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Robert Prechter says the World is Doomed: Is he Right? 13 comments
Robert Prechter has another FREE gift on the internet predicting the End of the World.
http://www.elliottwave.com/club/20-questions-for-prechter/default.aspx?code=43276
Open that up and you get the Sales Pitch:
Consider these recent forecasts:
· In 2005, Prechter warned readers of an imminent top in real estate.
· In October 2007, Prechter warned that stocks and commodities were historically overvalued and due for an immediate crash.
· In 2008, Prechter maintained that the U.S. dollar would rally throughout the most volatile market environment since the Great Depression.
· In February 2009, Prechter told readers to end their short bets and prepare themselves for a "sharp and scary" bear market rally.
· In April 2010, Prechter wrote, "we can project a top ... between April 16 and May 7, 2010."
Generally I find Prechter’s analysis of what’s going on right-now and why the financial system is in such a mess, to be pretty much spot-on. He speaks clearly and intelligently, he has an excellent command of the facts, and he gets to the real hub of the matter very quickly; I typically agree with most of what he says.
But I have a few problems with his ability to predict what’s going to happen next. On top of that I simply can’t get my head around the Elliott Wave theory that he champions. For every piece of “evidence” there is that they work, I come up with evidence they don’t.
So I say…”Err, but”… and I get told, “Ah but it’s MUCH more complicated than that”. Like “you are simply too dumb to understand properly” (that’s most certainly true, and I’ve heard that said many times before), “but if you pay me money I will tell you the secret”.
I’ve also heard that one before.
But above-all there is one thing which irritates me intensely, which is people who say that they made prescient forecasts, but do not (a) give you the internet link to where they actually made the forecast (so you can check if retrospectively they cleverly massaged a vague declaration into a rock-solid forecast), and (b) give you internet links to their spectacular failures to forecast accurately.
For example – bullet point #4:
In February 2009, Prechter told readers to end their short bets and prepare themselves for a "sharp and scary" bear market rally.
In the “20 Page Free Download” he goes on to say:
On February 23 in the Elliott Wave Theorist, I said that we were almost at the bottom; that ideally the S&P should get down in the 600s before turning up; and that the Dow was going to rally from that low up to about 10,000.
Well he doesn’t give a link, so I looked it up on Google. Have a look at this video (dated 4th March 2009), perhaps my command of English is not that good, but I’ve watched it three times and as far as I can figure he did NOT say that, plus he also said a lot of stuff that turned out just plain wrong.
http://www.youtube.com/watch?v=4SG7XGcL7JE
OK he did say:
“Close Your Shorts”: That was correct, although he also said “this is not a market call…it’s time to take some money off the table…the DOW is down a long way…only 3% of traders are bullish and I don’t like to be in crowds”.
That’s hardly a “buy”, and what’s the “science” in that? All he was saying was “well now the crowd is all on one side of the boat, logically at some point either the boat will tip over or they will start to drift back to the other side”.
I’ve heard that one before too – but it’s hardly rocket science.
And so what, everyone was saying that, the issue was WHEN? Buffet had called a bottom at S&P 900 a few months before (a bit early), and at that time the world was full of people calling the bottom in October…November…December…January….do that enough times and you have to be right eventually.
Nowadays a lot of the people who called the bottom three or four times are strutting their stuff picking out the one correct call they made and forgetting about the others.
When he was asked by the interviewer “is this is a bullish call”, he said; “This is definitely NOT a bullish call”
I don’t know where he got the “Dow 10,000-next-stop” prediction from, but that sounds remarkably like a “Non-Bullish-Call” to me, like “Read-My-Lips”.
His over-riding message was “Buy Cash”; and on top of that keep a good part of it under the bed. And that even if there is a “bounce” what will happen next will be a bear-market rally and THEN after that the S&P 500 will see lows in the 600’s.
He also said gold (at $900) was a top, and in the same breath said he was a “Gold-Bug” (although I’m not going to make too much of a meal about that one because all of my calls on gold have proven (so far) to have been completely wrong).
Well OK, he was careful to say he was “NOT giving investment advice”, although I can’t imagine why anyone would want watch him on Bloomberg if they weren’t looking for investment advice?
Or is it perhaps because he has a pretty face? Either way what that goes to show is that the value of “Free-Non-Advice” is exactly equal to what you paid for it.
But a lot of people followed his “non-advice” (and other peoples), and stayed in cash, and watched the DOW and the S&P go up 75%.
