Elliot Wave: The Dollar Is Set for a Major Rally 30 comments
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“I think stocks are topping out, commodities are topping out and the dollar is making a bottom,” says Robert Prechter, president of Elliott Wave International and author of “Conquer the Crash“.
According to Yahoo Finance - Tech Ticker, Prechter also makes the seemingly counterintuitive argument that the dollar will rally because there’s so much debt, rather than being doomed because of it.
If the economy turns sour again in 2010, as he predicts, Prechter says the dollar will benefit as more dollar-denominated IOUs get called by creditors seeking to shore up their own balance sheets, as was the case in 2008.
A sustained rally in the dollar would have devastating consequences for stocks, emerging-market assets, high-yield debt and commodities. But gold might be the exception, because it represents ‘real money’ and more people are questioning the global paper money system, Prechter says.
Source: Aaron Task, Yahoo Finance - Tech Ticker, November 5, 2009.
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This article has 30 comments:
en.wikipedia.org/wiki/...
Right--as Mr. Natural informed us long ago, "The world is completely insane."
"But gold might be the exception, because it represents ‘real money’ and more people are questioning the global paper money system, Prechter says."
He's finally realizing that gold, in times of crisis, loses most of its commodity-ness. Good for him.
If this is true does this not mean there's going to be a second wave of defaults coming round very shortly?
Could someone please clarify those IOUs are due to and by whom?
Could it be the case that these IOUs are actually due to foreign creditors (i.e. the Chinese) and that is why they continue to pump money into the US (to avoid defaults on debts they are already owned).
If this is the case it seems that this mechanism (of Chinese capital returning to the US via T-bill purchases etc) is at least keeping the dollar from collapsing right now. They'll have to find a way to spend these dollars eventually and that's when inflation will hit (actually it's already started with Chinese demands for commodities).
On Nov 08 09:12 AM ZigMeister wrote:
> We are awash in debt but it seems to me that debt (at least private)
> can and is being reduced thru foreclosures, bankruptcies, write-offs,
> etc. Not so easy with all the dollars being printed. Maybe we will
> have short term rallies in the Dollar, but longer term it is going
> down.
If we can get past the current unemployment rate and increase consumption, modify the sins in real estate lending, and stabalize our economic imbalances, there may be light at the end of the tunnel.
Any economic geniuses with a quick fix?
I know Prechter is arguably the leading practioner of EWT (or at least, the most widely known), but I don't have a lot of faith in the theory itself, at least in terms of its practical application.
While hardly an "economic genius", I've made a modest suggestion in an article/blogpost that appeared in today's SA, that might be a small start. Unfortunately, given the straits we're currently in, "quick fixes" are NOT an option...there're structural issues that need addressing.
On Nov 08 12:56 PM Mr. G wrote:
> I never see any real alternatives from all the doomsday prophets
> to fix the current economic mess. Raising the FED rate to put a halt
> on the dollar decline would depress economic growth because it would
> not encourage banks to lend.
>
> If we can get past the current unemployment rate and increase consumption,
> modify the sins in real estate lending, and stabalize our economic
> imbalances, there may be light at the end of the tunnel.
>
> Any economic geniuses with a quick fix?
On Nov 08 09:13 AM fwi wrote:
> As the Federal Government gets deeper and deeper in debt (even before
> the "estimates" for the healthcare plan prove to be way low), will
> its ability to manage the dollar, interest rates, inflation, etc.
> continue to weaken to the point of total ineffectual policy? I was
> just wondering.
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-----
S&P 500 ANNUAL TOTAL RETURNS
Year Return
1999 21.04%
1998 28.58%
1997 33.36%
1996 22.96%
1995 37.58%
I recommend to read all Martin Armstrong´s publications.History always repeat. All countries, without exception, fall on their debt like for example the Weimarer Republic or recently East Germany (today 20th anniversary). F.J. Strauss (minister president from Bavaria) initiated early 80ies a very high credit for Honecker. Less than ten years later, East Germany defaulted on its debt to West Germany leaving a zombie economy and citizens hoping for west living standards. They push the Wall down to West. Now it´s our turn...but to where? Back to the roots and back to work!
I follow since 2005 the chart-development on gold prices based on Alf Field´s bull market theory.
His theory: the bull market consists of Five Major Waves
• Major ONE: major upward impulse wave, 4 times the low.
Gold price prediction: from $256 (low) to $1,011
• Major TWO: major corrective wave with a 25%-30% magnitude of anticipated decline.
Gold price prediction: down from $1,011 to $692 (31% decline)
• Major THREE: major upward impulse wave, according to Fibonacci´s rule 5 times the low.
