 –
15% by 2011
Unemployment could reach 12-15%, or
possibly higher at the peak of the depression.
Inflation will Increase until mid-
2010 and then turn to Deflation
A rise in
inflationary trends from mid-2009 into late 2009 or early mid-2010
will then reverse to an ominous deflationary trend in prices, as
the economy slows and all assets deflate, as they have done after
every bubble boom in history. It is not that the government will
not try to inflate its way out of this next crisis by cutting
interest rates and undertaking public works projects, etc. but that
the massive write-off of real estate and business loans will
outweigh those efforts and contract the money supply.
Interest
Rates will Increase
The Federal Reserve
will raise interest rates aggressively from mid-2009 forwards due
to rising inflationary pressures which will contribute to the
on-going crash of the stock market down to the 3,800 to 4,000
level.
U.S. Dollar
will Decline
The U.S. dollar,
which declined in early 2008 in the face of a strong stock market
and which strengthened considerably during the Crash of ’08, is
likely to decline again into 2010 – 2012 as the stock market
declines considerably further. The dollar will then strengthen
again before we see the second milder stage of the depression
between mid-2017 and early 2020 or 2023.
Housing will Decline by 40 – 60%
from Today’s Levels
A more severe
deflation cycle in housing will begin between late 2009 and
mid-2010 and will likely last until somewhere between mid-2011 and
2013, and possibly as late as early 2015 in larger homes. During
that period the average American house price will fall at least a
further 40% and as much as a further 60% from today’s market
prices.
Housing has remained
essentially flat when adjusted for inflation over the last century
except during the extreme bubble after 2000 and the deflation cycle
of the early 1900s and 1930s. As such, the current grossly
overvalued house prices of today, coupled with expected rising
unemployment deflationary trends and the continued real estate
slowdown due to the aging of the massive baby-boom generation, will
likely make such a decline in house prices a reality.
Greatest Economic and Banking
Crisis since the 1930s will Occur Between 2010 and
2012
Dent concludes by
saying
“If you thought 2008 was scary,
2010 to 2012 will be the greatest economic and banking crisis since
the 1930s. You must be prepared in advance to survive this most
difficult season. Do not accept the proposition that you cannot, or
should not, take steps to guard against losses. As an investor, it
is your money, your future, and your responsibility to protect
yourself in the best way possible and there will be the greatest
reward for those who do prepare during this once-in-a-lifetime
‘great sale’ in financial assets.”
How Best to Invest and Prosper
during the Tumultuous Times Ahead (according to
Dent)
1. Early to mid
2009:
a) Sell stocks, except commodity
and energy sectors
b) Allocate between commodities and
T-bills or money markets and /or safe currencies.
2. Late 2009 to
mid-2010:
a) Sell commodities and commodities
and energy stocks.
b)
Allocate 100% to T-bills or money markets and safe
currencies.
3.
Mid- to late 2010
a)
Start to allocate to 30-year Treasury bonds only after their yield
begins to spike.
4.
Late 2010 to mid- 2011
a)
Allocate to 20-year corporate bonds when yields go to
extremes.
b)
More conservative investors should focus on AAA corporate, more
aggressive investors toward BAA.
c) All investors must recognize,
however, that even high-quality bonds will be in question as to
their viability, given that the downturn between mid-2009 and 2012
is anticipated to be more extreme than anything we have seen since
the early 1930s, mid-1970s, or early 1980s.
5.
Mid-2011 to mid-2012:
Allocate to long-term municipal
bonds when yields seem to be peaking (high-tax-bracket
investors).
6.
Mid- to late 2012:
a) Aggressive/growth investors: allocate
majority into Asian stocks and lesser into U.S. multinational, technology and health care, with
minor allocation in long-term corporate, Treasury, or municipal
bonds.
b) Conservative investors: focus
largely on 10- to 30-year Treasuries and 20-year corporate AAA
bonds, with minor allocations in multinational, health-care, and
Japanese stocks.
7.
Late 2011 to early 2015:
Look for selected opportunities in
real estate (small condos and starter homes early on; vacation and
retirement homes later; trade-up homes by 2015).
8.
Mid- to late 2014:
Aggressive/growth investors: allocate more to
leading stock sectors such as China, India,
health care, multinational, technology, and financials on a likely
short-term correction between late 2013 and late
2014.
9.
Early to mid-2017:
a)
Sell stocks in all sectors.
b)
Convert largely back into long-term bonds and, to a lesser degree,
into T-bills or money markets.
Note: His book goes
on to provide additional advice on which assets to invest in up to
2036 which I have excluded here as our interest and focus is much
more short-term given our current economic, fiscal and investment
environment.
