Could the Stock Market Drop to 1000?
Below are three articles discussing a forecast of Robert Prechter that the New York Stock Exchange will drop from its current level of 10,000 to 1,000.
Prechter says Dow could fall to 1,000
By John Parry
The Guardian
NEW YORK (Reuters) - Longtime technical analyst Robert Prechter said on Tuesday he expects that as the U.S. economy sinks into a deflationary depression stocks will plunge.
The Dow Jones industrial average .DJI stock index could fall to between about 1,000 and 3,000 points over the next five to seven years, he said in a telephone interview. The Dow was trading at 9,754 in early afternoon on Tuesday.
"It is very clear there is substantial stock market risk," said Prechter, who urges investors to put their money in cash proxies such as safe-haven U.S. Treasury bills instead.
Prechter is known for his very bearish views on the economy and also for forecasting a big bull market in stocks in 1982 and for getting out before the 1987 market crash.
Over the near term, the dollar will remain under pressure against the euro and against the safe-haven Swiss franc, he said.
In early June, Prechter said the euro was about to embark on a near-term rebound of about 10 percent over two or three months because technical indicators showed that amid the euro zone sovereign debt crisis, investors had become overly bearish on that currency.
Prechter reiterated that forecast on Tuesday, saying that the euro will continue firming for about another two months, until it has gained about 10 percent.
In the past month, the euro has gained about 6 percent against the dollar.
But because Prechter expects that both the euro-zone and the U.S. economies will experience deflation, he prefers investing in the classic safe-haven currency, the Swiss franc.
He forecast that the dollar could weaken to parity against the Swiss franc over the next few months. On Tuesday, the dollar was buying 1.0579 Swiss francs.
"If you are betting against the dollar, the Swiss franc is a better place to go (than the euro)," Prechter said.
Recent data have shown the pace of U.S. economic growth is decelerating, with housing turning especially weak.
"U.S. house prices are about half way down in their bear market," said Prechter, adding that on aggregate, U.S. house prices have fallen about 40 percent from the peak.
Prechter, the president of research company Elliott Wave International in Gainesville, Georgia, is also known for his 2002 book, "Conquer the Crash," which warned about the huge credit bubble that burst a few years later.
As companies struggle in an economy that Prechter expects to become increasingly gloomy, he expects junk bond yields to continue widening over Treasuries.
High-yield corporate bond spreads have widened to more than 700 basis points now from about 550 basis points in late April, according to Bank of America Merrill Lynch data.
"We think we are back in a widening spread trend between reliable debt and risky debt," he said. "That's a safer bet than forecasting interest rates per se," Prechter added.
The bear market in crude oil, which started after prices hit a record $147 per barrel in summer 2008, is not over, Prechter said. Oil should fall below its December 2008 lows of about $32 per barrel, he added.
Additional reporting by Nick Olivari, Wanfeng Zhou and Gene Ramos in New York and Pedro da Costa in Washington; Editing by Kenneth Barry
Source: Reuters
The king of doom: veteran forecaster predicts Wall Street slump of up to 90%
By Andrew Clark
The Guardian
Feeling too cheerful? In danger of irrational exuberance? Meet the finance man with a plan to depress you - a veteran market forecaster called Robert Prechter who is predicting a stockmarket slide of quite staggering proportions.
Prechter, a cult figure in the finance world whose dramatic predictions have sometimes come true, reckons the Dow Jones Industrial Average is set for a fall from its present level of 9,743 to as little as 1,000 to 3,000 points - in other words, a collapse of 70% to 90% in the value of stocks - over the next five to seven years.
"It is very clear there is substantial stockmarket risk," he told Reuters today.
He expounded on his theory further in the New York Times over the weekend, urging investors to get out of the stockmarket and into safer US treasury bills and bonds.
"I'm saying 'winter is coming, buy a coat'," he told the NYT. "Other people are advising people to stay naked. If I'm wrong, you're not hurt. If they're wrong, you're dead. It's pretty benign advice to opt for safety for a while."
Prechter, 61, is a former Merrill Lynch analyst and erstwhile rock drummer who is an aficionado of a theory called the Elliott Wave principle - essentially a belief that investor behaviour can be forecast according to measurable swings and patterns of psychology.
Prechter is not without credibility - he is a former president of the Market Technicians Association and was named "guru of the decade" back in 1989 for his prediction of the bull market of the early 1980s and the stockmarket crash of 1987. He runs a consultancy called Elliott Wave International, based in Georgia.
Prechter tells the NYT that he now expects a crash akin to the collapse of the South Sea Bubble of 1720: "If I'm right, it will be such a shock that people will be telling their grandkids many years from now 'don't touch stocks'."
