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EWI

Deflation Warning: Money Manager Startles Global Conference

History shows that the U.S. should pay attention to economies in Europe

By Elliott Wave International

The economy has been sluggish for five years. There’s no shortage of chatter about “why,” yet few observers mention deflation.

One exception is a hedge fund manager who spoke up at the recent Milken Institute Global Conference.

The presentation by Dan Arbess, a partner at Perella Weinberg and chief investment officer at PWP Xerion Funds, was startling because of how deeply it broke from the standard narrative.

We’ve been wrong to assume that the economic crisis is over, Arbess said. … The threat of deflation is once again rearing its head.

“The persistent risk in our economy is deflation not inflation,” Arbess said.

CNBC, May 2

Deflation appears to be more than a threat. Consider what’s already happening in the U.S. and in Europe.

Industrial production declined in April by the most in eight months, indicating American manufacturers will provide little support for an economy beset by weaker global markets and federal budget cuts.

Bloomberg, May 15

Europe is slipping further into recession.

The euro zone economy shrank more than expected in the first three months of 2013 … as France returned to recession for the first time since 2009 and Germany barely edged forward.

It marked the longest recession for the euro countries since the currency was introduced in 1999.

New York Times, May 15

Here’s a relevant fact: The Great Depression of 1929-1932 started in Europe before coming to America.

The economic wave may be much bigger this time.

Robert Prechter made this observation:

Total credit will contract, so bank deposits will contract, so the supply of money will contract, all with the same degree of leverage with which they were initially expanded.

Conquer the Crash, second edition,
 p. 111

EWI published this chart in March 2012.

The enormous credit expansion that started in the early 1980s is due to be leveled.

You can prosper during the next economic contraction. Many people did just that during the Great Depression. Robert Prechter’s New York Times bestseller, Conquer the Crash, can teach you what you need to know to protect your portfolio during these high-risk financial times.

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This article was syndicated by Elliott Wave International and was originally published under the headline : Deflation Warning: Money Manager Startles Global Conference

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.

Elliott’s Discovery Foretells Major Market Turn

Elliott’s 70-year-old forecast applies in 2012

By Elliott Wave International

Adversity often visits people just as their future seems brightest.

At the same time, other people learn that when one of life’s doors closes, a window will open.

Both of these truisms describe the life of Ralph N. Elliott (1871-1948), the founder of the Wave Principle.

In the 1920s, Elliott became a successful business consultant. But his life of accomplishment and financial independence were in peril when he fell gravely ill. During months of recuperation, Elliott occupied his mind with a meticulous study of the stock market.

In other words: The door closed and the window opened. At 67, Elliott made a discovery.

Through a long illness the writer had the opportunity to study the available information concerning stock market behavior. Gradually the wild, senseless and apparently uncontrollable changes in prices from year to year, from month to month, or from day to day, linked themselves into a law-abiding rhythmic pattern of waves. This pattern seems to repeat itself over and over again. With knowledge of this law or phenomenon (that I have called the Wave Principle), it is possible to measure and forecast the various trends and corrections (Minor, Intermediate, Major and even movements of still greater degree) that go to complete a great cycle.

Ralph N. Elliott, R.N. Elliott’s Masterworks, pp. 154-155

In 1941, Elliott drew a chart of his long-term forecast based on the Wave Principle. The final label on that chart is the year 2012! (That chart is republished in the February 2012 Elliott Wave Theorist)

Amazingly, wave analysis thus far confirms Elliott’s 2012 forecast.

In the August 2012 Elliott Wave Theorist, subscribers receive a specific stock market overview through early 2013.

Indeed, EWI’s timing tools appear pointed to the exact month of a major stock market turning point.

Two observations lead us to the same month for the last upside gasp in the stock market.

The Elliott Wave Theorist, August 2012

Imagine: Today’s price pattern is in line with a forecast R.N. Elliott published 70 years ago!

To that end, EWI offers you a no-obligation education in Elliott Wave analysis. See below for details.


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This article was syndicated by Elliott Wave International and was originally published under the headline R.N. Elliott’s Discovery Foretells a Major Market Turn Still to Come. 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.

How Does a Trader Who Runs from Risk Achieve THIS Track Record?

Peter Brandt is the “Real McCoy”

By Elliott Wave International

In the late ’70s, Peter Brandt emptied his trading accounts several times. He’d lose a string of trades, then refund his account, then “wipe out” all over again.

But he persisted because he knew he was meant for a trading career. His determination paid off.

In 1982, a currency chart “sang a song” for Brandt. By that time he had saved his earnings and supplied his trading account with a healthy sum.

The currency trade worked out very well. After that trade, he believed he could call himself a competent full-time trader.

Eventually, Peter Brandt’s trading earned an annual 42% return over an 18-year period.

Did he achieve this by “swinging for the fences” on every trade? No. In fact, he believes that successful speculation requires strict risk-management.

One other message became clear when I recently called and spoke with Brandt: successful speculation is also about managing yourself.

Here’s an excerpt from our Q&A:

——————

Q: What’s the human factor and why is it so important to successful trading?

The biggest barrier to profitable trading is not the markets themselves. It’s not other traders. It’s not high frequency trading operations. It’s not the Wall Street trading machine out to get us. The biggest hurdle is ourselves. We have met the enemy, and the enemy is ourselves.

The human element comes into play immediately when an individual thinks he or she can make their living from trading. The human components that drive this mentality include pride, unrealistic expectations, wishful thinking, greed, disconnected hope.

If an aspiring trader can learn from and survive the mistakes of the first three to five years, they will finally figure out the real rules of the game…Most aspiring traders with four or five years of experience who know what they must do will readily agree that their real problem is actually doing what they must do. It is said that successful trading is an uphill run or upstream swim against human nature. How true!