If you doubt the
validity of Dent’s above mentioned predictions and advice consider
this: ‘The Great Depression Ahead’ was written in the fall of 2008
yet Dent projected on page 56 that a) many banks would fail – that
has already happened; b) or have to merge with others – that has
already happened; c) or have to be bailed out by the government –
that has already happened; d) the Fed would have to cut short-term
interest rates to near zero – that has already happened; e) the
federal deficit would soar to in excess of a trillion dollars –
that is already a reality and f) the 30-year Treasury bond would
eventually fall to something like 2% in yields (3.77% as of March
16th, 2009).
Dent has an
extremely good track record of telling us what we would rather not
hear and acknowledge as most likely the case so it behooves us to
make the most of this important information. Dent encourages
everyone to apply for his free periodic e-mail updates to his basic
forecasts and investment strategies and to check out
‘Free
Downloads’ for further and more current information. I
encourage those readers who have found the above forecasts and
investment advice to be informative to buy his latest book for a
greater understanding of the study of demographics and other key
cycles that allow him to determine the future so
precisely.
Russell
Napier is the author of the book “Anatomy of the Bear”, a
professor at the Edinburgh Business School and a consultant to CLSA
Ltd. which is one of the top research houses in Asia. Napier’s
research indicates (and I paraphrase) that:
The
S&P 550 will Reach an Interim Bottom by
1Q’09
The S&P 500 now
trades at below fair value based on Tobin’s “q” ratio (which
compares the market value of companies to the cost of their
constituent parts) which has dropped below its long-term average of
0.76 to 0.68 from a peak of 1.9 in 1999, and the cyclically
adjusted 10-year price-to-earnings (CAPE)
ratio and, as such, should bottom by the end of the
1Q’09.
The
S&P 500 will Rally between 2009 and
2010
The
S&P 500 will experience a significant rally from the end of the
1Q’09 until mid-2010 to late 2010.
The
S&P 500 will Decline to 400 by 2014 (the Dow 30 to
3800)
The S&P 500 will
then undergo a major crash that will see U.S. equity prices bottom
at almost 50% below current levels (i.e. to 400 or less; the Dow 30
to 3800 or less) sometime around 2014 as Tobin’s “q” drops to 0.3
signaling the end of the bear market, as it has done at the end of
the four largest U.S. market declines in 1921, 1932, 1949 and
1982.
U.S. Treasury Sales Could Collapse Leading to End of
U.S. Dollar as Reserve Currency
The crisis of 2008
will force key large global economies such as China, India and
Russia to target domestic consumption-driven growth to replace
sales to the U.S. and Europe. When China, in particular, succeeds
in shifting to a consumer-driven growth model it will clearly
provide the key marginal demand for most global consumer goods and
this will further reduce the need for the current export-oriented
growth countries to manage their currencies relative to the U.S.
dollar in pursuit of export growth to the U.S. The fewer countries
that pursue such a policy, the less foreign support there will be
for the U.S. federal debt market. This could well be the
cataclysmic event that forces U.S. equities to the massive
under-valuations seen at the previous major bottoms of 1921, 1932,
1949 and 1982 and the end of the U.S. dollar as the de-facto
reserve currency.
Deflation Expected until
2015
The yield on
treasury inflation-protected securities (TIPS) shows (using the
yield differential between Treasuries and TIPS) that deflation is
now expected and forecasts that the average prices in the U.S. will
decline every year between now and 2015. Such a deflationary
economic contraction would be a major shock to the business
community and earnings damage associated with such a contraction
would probably be larger than normal initiating a significant
decline in the U.S. equities markets.
Continued Deflation or Renewed
Inflation are Possibilities
The supply of U.S.
Federal debt will be soaring just as foreign demand for that debt
is waning and this combination will produce an up-shift in the
yield curve which, if it were not met by a Federal Reserve
reaction, would be highly deflationary for the U.S. On the
other hand, if the Fed were to decide to open its balance sheet to
buy Treasuries and keep interest rates low, then the consequences
would be an inflationary scare that would further
exacerbate capital outflow and the collapse of the
dollar.
Sell U.S. Treasuries Soon, Buy Equities in
2014
Bond investors are
already being presented with a once-in-a-lifetime opportunity to
get their money out of U.S. Treasuries. Equities will look truly
terrible by 2014 but they will be so cheap they will once again
represent excellent long-term value as they did in 1921, 1932, 1949
and 1982. Should the world lose faith in U.S. Treasuries sooner and
suddenly then U.S. equities would decline the projected 50% very
quickly thereafter.
