THE BIGGEST BEAR MARKET IN 300 YEARS?

Robert Prechter at Elliott Wave International thinks we’re on the verge of the “biggest bear market in nearly 300 years”.  Prechter, who believes the market moves in predictable waves, says the long-term pattern is one of dramatic upward trends with severe corrections inbetween.  He provides the following chart to show the very long-term trend in stock prices.  Prechter believes the current downtrend is simply the beginning of a much more dramatic move that mirrors past market declines.  Based on this data the market is well overdue for a sizable correction:

“Not even Major League Baseball can rival the stock market’s wealth of statistical data. And after studying the relevant data and analyzing the long-term pattern, Prechter offered this conclusion in the May issue of The Elliott Wave Theorist: “The current bear market will be the biggest in nearly 300 years.
Yes, Britain’s “South Sea Bubble” in the early 1720s was the last time a bear market was comparable to what we may see unfolding now — it’s represented by that vertical drop which you see on the chart.”

Source: Elliott Wave

Cullen Roche

Mr. Roche is the Founder of Orcam Financial Group, LLC. Orcam is a financial services firm offering research, private advisory, institutional consulting and educational services.

More Posts - Website

Follow Me:
TwitterLinkedIn

  • slightly_skeptical

    You know TPC, many are negative the markets and the economy (me included), but it’s too hard to take Prechter seriously. Wasn’t he calling for a collapse 20+ years go. After a while how can people take him seriously? The opportunity cost following Prechter over the last 20+ years seems to be very high – he may be right this time for all I know but whose to say they can’t keep this going for another 20 years similar to Japan running up debt to 200% of GDP?

  • john

    We can follow just like Japan, and our market can decline 80%, just like Japan, and we already are at 200% of GDP. 350% if you include all the entitlements. Game over suckers. The banks attempt to sell paper assets for cash is running out of suckers. The more mom and pop sell, not because they are the wiser, but because they need the money, the more the banks are to carry this paper on their books. The funny thing is the FED is playing the part of the retarded apple salesman who thinks that stocking more apples on the shelves will sell more apples. The FED is selling cash and the people aren’t buying it. This is a big problem because if this is the case, then the whole ponzi scheme is over. When you buy a stock you are just trading cash for an IOU, you don’t actually get anything other than a chance of finding a greater fool. The best way to destroy the beast is to sell all of your stocks and bonds. The banks will be forced to buy them all and they will implode and the government will be forced to downsize by 2/3, and whalla, we have our country back. So, it’s simple. Starve the beast. Walk away from the house, you don’t need credit, you should not be on credit to begin with. Having bad credit will force you to live within your means, the way they did for 2000 years, give or take a couple of hundred. Eat what you kill. The stock market crash coming will be the most enlightening experience for the majority of the U.S., as the oligarchy crumbles and the wall street elite realize they have no set of worthy skills, other than being con men. What the hell is the grifter in the suit going to do when he can’t convince you to trade your hard earned money for a piece of paper that he says is , ” undervalued”. If it is so undervalued, why the hell does he want to sell it. The minute a stock goes public it is overpriced, it then enters the great wall street hype machine. Anyone who loses money in the stock market is an idiot for playing. It is a casino and the minute you realize this you will realize how to profit from these losers selling paper IOU’s, you can beat them at their own game, if you only understand the game first.

  • http://www.pragcap.com TPC

    I’ve generally been skeptical of Prechter over the years, but his whole career has been learning how to understand and prepare for an environment exactly like this. So, while I’d usually be quicker to write him off I think he is uniquely suited to understand the current environment.

    Plus, I thought the chart here was pretty interesting….Biggest bear in 300 years? I am not so sure about that though.

  • Johnny

    Entitlements are liabilities, not debts. There’s such a big difference that it isn’t even funny. Moreso, the liabilities are all in NOMINAL terms, which means that there are a number of reasons why you can’t count them in current debt.

    We’re still below 100% of GDP if you just count debts.

    You’re post reads like a post that Glenn Beck would make, or that a gold salesman would use to sell gold. Not only is it full of inaccuracy, but it also relies on the worst case scenarios to come true to be correct.

