"
Posted on 03/19/2009 3:18:30 PM PDT by An Old Man
Most investors don't take seriously warnings about the future of the economy and the financial marketplace, but those who did avoided the dreaded "Cs" of finance: the Credit Crisis and Crash of '08. What warnings are we talking about you might ask? Well, it was the headlines of several years ago screaming that a 'Category 6 Fiscal Storm', 'Debt-Driven Meltdown', 'Systemic Banking Crisis', 'Financial Train Wreck', 'Wild Ride', 'God-Awful Fiscal Storm', 'Major Upheaval', 'Rude Awakening', 'Great Disruption', 'Debt Bombshell', 'Major Upheaval', 'Unwelcome Economic Spiral', 'Perfect Financial Storm', 'Serious Collapse', 'Drastic Fall', 'Financial Disaster', 'Major Bear Market' and/or an 'Economic Earthquake' was in store for the U.S. and, indeed, the global economy in the very near future. And the future is now!
Some Predictions do Come True
Once again warnings and predictions are being put forth about the next crisis to befall us and this time round it behooves us to pay more attention and make sure this time that we are better positioned to survive and prosper whatever comes our way. Below are major market forecasts and investment advice based on drastically different analytical styles (demographic, fundamental, technical and 'socionomic') from forecasters who have 'been there, done that' successfully in the past and are once again forecasting what their research indicates is in store for us over the next decade. It should be ignored at our peril.
Harry S. Dent Jr . , the author of 'The Roaring 2000s', 'The Roaring 2000's Investor', 'The Next Great Bubble Boom' and his latest book entitled 'The Great Depression Ahead' states that "The most important cycle change for your wealth, health, life, family, business, and investments is just ahead during the first and last depression you are likely to experience in your lifetime."
Dent makes it clear that his predictions, while almost always contrary to most economists and expectations, have almost always proved to be correct because his predictions are based on the same sound and quantifiable logic insurance actuaries use with a high degree of accuracy to predict, decades in advance, when people will die. Dent says he applies the same science to predicting what things will happen in between birth and death - such as when people enter the workforce, get married, spend, are most productive, borrow, invest, retire, buy houses and so on. He believes that such a study of demographics and other key cycles allows him to determine the future based on the facts of the present and of demonstrated behavior so he can see the pig, or the pigs, going through the python. With that understanding of the basis for his forecasting he goes on to predict ( and I paraphrase ) that::
Russell Napier is the author of the book "Anatomy of the Bear", a professor at the Edinburgh Business School and a consultant to CLSA Ltd. which is one of the top research houses in Asia. Napier's research indicates ( and I paraphrase ) that::
Editor's note: What is truly remarkable about Messrs. Dent's and Napier's predictions is that they approached their economic and financial analyses from totally different perspectives - Dent using demographic trend analyses and Napier using technical and fundamental economic analyses - yet came to the same conclusions by and large. It really makes you want to sit up and take notice as to what they have to say.
Robert R. Prechter Jr. is author of a number of books including "Elliott Wave Principle" (1978) in which he predicted the super bull market of the 1980s; "At the Crest of the Tidal Wave - A Forecast of the Great Bear Market" (1995) in which he predicted a slow motion economic earthquake, brought about by a great asset mania, that would register 11 on the financial Richter scale causing a collapse of historic proportions; and "Conquer the Crash: You can Survive and Prosper in a Deflationary Depression" (2002) in which he described the economic cataclysm that we are just beginning to experience and advised how to position one's self financially during that period of time. Prechter also publishes two newsletters, the 'Elliott Wave Theorist' and the 'Elliott Wave Financial Forecast' both of which are paid subscription based. The Elliott Wave Theory takes a 'socionomic' approach to forecasting which contends that markets are driven by psychology and, while it is relatively easy to understand in concept, the interpretation and resultant application of the trends are difficult to implement consistently.
The above being said, there are no shortage of senior economists, analysts and financial industry executives who sing the praises of his work. Such words as "ignore Bob's books at your peril"; "it could help you save your financial future"; "the closest thing to a crystal ball we could look for...it is a road map that no investor should be without"; "ignorance may not be bliss - it may mean bankruptcy. Ignore the message at your risk"; "knowing long term risks and opportunities in financial markets ahead of time is absolutely the key to consistent investment success"; "if you want to preserve your wealth (or what little is left of it) I urge you to follow Prechter's advice. You will be grateful that you did". There are more words of praise to be had but I'm sure you get the idea of what astute professionals think of Prechter's work.