Foreign central banks’ faith in
Treasuries can be monitored by checking
the value of marketable
securities held in custody for foreign official and international
accounts. Any marked decline would be a warning to investors
in U.S. securities that the end game was in
progress.
Note: What is truly remarkable
about Messrs. Dent’s and Napier’s predictions is that they
approached their economic and financial analyses from totally
different perspectives - Dent using demographic trend analyses and
Napier using technical and fundamental economic analyses - yet came
to the same conclusions by and large. It really makes you want to
sit up and take notice as to what they have to
say.
Robert R.
Prechter Jr. is author of a number of books including
“Elliott Wave Principle” (1978) in which he predicted the super
bull market of the 1980s; “At the Crest of the Tidal Wave – A
Forecast of the Great Bear Market” (1995) in which he predicted a
slow motion economic earthquake, brought about by a great asset
mania, that would register 11 on the financial Richter scale
causing a collapse of historic proportions; and “Conquer the Crash:
You can Survive and Prosper in a Deflationary Depression” (2002) in
which he described the economic cataclysm that we are just
beginning to experience and advised how to position one’s self
financially during that period of time. Prechter also publishes two
newsletters, the ‘Elliott Wave Theorist’ and the ‘Elliott Wave
Financial Forecast’ both of which are paid subscription based. The
Elliott Wave Theory takes a ‘socionomic’ approach to forecasting
which contends that markets are driven by psychology and, while it
is relatively easy to understand in concept, the interpretation and
resultant application of the trends are difficult to implement
consistently.
The above being
said, there are no shortage of senior economists, analysts and
financial industry executives who sing the praises of his work.
Such words as “ignore Bob’s books at your peril”; “it could help
you save your financial future”; “the closest thing to a crystal
ball we could look for…it is a road map that no investor should be
without”; “ignorance may not be bliss – it may mean bankruptcy.
Ignore the message at your risk”; “knowing long term risks and
opportunities in financial markets ahead of time is absolutely the
key to consistent investment success”; “if you want to preserve
your wealth (or what little is left of it) I urge you to follow
Prechter’s advice. You will be grateful that you did”. There are
more words of praise to be had but I’m sure you get the idea of
what astute professionals think of Prechter’s work.
So what does
Prechter have to say about the current situation and how we should
deploy our assets? He is not as exact with free advice as Dent and
Napier are but, as a result of his analyses, he has the following
to say about the economic and financial environment (and I
paraphrase):
A
Deflationary Crash and Depression is
Imminent
Deflation requires a
precondition: a major societal buildup in the extension of credit
and its flip side, the assumption of debt. Credit expansion
continues as long as there are those willing to lend and borrow and
there is the general ability of borrowers to pay interest and
principal. These components depend upon whether both creditors and
debtors think that debtors will be able to pay, and the
trend of production, which makes it either easier or harder in
actuality for debtors to pay. So long as confidence and
productivity increase, the supply of credit tends to expand. The
expansion of credit ends when the desire or ability to sustain the
trend can no longer be maintained. The supply of credit contracts
as confidence and productivity decrease.
The social mood
trend changes from optimism to pessimism when creditors, debtors,
producers and consumers change their respective primary orientation
from expansion to conservation. As creditors become more
conservative, they slow their lending. As debtors and potential
debtors become more conservative, they borrow less or not at all.
As producers become more conservative, they reduce expansion plans.
As consumers become more conservative, they save more and spend
less. These behaviors reduce the ‘velocity’ of money, i.e. the
speed with which it circulates to make purchases, thus putting
downside pressure on prices.
At some point, a
rising debt level requires so much energy to sustain – in terms of
meeting interest payments…. chasing delinquent borrowers and
writing off bad loans – that it slows overall economic performance.
When this burden becomes too great for the economy to support the
trend reverses causing reductions in lending, spending, and
production which, in turn, cause debtors to earn less money with
which to pay off their debts, so defaults rise.
Default and fear of
default exacerbate the new trend in psychology, which in turn
causes creditors to reduce lending further. A downward “spiral”
begins, feeding on pessimism just as the previous boom fed
optimism. The resulting cascade of debt liquidation is a
deflationary crash. Debts are retired by paying them off, by
“restructuring” or by default. In the first case, no value is lost;
in the second, some value; in the third, all value. In desperately
trying to raise cash to pay off loans, borrowers sell all kinds of
assets to market - including stocks, bonds, commodities and real
estate - causing their prices to plummet. (Sound familiar? It
should because such behavior is unfolding as you read this very
article!) The process ends only after the supply of credit falls to
a level at which it is collateralized acceptably to the surviving
creditors.
