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Economy

Economic Gloom or Recovery? 5 Signs That One is Ahead

The economy has never really recovered since the 2007-2009 financial crisis

By Elliott Wave International

Several signs suggest economic contraction instead of expansion.

The first was recent front-page news: 8.1% August jobless rate. The number would have been higher, but it excludes people who gave up the job search.

The second is summed up by this Sept. 4 Bloomberg headline:

Food-Stamp Use Climbs to Record

Nearly one in seven Americans use food stamps. Before the downturn it was one in 10.

You can find the third sign at the other end of the income scale.

The chart shows that after a multi-decade bull market that tracked the major stock indexes, lobster prices (per pound) peaked in 2005, one year ahead of the global downturn. The timing of the lobster price top is so close to the downturn in home prices that the Maine Department of Marine Resources noted, “Interestingly, a ‘lobster bubble’ coincided with the national ‘housing bubble’ in 2006. … The six-year divergence between per-pound prices and total pounds (shown by the trendlines on the chart) suggests that lobster mania will not be back for a long time. Luxury is a classic byproduct of a bubble.

The Elliott Wave Financial Forecast, August 2012

Speaking of the parallel trend of lobster and home prices, a Sept. 18 Wall Street Journal excerpt reveals the fourth sign of a deflationary trend:

Mortgage lending declined to its lowest level in 16 years in 2011 amid weak demand for mortgages and tighter lending standards.

A Sept. 19 Reuters article says the latest housing data is mixed:

U.S. housing starts rose less than expected in August as groundbreaking on multifamily home projects fell, but the trend continued to point to a turnaround in the housing market.

Yet we’ve seen “hopeful signs” of a housing recovery before. The larger trend for real estate points in the opposite direction.

The fifth sign is summed up in this Sept. 18 CBS headline:

Median Income Worse Now Than It Was During Great Recession

The article says:

The median income for American households in 2009 – the official end of the Great Recession – was $52,195 (in 2011 dollars), while the median income dipped to $50,054 last year, falling 4.1 percent over two years. … The recovery is the “most negative for household income during any post-recession period in the past four decades.”

The “Great Recession” never ended. A more accurate way of describing the state of the economy is the onset of “depression.”

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This article was syndicated by Elliott Wave International and was originally published under the headline Economic Gloom or Recovery? 5 Signs That One is Ahead. EWI is the world’s largest market forecasting firm. Its staff of full-time analysts led by Chartered Market Technician Robert Prechter provides 24-hour-a-day market analysis to institutional and private investors around the world.

The Surge Higher in U.S. Markets: “The Stage is Being Set”

The market’s main trend stays the same.
August 03, 2012

By Elliott Wave International

Elliott Wave International has long observed that external events do not alter the dominant trend of financial markets — not even major events like wars, natural disasters, terrorist attacks, political assassinations or any other news that makes headlines.

Now, it is true that news can sometimes have a near-term effect on market prices.

The July 26 opening bell is an example.

Dow Surges 200 Points on Draghi Comments, Jobless Claims

That’s from The Wall Street Journal. The text reads:

Europe’s top central banker sparked a global rally in stocks after reassuring investors the Continent’s central bank would be vigilant about holding together the euro zone…. European Central Bank President Mario Draghi…said the ECB is ready to do whatever it takes to preserve the common-currency union.

The article adds that “the number of U.S. workers filing for unemployment benefits fell for the fourth time in five weeks, to a level that was far lower than expected.”

EWI expected a near-term bounce in stock prices — just one day ago.

On July 25, EWI’s Financial Forecast Short Term Update said this to subscribers:

Near term, there may be a few more days of bounce. The stock market is setting the stage…

The Update went on to describe what the stock market is setting the stage for. It is not what most investors expect.

The pattern in the major U.S. stock indexes has been 80 years in the making — which is to say, the pattern is unfolding at a large degree of trend.


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This article was syndicated by Elliott Wave International and was originally published under the headline The Surge Higher in U.S. Markets: “The Stage is Being Set”. EWI is the world’s largest market forecasting firm. Its staff of full-time analysts led by Chartered Market Technician Robert Prechter provides 24-hour-a-day market analysis to institutional and private investors around the world.

