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Bob Prechter

Bob Prechter Points Out The Many Signs Of Deflation

Yes, You Heard Us Right

By Nico Isaac

Everywhere you look, the mainstream financial experts are pinning on their “WIN 2″ buttons in a show of solidarity against what they see as the number one threat to the U.S. economy: Whip Inflation Now.

There’s just one problem: They’re primed to fight the wrong enemy. Fact is, despite ten rate cuts by the Federal Reserve Board to record low levels plus $13 trillion (and counting) in government bailout money over the past three years — the Demand For and Availability Of credit is plunging. Without a borrower or lender, the massive supply of debt LOSES value, bringing down every exposed investment like one long, toppling row of dominoes.

This is the condition known as Deflation.

And, in a special, expanded November 19, 2009 Elliott Wave Theorist, Bob Prechter uncovered more than a dozen “value depreciating” developments underway in the U.S. economy as the two main engines of credit expansion sputter: Banks and Consumers. Off the top of the Theorist’s watch list are these “Continuing and Looming Deflationary Forces”:

  • A riveting chart of Treasury Holdings as a Percentage of US Chartered Bank Assets since 1952 shows how “safe” bank deposits really are. In short: today’s banks are about 95% invested in mortgages via the purchase of federal agency securities. Unlike Treasuries, IOU’s with homes as collateral have “tremendous potential” to fall in dollar value.
  • Loan Availability to Small Businesses has fallen to the lowest level since the interest rate crises of 1980. In Bob Prechter’s own words: “The means of debt repayment [via business growth] are evaporating, which implies further deflationary pressure within the banking system.”
  • An all-inclusive close-up of the Number Of Banks Tightening Their Lending Standards since 1997 has this message to impart: Since peaking in October 2008, lending restrictions have soared, thereby significantly reducing the overall credit supply.
  • Both residential and commercial mortgages are plummeting as home/business owners walk away from their leases at an increasing rate.
  • The major sources of bank revenue — consumer credit and state taxes — are plunging as more people opt to pay DOWN their debt. Also, a compelling chart of leveraged buyouts since 1995 shows a third catalyst for the credit binge — private equity — on the decline.

All that is just the beginning. The November 2009 Elliott Wave Theorist includes 13 pages of commentary, riveting charts, and unparalleled insight that make it impossible to ignore the deflationary shift underway in the financial landscape. For that reason, we have compiled the most timely insights from the entire, two-part Theorist in a special article for Club EWI members. In our opinion, this bundle of exlusive Theorist excerpts are “the most important investment report you’ll read in 2010.”

Elliott Wave International’s latest free report puts 2010 into perspective like no other. The Most Important Investment Report You’ll Read in 2010 is a must-read for all independent-minded investors. The 13-page report is available for free download now. Learn more here.


Nico Isaac writes for Elliott Wave International, a market forecasting and technical analysis firm.

True or Myth?: 11 Commonplace Market Views

To anyone new to socionomics, the stock market is saturated with paradox.
By Susan C. Walker
“Cash on the sidelines is bullish for stocks.” Have you ever heard some stock market pundit utter these words? Have you ever wondered if the statement were true? Read this item from the latest issue of The Elliott Wave Financial Forecast, and you’ll wonder no more:

Myth — Cash on the sidelines is bullish for stocks. This refrain rang like a gong all the way through the declines of 2000-2002 and 2007-2009. In February 2000, when mutual fund cash hit 4.2% (compared to 3.8% in November), The Elliott Wave Financial Forecast issued its “cash is king” advice. Once again, the word on the street is that there is way too much “cash on the sidelines” for stocks to fall precipitously. This chart shows net cash available to investors plotted beneath the DJIA. In December 2007, available net cash expanded to a new high, besting all extremes since at least 1992, a 15-year time span. Despite the presence of this mountain of cash, the DJIA lost more than half its entire value over the next 15 months. Indeed, as the chart shows, cash remained high right as the stock market entered the most intense part of the crash in 2008. Available cash does correlate with the market’s moves, but the market is in charge, not the cash.
The Elliott Wave Financial Forecast, Jan. 29, 2010

Crashing Through The Cash

Now take a look at these 10 statements and decide if they are true:

  1. Earnings drive stock prices.
  2. Small stocks are the place to be.
  3. Worry about inflation rather than deflation.
  4. It’s enough to simply beat the market.
  5. To do well investing, you have to diversify.
  6. The FDIC can protect depositors.
  7. It’s bullish when the market ignores bad news.
  8. Bubbles can unwind slowly.
  9. People can make money speculating.
  10. News and events drive the markets.

Bob Prechter and our other analysts have debunked each of these statements as a market myth. You can discover how we exposed these ideas as myths, and in turn make more informed decisions about your investing.

We’ve gathered the writings that expose these 10 statements as market myths in our 33-page eBook, called Market Myths Exposed. They come from two of our premier publications, The Elliott Wave Theorist and The Elliott Wave Financial Forecast, as well as two of our books, Prechter’s Perspective and The Wave Principle of Human Social Behavior.

Get Market Myths Exposed for FREE
The 33-page eBook takes the 10 most dangerous investment myths head on and exposes the truth about each in a way every investor can understand. You will uncover important myths about diversifying your portfolio, the safety of your bank deposits, earnings reports, investment bubbles, inflation and deflation, small stocks, speculation, and more! Protect your financial future and change the way you view your investments forever! Learn more, and get your free eBook here.


Susan C. Walker writes for Elliott Wave International, a market forecasting and technical analysis company.