His misery doesn't end at the stockmarket. Prechter reckons US house prices, which have fallen by 40% in some states, are only about halfway through their fall. He thinks that pretty soon, a US dollar will be worth no more than a Swiss franc and that Europe is in for a spell of deflation.
Before anybody jumps off a cliff, it's worth noting that Prechter has been in this mood before. Back in 2002, he published a book called "conquer the crash: you can survive and prosper in a deflationary depression" which warned of imminent catastrophe and was, at best, extremely premature. Even back then, he was dubbed the "king of doom".
Source: The Guardian
A Market Forecast That Says ‘Take Cover’
By JEFF SOMMER
NY Times
WITH the stock market lurching again, plenty of investors are nervous, and some are downright bearish. Then there’s Robert Prechter, the market forecaster and social theorist, who is in another league entirely.
Mr. Prechter is convinced that we have entered a market decline of staggering proportions — perhaps the biggest of the last 300 years.
In a series of phone conversations and e-mail exchanges last week, he said that no other forecaster was likely to accept his reasoning, which is based on his version of the Elliott Wave theory — a technical approach to market analysis that he embraces with evangelical fervor.
Originating in the writings of Ralph Nelson Elliott, an obscure accountant who found repetitive patterns, or “fractals,” in the stock market of the 1930s and ’40s, the theory suggests that an epic downswing is under way, Mr. Prechter said. But he argued that even skeptical investors should take his advice seriously.
“I’m saying: ‘Winter is coming. Buy a coat,’ ” he said. “Other people are advising people to stay naked. If I’m wrong, you’re not hurt. If they’re wrong, you’re dead. It’s pretty benign advice to opt for safety for a while.”
His advice: individual investors should move completely out of the market and hold cash and cash equivalents, like Treasury bills, for years to come. (For traders with a fair amount of skill and willingness to embrace risk, he suggests other alternatives, like shorting the market or making bets on volatility.) But ultimately, “the decline will lead to one of the best investment opportunities ever,” he said.
Buy-and-hold stock investors will be devastated in a crash much worse than the declines of 2008 and early 2009 or the worst years of the Great Depression or the Panic of 1873, he predicted.
For a rough parallel, he said, go all the way back to England and the collapse of the South Sea Bubble in 1720, a crash that deterred people “from buying stocks for 100 years,” he said. This time, he said, “If I’m right, it will be such a shock that people will be telling their grandkids many years from now, ‘Don’t touch stocks.’ ”
The Dow, which now stands at 9,686.48, is likely to fall well below 1,000 over perhaps five or six years as a grand market cycle comes to an end, he said. That unraveling, combined with a depression and deflation, will make anyone holding cash “extremely grateful for their prudence.”
Mr. Prechter is hardly the only market hand to advocate prudence now, but nearly everyone else foresees a much rosier future, once current difficulties are past.
For example, Ralph J. Acampora, a market analyst with more than 40 years of experience, said he moved entirely out of stocks and into cash late last month. Now a partner at Alverita, a wealth management firm in New York, he said recent setbacks suggested that the market would drop another 10 or 15 percent, probably until September or October, before resuming another “meaningful rally.”
Over the next several years Mr. Acampora expects an “old normal market,” characterized by relatively short-lived swings that will provide many opportunities for smart investors — one that resembles the markets of the 1960s and 70s. “I’ve lived through it,” he said.
Like Mr. Prechter, he is a past president of the Market Technicians Association, the leading organization of technical market analysts, and he said that his colleague has done “some very good work.” But Mr. Acampora doesn’t agree with Mr. Prechter’s long-term theories, either intellectually or emotionally.
The “mathematics don’t work,” Mr. Acampora said, because such a big decline would imply that individual stocks would need to trade at unrealistically low levels. Furthermore, he said, “I don’t want to agree with him, because if he’s right, we’ve basically got to go to the mountains with a gun and some soup cans, because it’s all over.”
Still, on a “near-term” basis, he said, “We’re probably saying the same thing.”
Similarly, Larry Berman, who co-founded ETF Capital Management in Toronto and recently ended his term as the president of the technicians association, says he sees a “classic” short-term negative market trend developing now. But he doesn’t use the Elliott Wave theory, saying Mr. Prechter is trying to “measure the market in decades, which is too long a time frame for practical trading purposes or for risk management.”
Mr. Prechter, 61, lives in Gainesville, Ga., where he runs Elliott Wave International, a forecasting and publishing firm. He graduated from Yale as a psychology major in 1971, dabbled as a singer, drummer and songwriter in a band"
The Dow, which now stands at 9,686.48, is likely to fall well below 1,000 over perhaps five or six years as a grand market cycle comes to an end, he said. That unraveling, combined with a depression and deflation, will make anyone holding cash “extremely grateful for their prudence.”