A Bubble in Complacency – John Mauldin

By John Mauldin | January 29, 2011

In this issue:
The Recent GDP Numbers – A Real Statistical Recovery
Consumer Spending Rose? Where Was the Income?
A Bubble in Complacency
Egypt
Rosie, Las Vegas, Phuket, and Bangkok

This week I had the privilege of being on the same panel with former Comptroller General David Walker and former Majority Leader (and presidential candidate) Richard Gephardt. A Democrat to the left of me and a self-declared nonpartisan to the right, stuck in the middle and not knowing where the unrehearsed conversation would take us. As it turned out, to a very interesting conclusion, which is the topic of this week’s letter. By way of introduction to those not familiar with them, David M. Walker (born 1951) served as United States Comptroller General from 1998 to 2008, and is now the Founder and CEO of the Comeback America Initiative. Gephardt served in Congress for 28 years, was House Majority Leader from 1989 to 1995 and Minority Leader from 1995 to 2003, running for president in 1988 and 2004.

Some housekeeping first. We have posted my recent conversation with George Friedman on the Conversations with John Mauldin web site. And on Saturday we will post the Conversation and transcript I just did with David Rosenberg and Lacy Hunt, which I think is one of the more interesting (and informative!) ones I have done. You can learn more about how to get your copy and the rest of the year’s Conversations (I have some really powerful ones lined up) by going to www.johnmauldin.com/conversations. Use the code “conv” to get a discount to $149 from the regular price of $199. (If you recently subscribed at $199 we will extend your subscription proportionately. Fair is fair.)

And go to www.johnmauldin.com to contribute comments on this letter. I do read them!

The Recent GDP Numbers – A Real Statistical Recovery

Now, before we get into our panel discussion (and the meeting afterward), let me comment on the GDP number that came in yesterday. This is what Moody’s Analytics told us:

“Real GDP grew 3.2% at an annualized pace in the fourth quarter of 2010. This was below the consensus estimate for 3.6% growth and was an improvement from the 2.6% pace in the third quarter. Private inventories were an enormous drag on growth, subtracting 3.7 percentage points; this bodes very well for the near-term outlook and means that current demand is very strong. Consumer spending, investment and trade were all positives for growth in the fourth quarter; government was a slight negative. The economy will see very strong growth in 2011 as the tax and spending deal passed in December stimulates demand and the labor market picks up, creating a self-sustaining expansion.”

[Read more…]

First, Let’s Lower the Bar – John Mauldin’s Weekly E-Letter

Thoughts from the Frontline Weekly Newsletter

First, Let’s Lower the Bar

by John Mauldin
November 12, 2010
Visit John's Home Page
In this issue:
Health-Care Realities
The Chinese Renminbi is Going Down, Not Up
First, Let’s Lower the Bar
They Need to Borrow How Much? Really?
Irish Eyes Are Not Smiling
La Jolla, New York and a Forbes Cruise
China’s currency is rising ever so slowly against the dollar. But is that hurting China? We will look at a very interesting chart and some research. And then we’ll gain some more insight into why the employment numbers seemed to surprise. I guess if you lower the bar, it’s easier to jump over. I also deal with the pushback from last week’s Outside the Box! And Ireland is on my radar. There is a lot to cover, so let’s jump in.

I start this week’s letter on a flight from Cleveland (where I was at the Cleveland Clinic meeting with my good friend and doctor Mike Roizen (of Oprah and the various “YOU” books with Mehmet Oz) on some non-health-related business, and we talked last night about the state of health care. Mike keeps pointing out that much of our health-care cost comes from chronic diseases that are either directly or partially lifestyle choices. And he is right. The data shows it. Smoking, overeating, lack of exercise – all contribute to our health-care bills. And health care was on my mind.

Now, a little mea culpa. I get letters from readers who start their missive out with something like, “I know you probably won’t read this, but…” Well, I can’t say I read every letter, but someone does and I get and read as many as I can. And my rule is that I get all the negative ones, and any letters that show particular thoughtfulness and give me suggested reading or just good suggestions. I do pay attention to you. It takes some time, I admit, but I think it is important.

And the feedback I got on last week’s Outside the Box on health care was definitely running much more on the negative side. And as it turns out, for good reason. There were just simply some factual errors in the piece that made it more partisan than it sounded when I first read it. And many readers justifiably took me to task for that. [Read more…]

Robert Prechter: Investing in Extreme Markets – Video (Part 3)

Video (Part 3): Prechter – Investing in Extreme Markets

(Note: This interview was originally recorded on September 20, 2010)

In the video below, Robert Prechter talks to Yahoo! Finance Tech Ticker host Aaron Task and Henry Blodget about a technical pattern he sees forming in the Dow.


Get Up to Speed on Robert Prechter’s Latest Perspective — Download this Special FREE Report Now.