Gold price prediction: from $692 to $3,500
• Major FOUR: major corrective wave with a 25%-30% magnitude of anticipated decline.
Gold price prediction: expected down from $3,500 to $2,500
• Major FIVE: major upward impulse wave, a 4 times increase, same as major wave ONE.
Gold price prediction: expected from $2,500 to $10,000
Major upward impulse waves: ONE, THREE and FIVE will each contain 5 Large waves (I, II, III, IV and V). Large waves II and IV are corrective waves with approxi-mately 16% magnitude of decline, give or take 1-8%.
Large upward impulse waves: I, III and V will each contain 5 Small waves (1, 2, 3, 4 and 5). Small waves 2 and 4 are corrective waves with approximately 8% magnitude of decline.
Small upward impulse waves: 1, 3 and 5 will each contain 5 Minor waves (i, ii, iii, iv and v). Minor waves ii and iv are corrective waves, each declining 4%, give or take 1-2%.
I made the summary until today and the facts speak for themselves:
Structure of Major Wave ONE: London PM Fixings
Large Wave I 6 Apr 01 to 5 Feb 03 $256 to $382 + 49%
Large Wave II 5 Feb 03 to 7 Apr 03 $382 to $320 - 16%
Large Wave III 7 Apr 03 to 12 May 06 $320 to $725 +127%
Large Wave IV 12 May 06 to 6 Oct 06 $725 to $560 - 23%
Large Wave V 6 Oct 06 to 17 Mar 08 $560 to $1,011 + 81%
Major ONE 6 Apr 01 to 17 Mar 08 $256 to $1,011 +295%
Structure of Major Wave TWO: London PM Fixings
Wave A 17 Mar 08 to 11 Sep 08 $1,011 to $740 - 27%
Wave B 11 Sep 08 to 10 Oct 08 $740 to $918 + 24%
Wave C 10 Oct 08 to 24 Oct 08 $918 to $692 - 25%
Major TWO 17 Mar 08 to 24 Oct 08 $1,011 to $692 - 31%
Structure of Major Wave THREE: London PM Fixings
Large Wave I 24 Oct 08 to 23 Feb 09 $692 to $987 + 43%
Large Wave II 23 Feb 09 to 20 Apr 09 $987 to $870 - 12%
Next calculation/ prediction:
Large Wave III 20 Apr 09 to May 2010 $870 to $2,000 +130%
Get ready?
Recession cycles clean-out the so called "dead wood." They force inefficient business practices to the wayside and encourage fundamentally sound business.
The policies created under Keynsian economics seeks to manipulate the economy in to constant growth by snuffing out recessions with liquidity and then slowing it on the upside as well by pulling out liquidity. It is an attempt to bypass the actions of a free market with human controls. Today it is largely accepted as economic truth, but it has only been tested over a relatively short period of time.
Our economy and our lifestyles have grown addicted to this cheap credit. The only cure is to go through withdrawal. This would mean severe recession or depression. Only on the other side of this can we build a stable growing economy. This is not to say that we can do nothing to lessen the blow, especially on a personal level. There is; however no "bailout."
Living responsibly and within ones means is what is needed. This goes for individuals and governments. Borrowing is not inherently evil, but cheap and unrestricted borrowing needs to end.
This is my opinion and it's worth what you paid for it.
On Nov 08 12:56 PM Mr. G wrote:
> I never see any real alternatives from all the doomsday prophets
> to fix the current economic mess. Raising the FED rate to put a halt
> on the dollar decline would depress economic growth because it would
> not encourage banks to lend.
>
> If we can get past the current unemployment rate and increase consumption,
> modify the sins in real estate lending, and stabalize our economic
> imbalances, there may be light at the end of the tunnel.
>
> Any economic geniuses with a quick fix?
If we weren't spending so much money we did not have, I would be all for a stimulus as a way to cushion the blow of the slowdown, but since borrowing trillions to prop up our indebtedness only leaves us further in debt, it is clearly the wrong way to go. QE should be ended, one quarter point at a time. Yes stocks would fall, but the dollar would rise and that would bring a new sanity back to investing and help restore global confidence in the dollar (which is our real natural resource in the country). This renewed stability would lend itself to organic business growth not growth fueled on short lived dry gas bursts. We'd be in for years of slowing down, but that is a good thing, as the speed we achieved simply can't be sustained (as proved by where we are now). We'd have decades of national debt to pay down, but then that isn't really going to be inflated away without a collapse of the dollar to such ridiculous levels that we default anyway.
