ROBERT PRECHTER: NEW LOWS ARE COMING
11 August 2009 by Cullen Roche
10 Comments
Three good interviews here with Robert Prechter, who absolutely nailed the collapse and the recent rally in stocks. Of course, Prechter has been predicting a second depression for 10 years….Is he finally correct?
Part 2:
Part 3:
Prechter’s comments were the most interesting stuff today… he has some more stuff as well on Tech Ticker…
Would love to hear your thoughts though – do you agree with Prechter on the above topics as well as what he had to say about bullion today? are you still in cash or do you feel like dipping into shorts now?
Interesting indeed. However, every time i listen to Prechter it always seems to be more “assertions” than analysis. Does not mean he is wrong. Just means i need more convincing. Markets could correct but NEW LOWS will require a down leg in housing, banking insolvency, and central banks that watch from the sidelines. None of which is is likely. It is interesting to see how impending doom sayers use polar opposite theories – Prechter (dollar bottom and deflation), Most doom sayers (impending dollar collapse and hyper inflation)
Exertia,
My approach is much more different than Prechter’s so it’s difficult to compare our thinking. He is a long wave analyst. I am likely the opposite. While I use macro themes to formulate risk metrics (for instance, if I think we’re in a bear market my trading timeframe is reduced and positions are smaller) I don’t really invest in my macro themes. I’ve been bearish since 2007, but I’ve been long at various times as you know during the bear market. Prechter’s bullish move was highly unusual for him. He doesn’t generally take such short term positions, but the moves we were seeing were extreme.
I’d say that I agree with his overall premise that we are in a secular bear, but I believe we will retrench into September and end the year strong. I’ll likely be a buyer of any 10% decline here. If we see the lows it will not be this year. I’d be willing to bet on it. 2010 perhaps, but not this year.
I do like his deflationary dollar call as well. He seems to have the correct macro themes tied together, but his short term timing over the years has been less than enviable. He’s famous for making extreme comments such as these ones but the market rarely moves in such extreme fashion….
TPC, I don’t agree with your short term call on ending the year strong. Yes, we will retrace. Yes, we’ll rally after that retracement. And when that rally falls short of the current highs, we will eventually break 666, but not before moderate rallies at key levels like 800, 740, and 666, respectively.
The downside to the current euphoria is that expectations are increasing and the market is pricing in a weak recovery for 2H 2009. It’s all we hear about from the mainstream media: the recession is ending but the recovery will be weak. 90% of economists now believe this garbage. And, as you know, when everyone’s thinking the same, no one’s thinking. Slowly reality will set in..not only are we not recovering but housing will continue falling, unemployment rising, and bank losses increasing as a result. Reality won’t hit overnight but we can absolutely unravel in a few months. Look what happened this time last year. I think the likely catalyst will be CitiGroup. How many more one-time events can they produce to hide the massive hole that is their balance sheet?
Market bottoms and tops are very lonely places. I feel like I’m the last bear left. After tomorrow’s better than expected retail sales report (thank you clunkers), I think it’s safe to short into that strength. I doubt there’s too many more catalysts to make this euphoria continue.
VCC
I agree. And to those who say “what’s the catalyst for a big leg down to new lows?”, I say there doesn’t have to be, and it won’t be like the lightning quick crash last fall. But it will grind down over time with intermittent shorter rallies, kind of like the market in ’30-’32 after the big 50% rally fizzled. Not that we’re going down 89% again, but the ugly reality of our economy will settle in over time and be reflected in the market. There’s no way our debt laden economy does much more than muddle along, and the stock market needs a lot more than that to keep pep in it’s step. A serious P/E compression is going to happen from here, as earnings levels stagnate with lower profit margins in a deleveraging economy.
And global decoupling is a ways off too, so global markets will suffer alongside the U.S. market as that realization settles in (again).
The argument for a serious correction before year end, however tantilizing for the bears, is a sunny dream at best for these reasons:
1. Unbelievable bull optimism created over many months. That’s just not going to go away on one bank failure/bad news (ala Citi) or even a bad earnings season. Everybody knows how bad Citi is.
2. Endless buying resources from the Fed/Fed agents (banks)
and if that’s not enough right there then:
3. Economic reports crafted by, you guessed it, the Fed
4. A strong political incentive to support markets through year end (i.e. reelection and healthcare legislation) and beyond.
5. A gap at 1090 that needs to be filled
6. The only thing the market tends to do twice YoY is rally. It generally won’t go down the same way it did last year even if does start to decline. The nature will be different.
Nice article. But see also http://invetrics.com for an alternate view.
Specifically: http://invetrics.com/?p=4412
I think that he has a point, this market is overvalued for the reality of the situation. When you look at price earnings, it is pretty much pricing a V shaped recovery.
I think there will be a correction. China, a leading indicator has been down over the past few days. I do not however think that we will go into a depression like what he is saying. It will just be a correction, like in 1987.
Hey TPC,
Im no elliot wave expert.
I do however believe that a usd bounce would be the result of a market correcting sharply.
Would like to hear more on the current status of the USD, especially on its ‘rebound’ possibilities. Have we made a medium term USD low?
Its ironic that after all the stress on the usd, its being viewed as the safest currency, ( reason: lack of a better alternative)?