Note: Where are we at this point in
time? Let’s take a look again at the various stages of decline to
determine where we are:
Stage
one
The major banks of
the world major are concerned that any credit obligations that they
were to enter into with other banks would not be honored because of
the unknown extent of toxic assets (such as derivatives and
sub-prime Mortgage Backed Securities) on their books – as was/is
the case on their own books.
This, in
turn, has caused them to go from an expansion mode to a
conservation mode resulting in a credit crisis such as we currently
are experiencing.
Stage
two
The major banks’
refusal to lend money to business has caused, or is causing,
business to go from an expansion mode to a conservative mode which
has, in turn, adversely affected the trend of
production.
This is evidenced by
the 6.2% seasonally adjusted annualized decline in GDP during the
4th Qtr. of 2008 which was the worst decline since a
6.4% decrease in the 1st qtr of 1982. To make matters
worse, economists don’t expect any relief in the current quarter,
which ends March 31st, projecting a further -4.8%
annualized rate which would be the first time since 1947 that the
GDP has fallen by more than 4% for two quarters in a
row.
Stage
three
a)
The reduction in production by business has, in turn, led
to or is leading to, over-capacity which has increased employee
layoffs.
Indeed, unemployment
soared to 8.1% in February, the highest rate in over 25 years. The
consensus of private forecasters is for the unemployment rate to
get close to 9% in 2010 with some forecasters suggesting a 10%
rate. The Federal Reserve, itself, doesn’t expect the unemployment
rate to fall below 7% until 2011.
b)
The increase in unemployment has, in turn, reduced the
affected consumers’ ability to buy goods and
services.
c)
The consumers’ inability to buy goods and services has, in
turn, reduced company sales and profits.
d)
The reduction in company sales and profits has, in turn,
caused the price of their stock to decline.
e) The lack of easy
credit and/or loss of employment has meant that home “owners” (i.e.
mortgagees in some degree of co-ownership with whichever financial
institution holds their mortgage) have not been able, in increasing
numbers, to re-finance and/or afford to re-finance their mortgages
and, as such, have not been able to make their escalating monthly
mortgage payments which have, in turn, led to a record
high number of mortgage foreclosures.
Indeed, as of the
end of 2008 12% of Americans with a mortgage were at least 1 month
late or in foreclosure which was up from 8% a year earlier. Even
worse, a stunning 48% of home “owners” who have sub-prime,
adjustable-rate mortgages are currently behind in their payments or
in foreclosure which, in turn, has resulted in ever more
distressed house sales by the mortgagors and other neighborhood
homeowners with, or without, a mortgage.
Stage
four
The dire economic scene (fear of
loss of job, loss of money invested in the stock market, reduced
resale value of their house, etc.) has seen, in
turn,
a) a
major increase in savings (the personal savings rate rose by 5.0%
in January, the highest rate since 1995)
b) a
reduction in spending (it dropped 0.2% in
December)
c) a
reduction in the sale of goods and services
d) a decline in the
price of such goods and services (as evidenced by the U.S. GDP
Price Index which declined by 0.1% on a quarter-over-quarter
annualized basis in the 4th Qtr of 2008 - the
1st decline since 1954 – and supporting the Fed’s obtuse
view that “inflation pressures will remain subdued in coming
quarters.” That tells us that deflation is imminent.
Stage
five
We are going to see
a self-reinforcing escalating vicious cycle of stage two, stage
three and stage four over and over again. The downward “spiral’ is
in progress.
So there you have
it! We are in the early weeks of stage five. As such, it is fully
understandable why the governments of the world are throwing money
at the credit problem so excessively in an attempt to get the
wheels of industry turning to stem the decline before it takes
hold. It is an extremely dire situation with no end in sight at the
moment.
Gold
and Silver Beginning a Decline to Under $680 and $8.39
respectively
Gold and silver will
fall into their final dollar price lows at the bottom of the
deflation…after which time these metals should soar in price. Given
the likely political inflationary forces following the period of
deflation the rebound could be much stronger than anticipated so
owning precious metals prior to the onset of the post-depression
recovery is desirable.
Should you buy gold
and silver now? If you are willing to accept the dollar value of
the precious metals dropping another 30% ($680 gold represents a
26% decline from the early March 16, 2009 price of approximately
$923) or more before they rise substantially….but are willing,
nevertheless, to pay such a price for its current availability and
for the ‘insurance’ of greater portfolio stability under an
unexpected inflation scenario, then the answer is yes.