About the Publisher, Elliott Wave International
Founded in 1979 by Robert R. Prechter Jr., Elliott Wave International (EWI) is the world’s largest market forecasting firm. Its staff of full-time analysts provides 24-hour-a-day market analysis to institutional and private investors around the world.

20 Questions with Robert Prechter: Long Decline Ahead

July 2, 2010

By Elliott Wave International

The following article is an excerpt from Elliott Wave International’s free report, 20 Questions With Deflationist Robert Prechter. It has been adapted from Prechter’s June 19 appearance on Jim Puplava’s Financial Sense Newshour.

Jim Puplava: I want to come back to government spending, but first I want to move onto the stock market. In your last two Elliott Wave Theorist issues, you laid out a scenario that would put the Dow and S&P, which in your opinion may have peaked on April 26, as the top from here. You feel that this top is the biggest top formation of all time, a multi-century top and we could head straight down in a six-year collapse that would end in 2016 that could see a substantial portion of the S&P and the Dow wiped out in a similar way that we saw between 1929 and 1933. Let’s talk about that and the reasoning behind it.

Editor’s Note: The article you are reading is just one small excerpt from Elliott Wave International’s FREE report, 20 Questions With Deflationist Robert Prechter. The full 20-page report includes even more of Prechter’s insightful analysis on fiat currency, gold, the Fed, the Great Depression, financial bubbles, and government intervention. You’ll learn how to protect your money — and even profit — in today’s environment. Read ALL of Prechter’s candid answers for FREE now. Access the free 20-page report here.

RP: Yes, you’re exactly right. I did a lot of work on technical forms, cycle forms and Elliott wave forms in April and May and put them in a double issue. Let’s talk about the cycles first.

The 7¼-year cycle has been quite regular since the first bottom in 1980. The next bottom was at the crash in October 1987. The next one was November 1994, which is when the economy went through four years with lots of layoffs; it was a recessionary period throughout until that cycle bottomed. The next one was between September 2001, which was the 9/11 attack, and the October 2002 bottom. And the latest one was at the low in March 2009. All those periods are 7¼ years apart, so we are in the uptrend portion of the 7¼-year cycle.

However, notice for example that in 1987, the market went up until August of that year and then bottomed in October, just a couple of months later. So the decline occurred very, very late in the cycle. This time it occurred a little bit earlier in the cycle, topping in ’07 and bottoming in ’09. In the current cycle, prices should peak the earliest of all of them. It’s what we in the cycle prediction business call “left-hand translation.” The market’s already gone up for about a year, and I think that’s just about enough. I think we’re going to spend most of the cycle going down. But the important thing to note is that the next bottom is due in 2016. That means I think we’re going to have a repeat of what happened between 1930—which was the top of the rally following the 1929 crash—and the July 1932 low. Instead of taking two years, it’s going to take about six years.

It’s going to be a very long decline. It’s going to be interrupted by many, many rallies, just as the decline from 1930 to 1932 was. And every time it bottoms and rallies, people are going to say “OK, that’s enough; it’s over.” But it won’t be over. It’s just going to be a long, long process. I think you and I will probably be talking a few times during this period. One of the interesting aspects of this process is that optimism should actually remain dominant through the first three years of the cycle. That will carry us into 2012. Even though prices will be edging lower, most people are going to think it’s a buy, and you shouldn’t get out of your stocks, and recovery is just around the corner, probably for the next three years. And then, for the final half of the cycle, the final three years, that’s when you’ll get the capitulation phase when everyone finally gives up.

Editor’s Note: The article you are reading is just one small excerpt from Elliott Wave International’s FREE report, 20 Questions With Deflationist Robert Prechter. The full 20-page report includes even more of Prechter’s insightful analysis on fiat currency, gold, the Fed, the Great Depression, financial bubbles, and government intervention. You’ll learn how to protect your money — and even profit — in today’s environment. Read ALL of Prechter’s candid answers for FREE now. Access the free 20-page report here.

This article, 20 Questions with Robert Prechter: Long Decline Ahead, was syndicated by Elliott Wave International. EWI is the world’s largest market forecasting firm. Its staff of full-time analysts lead by Chartered Market Technician Robert Prechter provides 24-hour-a-day market analysis to institutional and private investors around the world.

Financial Metaphors Run Amuck

By Max Frumes, Medill News Service

WASHINGTON — Bazookas, tsunamis and tortoises. Oh my.

The financial world and its regulators struggle to explain complex concepts, at times turning to metaphors that would make an English teacher cringe.