There is no quick fix, and asking for one is a symptom if the disease that got us here. We need to think long term sensibility and, like the couple that just got back from the vacation they can't afford and had no business taking, we need to put in some long days and start saving for our future. Not quick but fairly simple really.
On Nov 08 12:56 PM Mr. G wrote:
> I never see any real alternatives from all the doomsday prophets
> to fix the current economic mess. Raising the FED rate to put a halt
> on the dollar decline would depress economic growth because it would
> not encourage banks to lend.
>
> If we can get past the current unemployment rate and increase consumption,
> modify the sins in real estate lending, and stabalize our economic
> imbalances, there may be light at the end of the tunnel.
>
> Any economic geniuses with a quick fix?
1) Drastic downsizing of government.
2) Dramatic, across-the-board tax cuts.
The private sector creates wealth...the government can only siphon and spend, not create wealth.
On Nov 08 12:56 PM Mr. G wrote:
> I never see any real alternatives from all the doomsday prophets
> to fix the current economic mess. Raising the FED rate to put a halt
> on the dollar decline would depress economic growth because it would
> not encourage banks to lend.
>
> If we can get past the current unemployment rate and increase consumption,
> modify the sins in real estate lending, and stabalize our economic
> imbalances, there may be light at the end of the tunnel.
>
> Any economic geniuses with a quick fix?
But, the Fed and Treasury won't allow long days and saving money for our future. Their goal is to inflate the dollar and erode purchasing power to force the dollars to be spent now, or put into the high risk current stock market bubble. We are constantly being encouraged to continue to spend spend spend. Cash for Clunkers, Home buyers tax credit, cheap mortgage rates, Federal Stimulus dollars, <2% taxable savings rates, 0% at the Fed window etc.
I refinanced my house early this year when the interest rate went to 4.5%. I received a letter saying that Fannie Mae was now holding the note. I'm a very low credit risk. What does this say to me? The rates are so low that no non-government entity will touch any type of mortgage and the only way homes are being financed now is by having the government virtually take over the mortgage industry.
Banks know that the interest rates are too low. Look at how they are ramping up short term credit rates prior to government controlled interest rate caps. They not only are expecting government control , but future punishing inflation.
What to do?
On Nov 09 12:49 PM Dialectical Materialist wrote:
> There is no quick fix, and asking for one is a symptom if the disease
> that got us here. We need to think long term sensibility and, like
> the couple that just got back from the vacation they can't afford
> and had no business taking, we need to put in some long days and
> start saving for our future. Not quick but fairly simple really.
>
The problem is:
1) It's not likely to work
2) The consequences of it not working are worse than doing nothing to begin with.
On Nov 09 01:49 PM philais wrote:
> Dialectical Materialist,
>
> But, the Fed and Treasury won't allow long days and saving money
> for our future. Their goal is to inflate the dollar and erode purchasing
> power to force the dollars to be spent now, or put into the high
> risk current stock market bubble. We are constantly being encouraged
> to continue to spend spend spend. Cash for Clunkers, Home buyers
> tax credit, cheap mortgage rates, Federal Stimulus dollars, <2% taxable
> savings rates, 0% at the Fed window etc.
>
> I refinanced my house early this year when the interest rate went
> to 4.5%. I received a letter saying that Fannie Mae was now holding
> the note. I'm a very low credit risk. What does this say to me? The
> rates are so low that no non-government entity will touch any type
> of mortgage and the only way homes are being financed now is by having
> the government virtually take over the mortgage industry.
>
> Banks know that the interest rates are too low. Look at how they
> are ramping up short term credit rates prior to government controlled
> interest rate caps. They not only are expecting government control
> , but future punishing inflation.
>
> What to do?
>
>
He's been wrong plenty, but generally when he's been wrong, his advice has been for people to be in safe cash equivalents, so all they've missed is potential gains (if they actually sold at higher prices instead of believing in a "new economy" with endlessly rising prices). Compare that to the legion of analysts/advisers who had their followers in nicely diversified portfolios of stocks for the long run. If those analysts are right more frequently than Prechter, but you lose 40-50% every time they're wrong (1987, 2001, 2008 ... 2010?), you're not better off following the perma-bulls.
On Nov 09 09:17 AM Random Number wrote:
> When was the last time anyone actually made money following Mr. Prechter's
> investment advice? Just asking.
This would have been a terrific call in the Fall of 2007. His "predictions" have already occurred, and have since reversed. So he's saying that these events will occur again in the near future. It usually doesn't work that way. And with liquidity flowing out of every orifice of every big central bank in the world, the path or least resistance is up for everything except the US Dollar.
It's really annoying.