January 13, 2009
The following article is excerpted from a recent
issue Elliott Wave International’s Financial
Forecast.
Elliott Wave International (EWI) is offering the
full 10-page issue, entitled “The Most Important
Investment Report You’ll Read in 2009,” free for a
limited time. In addition to the following market
commentary, it includes independent forecasts of
stocks, bonds, metals, the U.S. dollar and economic
trends.
Visit EWI to download the full report, free.
By Steve Hochberg and Pete Kendall
Editors of The Elliott Wave Financial Forecast
As Conquer the Crash so boldly counseled,
prosperity entails managing one’s finances and
livelihood so as to be in tune with a 1930s’ style
deflationary depression. But conventional wisdom
disagrees. “There’s no comparison” to the Great
Depression, says the world’s leading financial
authority, U.S. Federal Reserve Chairman Ben
Bernanke: “I’ve written books about the Depression.
We didn’t have the social safety net that we have
today. So let’s put that out of our minds.” He cites
as evidence a 25% unemployment rate, a one-third
decline in U.S. GDP and a 90% decline in stock
prices, all of which occurred during the 1930s’
depression.
Unfortunately, what Bernanke’s managed to do is
put one important word out of his mind—yet. Like the
rest of the “this is no depression” camp, he fails
to note that his cited figures are the extreme
readings of that era. Bernanke also ignores the
critical fact that today’s bear market is actually
ahead of where the stock market was at the same
point during the 1929-1932 decline and that the
economy is lurching lower in a manner suggesting
strongly that it will have little trouble keeping
pace with the economic contraction of the 1930s (see
Economy & Deflation section below).
Another common refrain is that, in contrast to
the early 1930s, there are now competent financial
authorities doing everything in their power to
unlock the credit markets and reignite the bull
market in equities. It’s certainly true that the Fed
is doing everything in its power, and even some
things that aren’t, to reel in the crisis. The U.S.
Treasury is doing likewise. By Bianco Research’s
tally, the potential total of U.S. bailouts is
closing in on $9 trillion. But these efforts are
every bit as impotent as Conquer the Crash and the
September issue of The Elliott Wave Financial
Forecast suggested that they would be. Here’s the
key quote from the September EWFF: “The bailouts
keep coming at lower lows, signaling further
declines ahead.” Incredibly to most people, since
this quote appeared the Dow has declined by another
30% and various government financial wizards have
put forward even bolder yet more haphazard “rescue”
initiatives.
The ballooning bailout makes us more convinced
than ever that it will fail. The whole “Keystone
Cops” approach to “the rescue” strengthens our
conviction. One day the bailout is aimed at jacking
up asset prices; the next it is buying mortgages;
the next it is rescuing the consumer; and the next
it’s all-hands-on-deck to prop up whoever it is that
happens to be failing on that day. The alphabet soup
of rescue programs now includes ABCPMMMFLF (no, we
didn’t make this up), which is supposed to “shore
up” the $1 trillion asset-backed commercial paper
markets. And still, credit spreads shoot higher.
Another program, the “systematically significant
failing institutions program” (SSFIP), was
established in November to deliver a $40 billion
“equity injection” into AIG. The problem, which will
probably become the focus of intense Congressional
scrutiny at some later point, is that the injection
was made in October, before the program even
existed. The Wall Street Journal puts it this way:
“Practically every day the government launches a
massively expensive new initiative to solve the
problems that the last day’s initiative did not.” At
the latest economic summit in mid-November, the U.S.
and other nations were reputedly “close to a deal to
create a new ‘early warning system’ to detect
weaknesses in the global financial system before
they reach epic proportions.” Among the stated
objectives: greater transparency. Of course,
“sources spoke on the condition of anonymity because
plans are still being worked out.” The real reason
that these people want to remain anonymous is that
like everyone else, they recognize the proportions
of the unfolding epic and thus the futility of the
bailout effort.
For more information on navigating the current
market turmoil, including forecasts of stocks,
bonds, metals, the U.S. dollar and economic trends,
download Elliott Wave International’s free 10-page
report,
The Most Important Investment Report You’ll Read in
2009.
Steve Hochberg began his professional career
with Merrill Lynch & Co. and joined Elliott Wave
International in 1994. He became co-editor of The
Elliott Wave Financial Forecast for its inaugural
issue in July 1999. Pete Kendall joined Elliott Wave
International as a researcher in 1992. He has been
co-editor of The Elliott Wave Financial Forecast
since its inception in July 1999. He is also the
director of Elliott Wave International’s Center for
Cultural Studies. |