Henry Paulson, the former Treasury Department secretary, took his turn in front of the Financial Crisis Inquiry Commission on Thursday, armed with an arsenal of his own metaphors. Here’s a sample from the exchange, with the group trying to find out what went wrong and how to fix it for next time.

Subprime securitizations were scary micro-organisms: When subprime securitizations began to go bad, it created fears of all securitizations, even unrelated ones. “People use this E. coli example or mad-cow disease,” Paulson said, referring in part to the 2006 E. coli scare that created an aversion to all spinach, even the untainted. “I do think that it’s a good example because there was so much uncertainty about that. It infected, you know, so many in securitizations in terms of the investors’ concern.”

The authority to backstop Fannie Mae and Freddie Mac was a bazooka: Just before the two mortgage giants failed in 2008, Paulson said that having the authority to back them up would be like having a bazooka in a street fight — i.e., if you have enough firepower then you’ll never have to use it. “You asked us to give you a bazooka you would never have to use and then shortly thereafter you used it,” said Douglas Holtz-Eakin, FCIC commissioner. Fannie  eventually raised $7 billion. Freddie committed to raise capital, but never did.

Financial crises are toothpaste: When trying to assess whether Paulson could have stopped what led to the financial crisis, FCIC Chairman Phil Angelides asked if “the toothpaste was already out of the tube” by the time Paulson took the helm at Treasury in 2006. “Most of the toothpaste was out of the tube, and there really wasn’t the regulatory apparatus to deal with it,” the ex-secretary responded. (Alternative version: Financial crises are baked goods. “The situation was already baked” when Paulson arrived.)

Financial crises are tsunamis: Angelides implied that Paulson should have seen it coming. “Even when a tsunami comes, you have warnings ahead of time,” he said. Paulson didn’t run with this metaphor, replying that financial history didn’t predict the widespread decline in housing prices. He said he didn’t know what could have been done with such a warning. Crises happen no matter what, Paulson added, and will continue to happen.

Skin is money: In securitizing mortgages — the process of bundling the debt and selling it off — the originators didn’t have a stake in whether the mortgages were paid off or not. They didn’t have “skin in the game.” Also, market makers, or those who hold enough of a security to provide quick trading, don’t have skin in the game, critics claim. Paulson warned that it’s also important not to have too much skin in the game. “Where the big problems were, were the two or three institutions that not only had skin in the game, they had half their body in the game,” Paulson remarked.

Complex derivatives are cookies: Banks that packaged collateralized debt obligations, which are slices of other securities involving subprime mortgages, wound up suffering from their own cooking. They “choked on their own cookie.”

Bear Stearns was a wounded beast: FCIC commissioner Keith Hennessey asked if Bear Stearns was just the “slowest steer and the lion got it.” Also, Bear was referred to as the “weak deer” that served as food to short sellers, who were coordinating to bring it down. Though he did not believe that short sellers were a big cause of the crisis, Paulson said there were coordinated attacks. “It sure looked like to me some kind of coordinated action,” he added.

Unacceptable collateral is a Styrofoam tortoise: Former Rep. Bill Thomas, the FCIC’s vice chairman, chimed in with his own tortured metaphor to make a point about the role that accounting gimmicks may have played in the collapse of Lehman Brothers Holdings Inc.

In Thomas’ story, tortoises were disappearing rapidly, and some thought it had something to do with sheep. Someone suggested using Styrofoam tortoises to track their interaction with the sheep. Thomas replied that they might as well use Styrofoam sheep too, with the point being that it wasn’t an acceptable substitution — just as shaky mortgages aren’t a substitute for stable securities.

It turned out, he said, that crows were “flipping tortoises in the morning for a warm meal in the evening,” nothing to do with the sheep. Paulson said the participants got sloppy in their decisions, like those who accepted mortgages as the collateral.

The housing market is tinder: Paulson had yet another metaphor. He said subprime was only the most flammable part of the problem, “the driest tinder,” and that other parts of the housing market were flammable and eventually caught fire.

Marketwatch

Dow and S&P Update: Can We Keep Going Higher?

by Adam Hewison

We owe trillions of dollars, but Crude oil is at $86 a barrel, the DOW, S&P, and NASDAQ are making new highs almost everyday and unemployment is officially at 9.7%.

Everything is great! Happy days are here again… Right?

So is the DOW, S&P, and NASDAQ all going to keep going higher forever? Or are the teachings of a dead mathematician going to reverse this juggernaut of a market?

In my new video I show you exactly what I mean and how the these indices could be very close to a very important tipping point.

Watch the Video: Can we keep going higher?

This is without a doubt, one of the most important videos I have ever made and if you are concerned about your financial future, you don’t want to miss it.