The above being
said, it is probably not as good an idea to invest in gold stocks
because in common stock bear markets stocks of gold mining
companies usually go down with the overall market trend except in
relatively rare 5 to 10- year periods of accelerating inflation. As
such, in this early stage of deflation gold mines will enjoy no
false advantage over any other companies. Their stocks will
probably rally when the overall stock market rallies. Owning gold
shares is fine at the top of the Kondratieff economic cycle when
inflation is raging and political tensions are their most
severe.
DJIA
Should Fall Below 777
The Dow Jones
Industrial Average will go down to at least 1000, most likely to
below 777 which was the starting point of its mania back in August
1982, and quite likely drop below 400 at one or more times during
the bear market.
Note: To Prechter’s credit he
acknowledges that these aforementioned forecasts are considered to
be impossible by virtually everyone. He is of the opinion that the
price swings will be dramatic over the course of the decline – as
evidenced by recent swings in the Dow 30 from 11,723 on
Jan.14th, 2000 to 7286 on Oct.9th, 2002
(-37.8%); to 14,165 on Oct.9th, 2007 (+94.4%); to 6594
as of March 5th, 2009 (-53.4%) - providing phenomenal investment
returns to the successful long term in-and-out investor. Even short
term in-and-out investors can profit considerably from the current
market volatility as the market swings up and down (October ’08 low
of 7774 to a November ’08 high of 9654 (+24.2%), to a late November
‘08 low of 7449 (-22.8%), to a January ’09 high of 9088 (+22.0%):
to an early March ’09 low of 6594 (-27.4%). Is another 20% to 25%
increase about to occur in the very near future (i.e. to approx.
8250) followed by an even lower low of 25% to 30% (i.e. to 6000 or
so)? Only time will tell but Prechter sees money to be made during
such times for those astute and fortunate investors who choose not
to park their money in some form of cash or just ‘buy and hold’ as
so many financial/investment advisors are so prone to
recommend.
U.S.
Dollar Index to Continue to Rise
It is important to
make a distinction between the dollar’s domestic and international
values. In a deflation, the value of any currency – the U.S.
dollar, in this case – rises domestically while the USD’s
international value, as represented by the U.S. Dollar Index, can
rise or fall relative to other currencies in a deflation. In a time
of financial crisis, however, the U.S. dollar is considered to be a
safe-haven currency. This time is no exception, particularly given
that the Euro, a major component of the USD Index, is going through
extremely trying times itself. As the deflationary depression
proceeds over the next few years demand for U.S. dollars should
increase even further. In such a deflationary environment, where a
strong dollar still persists, you want to be in safe cash
equivalents such as U.S. T-bills.
Treasury Bonds are in a Bear
Market
The 10-year Treasury
note yield has been in a sharp decline since the early ‘80s when it
reached 15.84% at the height of inflation and is at a deflationary
level of 2.89% as of March 13, 2009. The gargantuan government bond
issuance to fund the U.S. debt bubble, however, may push yields,
which move inversely to prices, steeply higher in the years
ahead.
Prechter has been quoted as
saying
“The reason that I remain willing
to express my unconventional view is that I believe that my ideas
of finance and macroeconomics are correct and the conventional ones
are wrong. True, wave analysts make mistakes, but they also make
stunningly accurate long-term forecasts.”
Updates to
Prechter’s insights and predictions on all asset classes can be
found here.
I encourage those readers who have found his above forecasts and
investment advice to be informative to buy Prechter’s books for a
more in-depth read and understanding of the basis for his making
such projections of future events with such
confidence.
What is so intriguing here is that
Messrs. Dent and Napier, using totally different analytical
approaches, have come to much the same conclusions as Prechter.
Again, when analysts with different approaches to a situation
agree, more or less, with the outcome it is something to take very
seriously indeed. And such is the case here!
If you still need to
be convinced that extremely difficult times are ahead and that
action must be taken please refer
here
for an article entitled “They
Called it Right (Plus Predictions for 2009)”. This article reviews
the correct predictions of 8 noted investors, analysts and
academics for the year 2008 and their outlook for 2009. The
individuals are: Nouriel Roubini, Peter Schiff, Meredith Whitney,
David Tice, Jeremy Grantham, Robert Shiller, Bob Rodriguez/Tom
Atteberry and Mark Kiesel. Their forecasts are much more general
than those of Dent, Napier and Prechter but clearly indicate what
is in store for us in 2009 and beyond.
In summary, we are being forewarned
yet again about yet another
economic and financial crisis coming down the pike. This time don’t
get burned as you most likely did during the Credit Crisis and
Crash of ’08. Instead, position what is left of your portfolio such
that you will actually prosper during this ongoing financial
hurricane. Now that you know what is about to happen, take action,
now ! To just hope that everything will turn out okay would be
downright foolish.