Mr. Prechter is hardly the only market hand to advocate prudence now, but nearly everyone else foresees a much rosier future, once current difficulties are past.
For example, Ralph J. Acampora, a market analyst with more than 40 years of experience, said he moved entirely out of stocks and into cash late last month. Now a partner at Alverita, a wealth management firm in New York, he said recent setbacks suggested that the market would drop another 10 or 15 percent, probably until September or October, before resuming another “meaningful rally.”
Over the next several years Mr. Acampora expects an “old normal market,” characterized by relatively short-lived swings that will provide many opportunities for smart investors — one that resembles the markets of the 1960s and 70s. “I’ve lived through it,” he said.
Like Mr. Prechter, he is a past president of the Market Technicians Association, the leading organization of technical market analysts, and he said that his colleague has done “some very good work.” But Mr. Acampora doesn’t agree with Mr. Prechter’s long-term theories, either intellectually or emotionally.
The “mathematics don’t work,” Mr. Acampora said, because such a big decline would imply that individual stocks would need to trade at unrealistically low levels. Furthermore, he said, “I don’t want to agree with him, because if he’s right, we’ve basically got to go to the mountains with a gun and some soup cans, because it’s all over.”
Still, on a “near-term” basis, he said, “We’re probably saying the same thing.”
Similarly, Larry Berman, who co-founded ETF Capital Management in Toronto and recently ended his term as the president of the technicians association, says he sees a “classic” short-term negative market trend developing now. But he doesn’t use the Elliott Wave theory, saying Mr. Prechter is trying to “measure the market in decades, which is too long a time frame for practical trading purposes or for risk management.”
Mr. Prechter, 61, lives in Gainesville, Ga., where he runs Elliott Wave International, a forecasting and publishing firm. He graduated from Yale as a psychology major in 1971, dabbled as a singer, drummer and songwriter in a rock band and became a technical analyst for Merrill Lynch.
He became fascinated by Mr. Elliott’s writings, which suggest that the market moves in predictable if complex patterns. Along with A. J. Frost, Mr. Prechter wrote “Elliott Wave Principle,” a 1978 book that predicted the emergence of a great bull market — a forecast that was largely fulfilled. By 1987, he was widely regarded as an expert in technical analysis. Articles in The New York Times said he was known as “the market’s leading technical guru” — and more. An article in October that year said he had “emerged as both prophet and deity, an adviser whose advice reaches so many investors that he tends to pull the market the way he has predicted it will move.”
He has far less day-to-day influence now, after years spent developing a theory he calls “socionomics,” which holds “social moods” as the cause not only of market cycles but also of economic and political events. A grand cycle is ending, he says, and the time for reckoning is near.
In 2002, he published “Conquer the Crash,” which predicted misery ahead. Even so, he said in 2008 that the market would soon rally sharply — then said late last year that stocks were about to fall and that the great decline would resume.
Since 1980, the advice in his investing newsletters, when converted into a portfolio, has slightly underperformed the overall stock market but has been much less risky, losing money in only one calendar year, according to calculations by The Hulbert Financial Digest. Mr. Prechter said he disagreed with the methodology used in these measurements, but offered none of his own.
For his part, Mr. Acampora says that the Elliott Wave has some validity as an indicator but that “it’s only part of the story” of technical market analysis, which also needs to be buttressed by economic and fundamental research.
Mr. Prechter says his unifying theory, socionomics, is a “young science.”
“We’re quantifying it,” he said. “We’re working on it.” In the meantime, he contends, it has enabled him to “look around the corner” and prepare for a dangerous future.
•
Here’s an update on the troubles at AXA Rosenberg, the quant unit of the French financial services giant AXA, which were reported in this column two weeks ago. A computer programmer made a “coding error” in AXA Rosenberg’s risk management software, but the company didn’t reveal or fix it for many months.
In a letter to clients last week, AXA Rosenberg said a management shakeup had accelerated. Its co-founder, Barr Rosenberg, and its director of research, Tom Mead, resigned from the board of directors and will be leaving the company. A review found that they had violated the firm’s ethics policy and had withheld information about the mistake, the letter said. The executives did not respond to requests for comment.
Separately, Agustin Sevilla, global chief investment officer, stepped down from that post and will move to a “senior research” role, the letter said. He didn’t return phone messages last week.
The company said it’s bringing in a consultant to help improve risk management controls and reinforce “independent oversight.” It said it is still reviewing the coding error’s effect on investment portfolios.
Source: NY Times
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