Well that happened in a lazy bounce over a year or so, putting aside for a moment what’s likely to happen next, that was a slow and easy gain. If he’d said back on 4th March 2009 (1) “buy when the S&P 500 hits 675” (2) “stay in until the DOW hits 10,000 then have a re-think”, that would have been good advice.
Only two people I know of said precisely and exactly that:
http://www.marketoracle.co.uk/UserInfo-Nadeem_Walayat.html
Like in: “The stock market turn will be when the Dow hits 6,600 and the S&P 500 hits 675” (February 2009): http://www.marketoracle.co.uk/Article9131.html; “Bull-Run Warning” (April 2009): http://www.marketoracle.co.uk/Article10101.html, and “Negligible Risk until the DOW hit’s 10,000” (May 2009): http://www.marketoracle.co.uk/Article10604.html
So in my opinion instead of strutting-his-stuff about how great his predictions were, Robert Prechter ought to come clean and apologize to everyone who followed his “non-advice” in March 4th 2009, and kept their money under the bed since then.
But does that mean he’s wrong now?
Like they say on the packet in the small-print; “past success is no guarantee of success in the future”; equally “past failure is no guarantee of failure in the future”.
It’s interesting that one of the guys who got it right, Nadeem Walayat has completely different views about whether the future is deflation or inflation from Prechter. He uses Elliot Waves (amongst other things), and his calls are generally right, as opposed to Prechter who also uses Elliott Waves and appears (by my scorecard) to be lucky if he get’s it right half the time, and even then his timing is awful.
Granted Walayat lives in Sheffield which is somewhere on the left of the M-1 on the way to Leeds (it’s easy to miss), that possibly explains something although I’m not quite sure what except they have a lousy football team?
Sheffield used to have a lot of manufacturing but now it’s mainly famous because it’s where “The Full Monty” was filmed plus it has a lot of “massage parlours”, a sort of Amsterdam of the North. Anyway, naturally his focus is UK, and inflation is more of an issue over there than in USA.
But even if he gets it wrong a lot of the time, I tend to agree with Prechter on “deflation” rather than “hyper-inflation”.
My view is that regardless of how much money is printed and handed over to moronic bankers, that won’t translate into more money supply until they manage to lend it out into the private sector.
And right now anyone in the private sector, who has cash, doesn’t want to borrow; and no one wants to lend to anyone who does not have cash and are up to their eyeballs in debt collateralized by assets that are worth now, less than their debts. Like the maxim, “whenever you want find a policeman, you never can”.
That’s why I think that the next Big Thing in USA is going to be the deleveraging of private sector debt: http://www.marketoracle.co.uk/Article20418.html
So on that score – I’m with Prechter rather than Walayat
What I don’t agree with Prechter about; is the idea that’s going to cause the S&P 500 or the DOW to “go back down to S&P 500 less than 600”.
Two reasons (1) the market now is ‘post-bubble-bust” and it’s undervalued (http://www.marketoracle.co.uk/Article20748.html), not that it’s going to get overvalued (i.e. bubble) any-time-soon; (2) long-term (10 and 30 Year) yields are down and in spite of what Nouriel Roubini, Morgan Stanley, and Nassim Taleb say, the consensus now is pretty much that the medium-term prospects are that they will stay down.
On that score one way to value a stock (there are three) is to guess what future earnings will be and discount that to get today’s NPV using the prevailing long-term yield; on the earnings that are projected, it looks like the stock market has got some way to go up, if yields stay down; that’s of course contingent on the dynamics of post-bubbleomics.
Just because the economy is a hole, doesn’t mean that decent companies can’t make a buck. In fact in many ways it’s easier, particularly if you have a good product or process and you don’t have to compete with lunatics who under-price because they can make money on inflation; if your business model does not rely on amplifying the little profit you make by gearing to the hilt and letting inflation do the rest, then you have a solid foundation.
Two other points; the first is that 50% of the earnings of the companies on the S&P 500 are outside USA, having a global spread of revenue streams is safer than focusing on one market.
Second, in a decent company, things happen slowly; I was reminded of that yesterday when I got on the phone trying to buy a couple of miles of submarine cable. So I got on to ABB, nice Germanic sounding chaps takes the call and says, “Great – but don’t expect delivery of that until early 2011”. So then we got to bury it, that’s a process if you are doing it underwater and you have a lot of landings, and we might get paid up in full by end 2011. That whole process went into engineering in early 2009, so that’s a three year “business cycle”, minimum.