    As far as Precther goes, the man is always bearish. He’s about as accurate as Nouriel Roubini, maybe even less so. At least Roubini got one call in his career right. Prechter has been preaching the stock market fall for as long as I’ve followed him.
    Eventually the market WILL fall, and he’ll be able to say “Oh, yeah, I was right.”

    If you wait for eventually, everybody is right in the markets. The most important thing is timing, and Mr. Prechter is wrong on his timing consistently.

  • 3421138532110

    ZZZZZzzzzzzzzzzzzz

  • 3421138532110

    Sure is an interesting chart……DOW 100,000 appears around the corner :-)

  • http://www.sound-money.co.uk Gary_UK

    Hello Dave!!

  • Bob Barker

    TPC – good post below from naked capitalism. I’m curious to your thoughts. As for Prechter, directionally he’s probably right but markets can remain irrational for a long tim. Plus nominally DOW 1000 isn’t possible. You’ll have armageddon well before that.

    http://www.nakedcapitalism.com/2010/09/truth-and-consequences-when-the-musics-over.html

  • Mr. Paine

    I wonder if this chart is adjusted for inflation. If you look at the March 2000 NASDAQ peak and compare it to now, the drop has been substantial. Factor 10 years of inflation into the picture, and the drop is even bigger. We have had low inflation for a number of years, but there has been some inflation. The stock market numbers need to be adjusted for inflation. If I recall, the Dow first blew through 10,000 in 1999. It’s been above and below that number for a while now. It’s been something like 12 years since then. After inflation, a buy and hold investor would have been killed. I guess my point is that the stock market has not performed nearly as well as people think primarily because some of the rise is attributed to inflation which does not represent a true gain. Even if the Dow makes a new all-time high, the loss of money due to time and inflation would have to be factored in.

    Additionally, the chart shows the Dow in points and not percentage increases/decreases. The higher it goes, the less meaningful the actual numbers are. Dow 100 to 200 is a 100% increase. So is Dow 10,000 to 20,000. It’s the same in percentage terms.

    Sorry for the meandering post. It’s Friday afternoon and I’m bored at work. I always enjoy reading this website.

  • B Ferro

    Man people hate Prechter on this site…

    Wasn’t he log at the Mar 09 bottom?

    Also, the needed mean reversion on the chart + the inevitable downside overshoot in getting there, probably gets you to his price target by the looks of it…

  • slightly_skeptical

    B Ferro, I don’t hate Prechter, I think he’s over the top with his calls – for publicity’s sake. And lets face it’s a technical call, nothing to do with fundamental analysis. Not dissing technical analysis, but you need more to make such dire calls like Prechter is making. Like I said what happened to his call for collapse 20+ years ago?

    BTW, Prechter is also known to show the Dow/S&P versus gold to make the case that the dollar is being devalued – when he’s trying to get folks to buy gold. How would this chart look if he measured the Dow versus gold. I doubt the peak would look as menacing. Nominal versus real.

    I guess this time round he’s not making the case to buy gold.

    Additionally he was also making the case to buy gold before the collapse in 2008 since he was counting on inflation, this was not necessarily the best move – since it didn’t happen and gold went down with everything else. It’s recovered fine, just like stocks and then some, but his macro call was again wrong, just like Peter Schiff.

  • billw

    Skeptical,

    Keep it in context please. Prechter does not preach buying gold; quite the opposite. He believes we are heading into a major deflationary period during which gold will be devalued also as people and governments are forced to sell everything that has value to settle debts. And that was what was going on in 2008. Personally I think that he will be right on his call this time ( and he has been on the money several times in this last ten year cycle, he called the 2009 rally almost a week before the bottom on TV). There are simply too many countries facing default or restructuring ( whatever you want to call it). Any one of these countries going down will pretty much start the downward slide for all of us. And that is not to say that the US won’t be the first to face a major market correction. People are pulling their money out of the market week after week now because they no longer believe the government’s lies about how the economy is improving. If you are actually living in the real world ( outside of the Washington beltway) , the government’s spin on every bad piece of economic news flies in the face of reality! Doug Kass may be a blowhard as some were alluding to in another segment, but I can name 30 top notch financial people that are saying much the same thing ( and some of them are traders). There is a day of reckoning coming soon, and as usual that day for the market falls in the crucial month of October. I will still be here so we can talk about it then.