So what does Prechter have to say about the current situation and how we should deploy our assets? He is not as exact with free advice as Dent and Napier are but, as a result of his analyses, he has the following to say about the economic and financial environment ( and I paraphrase ):
A Deflationary Crash and Depression is Imminent
Deflation requires a precondition: a major societal buildup in the extension of credit and its flip side, the assumption of debt. Credit expansion continues as long as there are those willing to lend and borrow and there is the general ability of borrowers to pay interest and principal. These components depend upon whether both creditors and debtors think that debtors will be able to pay, and the trend of production, which makes it either easier or harder in actuality for debtors to pay. So long as confidence and productivity increase, the supply of credit tends to expand. The expansion of credit ends when the desire or ability to sustain the trend can no longer be maintained. The supply of credit contracts as confidence and productivity decrease.
The social mood trend changes from optimism to pessimism when creditors, debtors, producers and consumers change their respective primary orientation from expansion to conservation. As creditors become more conservative, they slow their lending. As debtors and potential debtors become more conservative, they borrow less or not at all. As producers become more conservative, they reduce expansion plans. As consumers become more conservative, they save more and spend less. These behaviors reduce the 'velocity' of money, i.e. the speed with which it circulates to make purchases, thus putting downside pressure on prices.
At some point, a rising debt level requires so much energy to sustain - in terms of meeting interest payments.... chasing delinquent borrowers and writing off bad loans - that it slows overall economic performance. When this burden becomes too great for the economy to support the trend reverses causing reductions in lending, spending, and production which, in turn, cause debtors to earn less money with which to pay off their debts, so defaults rise.
Default and fear of default exacerbate the new trend in psychology, which in turn causes creditors to reduce lending further. A downward "spiral" begins, feeding on pessimism just as the previous boom fed optimism. The resulting cascade of debt liquidation is a deflationary crash. Debts are retired by paying them off, by "restructuring" or by default. In the first case, no value is lost; in the second, some value; in the third, all value. In desperately trying to raise cash to pay off loans, borrowers sell all kinds of assets to market - including stocks, bonds, commodities and real estate - causing their prices to plummet. (Sound familiar? It should because such behavior is unfolding as you read this very article!) The process ends only after the supply of credit falls to a level at which it is collateralized acceptably to the surviving creditors.
Editor's note: Where are we at this point in time? Let's take a look again at the various stages of decline to determine where we are:
Stage one
The major banks of the world major are concerned that any credit obligations that they were to enter into with other banks would not be honored because of the unknown extent of toxic assets (such as derivatives and sub-prime Mortgage Backed Securities) on their books - as was/is the case on their own books. This, in turn , has caused them to go from an expansion mode to a conservation mode resulting in a credit crisis such as we currently are experiencing.
Stage two
The major banks' refusal to lend money to business has caused, or is causing, business to go from an expansion mode to a conservative mode which has, in turn , adversely affected the trend of production. This is evidenced by the 6.2% seasonally adjusted annualized decline in GDP during the 4th Qtr. of 2008 which was the worst decline since a 6.4% decrease in the 1st qtr of 1982. To make matters worse, economists don't expect any relief in the current quarter, which ends March 31st, projecting a further -4.8% annualized rate which would be the first time since 1947 that the GDP has fallen by more than 4% for two quarters in a row.
Stage three
Stage four
The dire economic scene (fear of loss of job, loss of money invested in the stock market, reduced resale value of their house, etc.) has seen, in turn ,
Stage five
We are going to see a self-reinforcing escalating vicious cycle of stage two, stage three and stage four over and over again. The downward "spiral' is in progress.
So there you have it! We are in the early weeks of stage five. As such, it is fully understandable why the governments of the world are throwing money at the credit problem so excessively in an attempt to get the wheels of industry turning to stem the decline before it takes hold. It is an extremely dire situation with no end in sight at the moment.
Gold and Silver Beginning a Decline to Under $680 and $8.39 respectively
Gold and silver will fall into their final dollar price lows at the bottom of the deflation...after which time these metals should soar in price. Given the likely political inflationary forces following the period of deflation the rebound could be much stronger than anticipated so owning precious metals prior to the onset of the post-depression recovery is desirable.
Should you buy gold and silver now? If you are willing to accept the dollar value of the precious metals dropping another 30% ($680 gold represents a 26% decline from the early March 16, 2009 price of approximately $923) or more before they rise substantially....but are willing, nevertheless, to pay such a price for its current availability and for the 'insurance' of greater portfolio stability under an unexpected inflation scenario, then the answer is yes.
