The problems with Prechter's doomsday

Discussion in 'Economics' started by BosyBillups, Oct 24, 2009.

  1. I have much respect for Prechter and his analysis of the markets. And yes he's been wrong as well as right in the past. But his signature contribution to the markets today may be in the field of socionomics, which predicts a historic negative social mood in the near future.

    As such, he doesn't hide his view of a world wide deflationary depression, and has just unveiled a 2nd version of his "conquer the crash" book accordingly (available on Amazon, of course)... and now, it seems like all the DoomsDayers are coming out of the woodwork predicting anarchy, mad max, confusion, and dismay.

    Anyways, although I agree with him that there are certain cycles that seem to play out in the markets and in life, however, to predict the biggest bear market in 300 years seems a bit like a shock technique.

    The problems I have:

    1. His opinion is hedged either way. If the markets tank and the Dow goes down to below 500 points, he can say I told you so. If the markets don't tank and instead shoot up to 25,000, he will either say the big tank is about to happen as evidence by the euphoria of the people, or he will say it's all fiat money giving the appearance of 25,000 when in fact it should be 500. It's a no lose situation.

    2. There are charts that say that the Dow is worth nominally what it is was worth in the early 90's if priced with gold and inflation adjusted. If such, then there is no real bubble to delever, as far as the markets are concerned, as they have already been deflated + replaced with paper appearance.

    3. To predict such big cycles to a day/month (special August 15th, 2009 Theorist), quarter, year, decade, or even quarter century seems far fetched, even if from analyzing social mood. Cycles are way too long and big and variable to try to pin point.

    4. To say that the social mood is negative today, via the movies and music that is popular today, seems so easy to data mine. For example, one recent piece of evidence points to Rhina turning to Disurbia, instead of her usual up beat pop song. But for every "dark" song out there, there are also the Jason Mraz summer songs and Taylor Swift is one of the top selling artist of the last couple years, even during the crisis.

    5. The reason why economist get it wrong is they think a trend will last forever until something stops it smack in the middle. However, this rarely is a powerful forecasting tool (i.e., people would think that China would be the most repressed today, rather than a producer of goods, if asked back in 1973). This is his main argument for using social mood. But can't it be used against his own deflationary scenario?

    6. If the deflationary depression, why are you so hell bent about selling new subscriptions, new books, new services via elliott wave. Admittedly, there are thousands of subscribers. Yea you can say you are trying to teach as many people as possible, but really, is that the reason?

    Bottom line, every era has had their share of end of the world predictors. And yes there are some issues that will need to be worked out in the markets and economy, namely leverage, but just remember that Fear truly sells - it's one of the easiest sells as it is appealing to your survival - so don't be such a buyer into the hype.

    Sorry I don't feel like editing this for grammar, but any thoughts?
  2. Corporate earnings are going to have to plummet to give his scenario of 5,000 or whatever, credence.

    Until that happens, I am not paying any attention to him.
  3. Prechter was selling a pricey book in 1996 that predicted the grand supercycle whammy full on crash and burn.... for 1995!! I know, I was an absolute newb trader and I bought the thing.. it was my first lesson in "advisers". His followers missed the whole runup from 1995 to 2000... I had a 401k that did very nicely in those years, I'm glad I bought that horrid book after 1995 or I might have listened to his advice...

    How does this assclown keep getting attention? Does he have a show somewhere.... googling: I guess he gets on CNBC every so often.. I don't watch any of those shows at all...
  4. Don't ever forget that his book, conquer the crash, get out of the markets, and run to the hills and eat canned beans was released right at the bottom of 03.

    Talk about bad timing. He has a history littered with worse than bad calls.

    Flip a coin, and you'll likely do better.
    Sometimes a broken clock may be right, but it is very annoying when someone calls a crash, and after being proven wrong, they come out 6 years later when a crash does happen and claim they called it, and to make it even more ironic, now he's selling a new version of the book (released around the bottom a few months ago) on that premise. What a laugh.

    Any legitimate arguments elliot wavers may have are being strongly negated by his interpretations.
  5. sub0


    What I've realized is that in many ways these guys are correct but they always go overboard. It's not eyecatching to say the DOW is going to retrace back to 5k or even 4k. They have to say 500! Like we live in some sort of fantasy world where that could even happen.

    Here you go world, DOW 500. Go ahead an buy up America, any company you want to own, all their products, brands, offices, buildings, real estate, and resources! YES, you can get in now at DOW 500 and own whatever you want in America.

    I mean get real, it's not going to happen because it completely disregards fundamental common sense of how businesses operate.

    I'm not saying he's wrong, I'm just saying that they always go overboard. Even Paul Tudor Jones who called the crash of 87 ahead of time based on past research wasn't even sure when it would happen. He was saying a crash was coming and thought it might even be in 88 and it happened to occur in 87. He then projected that the DOW would be very low going into the year 2000 which proved to be false.

    The problem is they are discounting the fact that these aren't just hypothetical shares. These are shares of ownership in huge corporations that own all sorts of assets that are highly valuable. Whether they are sold off in dollars, gold, loaves of bread, whatever to generate demand, interest and are built into people's lifestyles. Even if the dollar goes to shit, they could sell their products and services in America in some other form of currency.

    Throughout the history of the world, when a countries currency goes to shit, other currencies are often used and appreciated. So even in a total economic collapse, the country would reinvent itself. The assets in the military and in farms and general resources don't just disappear.
  6. jnorty


    so tell that to japan that has highly valued co's. there market is down 80% from all time highs 20 years ago. thats like the dow going to 2800. why can't it happen? you're forgetting the dow ran 7 times from 1986-2007. if p/e's even go back to 1974 levels of 5-7 thats dow thats 3k. people are forgetting this real estate collapse we're having will be around with huge aftershocks for years and years to come

  7. I don't think we want to go there. If that happens Prechter's predictions will be the last thing on your mind.

    I am bearish, but not to that extent.
  8. jnorty


    cleveland i'm not saying we go to 3000. what i man saying is the business and earnings we saw from 1990-2007 was very much a by product of massive unchecked credit expansion which is now gone. the new normal will be living within our means which means much slower growth in the years to come thus much lower earnings growth.
  9. There are strong deflationary forces all around. And then there is the vigorous money printing by central banks around the world.

    If Bernanke prints enough, he can likely stop deflation. But the result will be BIG INFLATION... maybe HYPERINFLATION... which would be many, MANY times worse than any deflation we could suffer.

    Deflation is NOT a doomsday scenario (its effects are temporary and self-limiting)... but BIG INFLATION IS... Inflation is "Destroyer of Worlds".

    Which will ultimately play out? The high probability bet is on hyperinflation/financial destruction. (You never want to bet on the Powers doing the right thing for the country and our citizens.)
  10. I'm thinking [hoping?] that traders can beat hyperinflation by Forex trades. Stocks don't keep up in hyperinflation, an index buy and hold in the Weimar lost 99.9%.. so stocks and index futs are out... commodities otoh have to inflate so they might be tradeable with a long bias... I really don't know, I've lived through the inflation years of the 70's but I was just working, I changed jobs like underwear to keep up, and it worked... one thing for certain, a fixed income is suicide.
    #10     Oct 24, 2009