A good company does well in peace and in war, in boom and in bust, and in deflation and inflation; OK over the past decade a lot of clever people made money buying and selling “instruments”, but that’s not what the real world is about. The real world is about real people, doing real things and creating new things and processes, and figuring out ways to keep the government off their back. Long-term, that’s worth investing in; regardless of what the “instruments” are doing.
It’s time to get back to basics, and forget about all those ideas about making Big Money from nothing; in those deals someone always loses, and sometimes it’s you.
Those days are gone, but that doesn’t mean it’s the end of the world, in fact, it’s just another beginning.
Disclosure: "Neutral S&P 500"
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This post has 13 comments:
Mr Butter, I agree with your 3rd from the last paragraph, BUT something you don't see is that markets can stay irrational longer than you can stay solvent. No matter how good the fundamentals might be, if no one is buying and cash flows aren't there, the prices will fall. It's irrational and illogical and makes no sense, just like economies in general often behave. This is what Prechter sees that few others do. Economists are math men and I think the chaotic nature of economies is just beyond the scope of their training. Now, I don't think the Dow will go to 1000 since big money will privitize the "good companies" (eg: Warren Buffet will buy Pepsi Co. if P/E gets absurdly low)...although this could be a componant that brings the Dow to it's knees (privitizing by uber-investors)...only time will tell.
...and Robert Prechter.
Now, tell me about some of the predictions you've made that came to fruition?
But hey, I'm really interested in the correct calls he made, perhaps you can send me links?
With regard to my calls, this is a good starting point - you can link back from the article.
seekingalpha.com/artic...
seekingalpha.com/artic...
But we believe he has a point.
Sorry I hadn't actually read your article before I commented (in my defense you didn't say it was yours).
I have three points, the first is that the "Waves" that Prechter uses are (as far as I understand) quite short duration; I don't see any unique insights from Prechter on long terms trends; the fact that he "might" (with the emphasis on might since I haven't seen much evidence in black & white), be able to call a top or a bottom, based on the "fractal psychology of crowds" or something, doesn't prove anything long-term.
For me, that;s just a party-trick; and not a very good one.
Second if you think there is a long-term wave - then great but where are the references to evidence, and where are the forecasts that were based on that "science" ?
I think your most compelling point is that the DOW ought to follow inflation , but there are two issues there.
The first is that the value of an investment is a function of the inverse of long-term interest rates, since 1980 those went from 15% to 5% so take your 3,500 multiply it by three (the difference between the inverse of those two numbers) and you get to 10,500.
Second, if you believe that the inflation figures that were put out by the US Bureau of Labor are an "accurate" reflection of reality, well, then you will believe anything.
Even Robert Prechter.
It brings me back to my initial point,. to be useful a "grand theory of the universe" has to be able to make predictions in real time, and they have to be right.
For all the hullabloo that Prechter generates, I don't see ONE prediction for the future, NOT ONE!!
Like:
> The S&P 500 will turn at 675
> Then it will go up to 1,200
> Then it will drop 15% to 20%
Those were actual predictions made two to six months in advance of when the event transpired, based on a model that was designed to explain the reality.
When Prechter starts making predictions like that, and then, they start being correct more often than not, I'll start to take him more seriously.
In 1974, the U.S. market made a bottom, not in response to, but in ANTICIPATION of the double digit inflation we would have in the late 1970s, going to less than 10x earnings.
Around 1932, the other bottom, long Treasuries went below 3% but the BBB spread went to something like 750 over, effectively pushing the CORPORATE discount rate over 10%. That pushed P/E ratios below 10, even though Treasury yields were very low.
1) Zeal LLC (read them on MarketOracle)
2) Longview Economics (3 month free trial, directly on their website, otherwise 15,000 GBP per year)
3) Brady Willett from www.fallstreet.com// (www.marketoracle.co.uk...)
4) Byron Weil (who mainly writes for Bloomberg)
I guess I read more quickly than you Andrew ;-))
Actually I don't read at all I just do my thing, but nice to know I'm not alone.
1. Start closing out your shorts.
2. However wave structure not finished. (Dow proceeded to fall to 6440 on March 9)
3. Its not the end of the long term bear market but a short term low in Q1 is possible
Sounds to me he was right.
OK - you have a point.
My pointis (a) why not say go long instead of close out your shorts?
(b) Feb 25th didn't give much of a warning.
(c) He was saying that it's going to go much further down than the "temporary" bottom...he forgot to mention a 70% gain in the meantime!!
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