You Still Believe The Fed Can Stop Deflation?

Recent history proves that the Fed’s “control” is just an illusion.

By Editorial Staff

Think back to the fall of 2007. The deflationary “liquidity crunch” that over the next year-and-a-half cuts the DJIA in half, decimates commodities, real estate and world markets is only starting. Almost no one believes that the crash is coming — to a large degree, because everyone is convinced that the U.S. Federal Reserve Bank, with Ben Bernanke at the helm, will never allow deflation to happen: It can just print money!

The excerpt you are about to read is from EWI president Robert Prechter’s October 19, 2007, Elliott Wave Theorist. If you find it insightful, read more of Bob’s writings in the free Club EWI resource, “Robert Prechter’s Most Important Writings on Deflation.” (Details below.)

You cannot pick up a newspaper, turn on financial TV or read an economist’s report without hearing that the Fed’s latest discount-rate cut is bullish because it indicates the Fed’s decision to “pump liquidity” into the system. This opinion is so completely wrong that it is hard to believe its ubiquity.

First of all, the Fed does not “decide” where it wants interest rates. All it does is follow the market. Figure 17 proves it. Wherever the T-bill rate goes, the Fed’s “target rate” for federal funds immediately follows. That’s all there is to it.

The FED Follows the Market

If you refuse to believe your eyes, then listen to the chairman; Alan Greenspan is very clear on this point. On September 17, a commentator on CNBC asked, “Did you keep the interest rates too low for too long in 2002-2003?” Greenspan immediately responded, “The market did.” Rates were not “too low” or the period “too long,” either, because the market, not the Fed, made the decision on the level and the time, and the market is never wrong; it is what it is. If investors in trillions of dollars worth of U.S. Treasury debt worldwide had demanded higher interest, they would have gotten it, period.

Second, falling interest rates are almost never bullish. All you have to do to understand this point is look at Figure 18.

Falling Rates are not Bullish

Interest rates fell persistently through three of the greatest bear markets in history: 1929-1932 in the Dow, 1990-2003 in the Japanese Nikkei, and 2000-2002 in the NASDAQ. The only comparably deep bear market in the past 80 years in which interest rates rose took place in the 1970s when the Value Line index dropped 74%. Economists all draw upon this experience, but they ignore the others. Today’s environment of extensive investment leverage and an Everest of debt in the banking system is far more like 1929 in the U.S. and 1989 in Japan than it is like the 1970s. Why is a decline in interest rates bearish in such an environment? Because it means a decline in the demand for credit. When people want less of something, the price goes down.

The recent drop in rates indicates less borrowing, which means that the primary prop under investment prices — the expansion of credit — is weakening. That’s one reason why stock prices fell in 2000-2002 and why they are vulnerable now. This is the opposite of “pumping liquidity”; it’s a slackening in liquidity.

Read the rest of this important 63-page report, “Robert Prechter’s Most Important Writings on Deflation” online now, free! All you need is to create a free Club EWI profile. You’ll learn:

  • When Does Deflation Occur?
  • What Triggers the Change to Deflation
  • What Makes Deflation Likely Today?
  • How Big a Deflation?
  • Why Bernanke Has Been Powerless Against Deflation
  • The Big Bailout Bluff
  • MORE

Read more about the Deflation Survival Guide here.

Elliott Wave International (EWI) is the world’s largest market forecasting firm. EWI’s 20-plus analysts provide around-the-clock forecasts of every major market in the world via the internet and proprietary web systems like Reuters and Bloomberg. EWI’s educational services include conferences, workshops, webinars, video tapes, special reports, books and one of the internet’s richest free content programs, Club EWI.

Understanding the Fed: Free 34-page eBook now available

Our friends at Elliott Wave International have just released a free 34-page eBook, Understanding the Fed. It’s the free report the Federal Reserve doesn’t want you to read!

This eye-opening free report, which represents more than 10 years of research by Robert Prechter, goes beyond the Fed’s history and government mandate; it digs into the Fed’s real motivations for being the United States’ “lender of last resort.” In this 34-page report, you’ll discover how the Fed’s actions, combined with public outrage, may ultimately lead to its demise, plus much more about its secret activities and how it affects your money.

Download your free copy of EWI’s Understanding the Fed eBook, here.

About the Publisher, Elliott Wave International
Founded in 1979 by Robert R. Prechter Jr., Elliott Wave International (EWI) is the world’s largest market forecasting firm. Its staff of full-time analysts provides 24-hour-a-day market analysis to institutional and private investors around the world.