  • Lethal

    Slightly_Skeptical,
    one very important thing to remember regarding the last 20 years in Japan – The level of Debt has been funded by INTERNAL savings, while America’s deficits are funded EXTERNALLY.

    Bob Barker,
    Dow 1000 CAN’T be reached????
    If the Nikkei can reach and stay around 1982 levels……
    The dow was under 1000 for most of 1982!

  • slightly_skeptical

    billw, like I said earlier, I’m negative the markets and the economy at the moment, but I’m not buying the Prechter hype – e.g Dow 1000, worst collapse in 300 years etc. I’m currently 100% cash and waiting.

    “I will still be here so we can talk about it then.”

    Likewise.

  • Willy2

    Bear market ? Yes !
    The largest bear market in 300 years ? That remains to be seen !

  • JH

    If you go by the actions of the banks and corporations, it seems as if they agree with Prechter. Although they talk recovery, they are hoarding cash. If they actually believed in recovery, they would be using the cash and cheap credit the Fed is pushing to buy equities. Instead they are keeping their powder dry, building cash, paying down debt,and waiting for what they know is coming. Actions speak louder than words.

  • SteveS

    One thing that Prechter said in an interview a few weeks ago that does seem to make sense is his 7-year cycle that points to a bottom in 2017.

    Most people agree that we are in a secular bear market that usually last 16-18 years, and common sense shows that the market usually does the opposite of what most people expect (where’s the crash of 2010 TPC and everyone else including Prechter predicted).

    The last two secular bear markets 1929-1945 saw the low early in 1932, 1955-1982 saw the low in the middle in 1974, so most think the low this time has already been seen in 2009. So perhaps with increased goverment intervention and investor expectations looking at previous lows, this time the unexpected happens and the ultimate low occurs late in the secular cycle. Depressions do average 75% declines in stock markets, so in a depression that is a logical price level.

  • http://www.pragcap.com TPC

    SteveS,

    Where did I ever say we would crash? I have repeatedly said that we’re in a state of below trend growth. The only time I said the market was at risk of a substantial decline in 2010 was when I loaded the boat on the short side in the early spring….

  • http://www.pragcap.com TPC

    Just a month before we literally crashed….

  • MichaelM

    A much more interesting chart would take the above and lay over the GDP of the United States during the period. It seems reasonable to assume that the strong upward bias seen in Prechter’s chart has a lot to do with the immense forward progress of our country, and society as a whole. While some may argue about whether we can maintain the upward trajectory, a major move lower from here as Prechter is predicting in the near term seems unlikely in the absence of life altering cataclysm. Over the much longer term the trend will likely depend upon whether we can find ways to overcome some of the very significant challenges we face. Some diversification into the markets of other economies that are growing at an accelerating rate seems prudent but I would not count the US out. Come what may, our society has many strengths and an unyielding spirit to never stop working to make tomorrow better than today.

  • SteveS

    TPC,

    For the record this year in January, you stated you were bullish for the first half of the year and bearish for the second half. In June when the Dow hit 9800, you turned bearish with the comment “By mid-July they will be puking in the streets”. By calling a crash, I hope you don’t mean the “flash crash” that lasted all of 30 minutes.

    This was about two weeks after my forecast of a decline less than 20% and a rally into Oct, probably to new recovery highs.

  • http://www.pragcap.com TPC

    Steve,

    If you were a regular reader you’d also know that I believe it is impossible to forecast the market out more than 1 quarter in advance. I’ve been pretty clear that I don’t trade for the long-term and any regular reader knows I was bullish coming into the year, turned bearish at SP 1150, shorted the up move in the Spring (was VERY vocally short) and covered the day of the flash crash. Those have been the only high conviction calls I’ve made all year and quite honestly, you made your year if you got short in the Spring.

    So you can try to paint this picture of me as being entirely wrong, but unfortunately for you this is all documented in real-time on the site.

  • roy

    If anything this chart makes me optimistic for the long term. We have exponential growth overall, with the variance of recent problem periods being significantly smaller than in the past. Even if the latter changes and we see a loss of 75%, with the accelerating pace of innovation there’s no reason to think we wouldn’t recover just as we have so many times in the past 200+ years. Prechter is a stopped clock, and Elliot Wave is about as useful as astrology.