DJIA Should Fall Below 777
U.S. Dollar Index to Continue to Rise
Treasury Bonds are in a Bear Market
The 10-year Treasury note yield has been in a sharp decline since the early '80s when it reached 15.84% at the height of inflation and is at a deflationary level of 2.89% as of March 13, 2009. The gargantuan government bond issuance to fund the U.S. debt bubble, however, may push yields, which move inversely to prices, steeply higher in the years ahead.
Prechter has been quoted as saying "The reason that I remain willing to express my unconventional view is that I believe that my ideas of finance and macroeconomics are correct and the conventional ones are wrong. True, wave analysts make mistakes, but they also make stunningly accurate long-term forecasts." Updates to Prechter's insights and predictions on all asset classes can be found at www.elliottwave.com . I encourage those readers who have found his above forecasts and investment advice to be informative to buy Prechter's books for a more in-depth read and understanding of the basis for his making such projections of future events with such confidence.
What is so intriguing here is that Messrs. Dent and Napier, using totally different analytical approaches, have come to much the same conclusions as Prechter. Again, when analysts with different approaches to a situation agree, more or less, with the outcome it is something to take very seriously indeed. And such is the case here!
If you still need to be convinced that extremely difficult times are ahead and that action must be taken please refer to www.kiplinger.com/features/archives/2008/12/they_were_right_08.html for an article entitled "They Called it Right (Plus Predictions for 2009)". This article reviews the correct predictions of 8 noted investors, analysts and academics for the year 2008 and their outlook for 2009. The individuals are: Nouriel Roubini, Peter Schiff, Meredith Whitney, David Tice, Jeremy Grantham, Robert Shiller, Bob Rodriguez/Tom Atteberry and Mark Kiesel. Their forecasts are much more general than those of Dent, Napier and Prechter but clearly indicate what is in store for us in 2009 and beyond.
In summary, we are being forewarned yet again about yet another economic and financial crisis coming down the pike. This time don't get burned as you most likely did during the Credit Crisis and Crash of '08. Instead, position what is left of your portfolio such that you will actually prosper during this ongoing financial hurricane. Now that you know what is about to happen, take action, now! To just hope that everything will turn out okay would be downright foolish.
Just when you thought you had it all figured out, someone like Lorimer Wilson puts ot all down in another perspective.
This finincial mess we currently find ourselves in is going to affect us all in ways we have not considered, for a long time.
Big ping.
The good news is, according to the Mayan calendar, the world is going to end on December 21, 2012 so our suffering will be short...
bump for later
If any of this is true, there will be a World War by 2012.
And if this comes true, there will be a Global Thermonuclear exchange.
So yes, we are gonna die.
For real.
I saw that doomsday show too! I was thinking that maybe the guy writing the calendar died before he could finish it and the end isn’t really 2012. Either way, we are all in for a world of hurt. I’m stocking up on canned beans.
bttt
Well, at least you'll have a steady supply of gas.
"
Canned fish too. And don’t forget the dry goods.
Not all of us. Just the ones that live in highly nukeable cities.
Don’t forget the canned heat and laughter, too!
Canned heat? What do I need that for? I can cut down the trees in my yard and burn them. Then the shed, then the garage, then my furniture. I’ll be fine.
Huh? how could the market rally while we're in a depression?
And above all don’t forget a GOOD can opener! If you are smart you will make it two!
In this day and age, you might be surprised to discover which cities are "highly nukeable." I wouldn't feel safe in any city over 100,000 population. Or anywhere with a highly technical infrastructure, or airport runways longer than 5000 feet.
I’m in iowa. THere’s not too many nukeable places here.
A dozen P38s in a coffee can tossed into a rarely used basement closet should do the trick.
I am not worried about the Chinese nuking us, hell they hold the mortgage on the whole thing why would they want to blow it up! They will just slide in and we all learn the same lesson that was taught the Native Americans.
But......
The date on this piece is 3/17, the day before the Fed embarked on their quantitative easing crusade. Yesterday, the US Dollar index plummeted while Gold skyrocketed. If the Fed continues on this path, I don’t see how deflation can continue.
Disclaimer: Opinions posted on Free Republic are those of the individual posters and do not necessarily represent the opinion of Free Republic or its management. All materials posted herein are protected by copyright law and the exemption for fair use of copyrighted works.