Q. Risk management is very important to you as a trader, why? How do professional traders view risk differently from beginners?

I see this in two manifestations. First, professional traders expect to have losses — most lose more often than they win. They build losses into their processes and expectations. They factor losses into the equation.

Second, while the default expectation for professional traders is a losing trade, the default expectation of a beginner is for a winner. As a result, professional traders build aggressive risk management protocols into their trading operations.

One of the best traders I have ever known was a man named Dan Markey, who mentored me at the Chicago Board of Trade. He once told me that his job as a trader was as simple as liquidating every trade that closed at a loss. He focused on his losers. He ignored his winners.

Q: What steps did you take that led you to your successful track record of 42% over 18 years?

This is not easy to answer, mainly because I don’t want to give myself credit for any success I have achieved.

First, I didn’t need to make money from trading when I broke into futures. So that pressure was absent. I had income from several very large accounts. My proprietary trading started four years into my career in the markets.

Second, I had two very wise mentors. These were guys who told me about all the landmines I would encounter. They directed me to less risky paths. They were also very excellent traders and I could observe their habits.

Third, I stumbled across classical charting principles. Every successful trader has an approach that fits their personality, level of capitalization and risk tolerance. Some beginners never find a niche. I found a niche early on.

Fourth, I didn’t have my ego tied to every trade. I was able to take losses in stride.

Finally, I got lucky on a big score within the first two years of my proprietary trading. Now, people can say that luck is a process of a lot of things that come before it. But, luck is luck. I had a hunch and I bet a bunch — and I was right. I might have been wrong and the outcomes could have been very different.

I should also say that I’m a sequential thinker. For me that works because I go through the mental process of accounting for all the contingencies I can think of. If this happens, I’ve planned my response. If that happens, I’ve got my other response planned.


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This article was syndicated by Elliott Wave International and was originally published under the headline How Does a Trader Who Runs from Risk Achieve THIS Track Record?. 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.

On the Docket: The Case Against Diversification

Just because investment banks and stock brokerages say you should diversify doesn’t make it true
February 7, 2011

By Elliott Wave International

Talk with an investment advisor, and what’s the first piece of advice you will hear? Diversify your portfolio. The case for diversification is repeated so often that it’s come to be thought of as an indisputable rule. Hardly anyone makes the case against diversifying your portfolio. But because we believe that too much liquidity has made all markets act similar to one another, we make that case. Heresy? Not at all. Just because investment banks and stock brokerages say you should diversify doesn’t make it true. After all, their analysts nearly always say that the markets look bullish and that people should buy more now.  For a breath of fresh air on this subject, read what Bob Prechter thinks about diversification.

* * * * *

Excerpt taken from Prechter’s Perspective, originally published 2002, re-published 2004

Question: In recent years, mainstream experts have made the ideas of “buy and hold” and diversification almost synonymous with investing. What about diversification? Now it is nearly universally held that risk is reduced through acquisition of a broad-based portfolio of any imaginable investment category. Where do you stand on this idea?

Bob Prechter: Diversification for its own sake means you don’t know what you’re doing. If that is true, you might as well hold Treasury bills or a savings account. My opinion on this question is black and white, because the whole purpose of being a market speculator is to identify trends and make money with them. The proper approach is to take everything you can out of anticipated trends, using indicators that help you do that. Those times you make a mistake will be made up many times over by the successful investments you make. Some people say that is the purpose of diversification, that the winners will overcome the losers. But that stance requires the opinion that most investment vehicles ultimately go up from any entry point. That is not true, and is an opinion typically held late in a period when it has been true. So ironically, poor timing is often the thing that kills people who claim to ignore timing.

Sometimes the correct approach will lead to a diversified portfolio. There are times I have been long U.S. stocks, short bonds, short the Nikkei, and long something else. Other times, I’ve kept a very concentrated market position. My advice from mid-1984 to October 2, 1987, for instance, was to remain 100% invested in the U.S. stock market. During the bull market, I raised the stop-loss at each point along the wave structure where I could identify definite points of support. If I was wrong, investors would have been out of their positions. The potential was five times greater on the upside than the risk was on the downside, and five times greater in the stock market than any other area. Twice recently, in 1993 and 1995, I have had big positions in precious metals mining stocks when they appeared to me to be the only game in town. In 1993, it worked great, and they gained 100% in ten months. Diversification would have eliminated the profit. And every so often, an across-the-board deflation smashes all investments at once, and the person who has all his eggs in one basket, in this case cash, stays whole while everyone else gets killed.

* * * * *

Excerpt from The Elliott Wave Theorist, April 29, 1994

It is repeated daily that “global diversification” is self evidently an intelligent approach to investing. In brief, goes the line, an investor should not restrict himself to domestic stocks and bonds but also buy stocks and bonds of as many other countries as possible to “spread the risk” and ensure safety. Diversification is a tactic always touted at the end of global bull markets. Without years of a bull market to provide psychological comfort, this apparently self evident truth would not even be considered. No one was making this case at the 1974 low. During the craze for collectible coins, were you helped in owning rare coins of England, Spain, Japan and Malaysia? Or were you that much more hopelessly stuck when the bear market hit?

The Elliott Wave Theorist‘s position has been that successful investing requires one thing: anticipating successful investments, which requires that one must have a method of choosing them. Sometimes that means holding many investments, sometimes few. Recommending diversification so that novices can reduce risk is like recommending that novice skydivers strap a pillow to their backsides to “reduce risk.” Wouldn’t it be more helpful to advise them to avoid skydiving until they have learned all about it? Novices should not be investing; they should be saving, which means acting to protect their principal, not to generate a return when they don’t know how.

For the knowledgeable investor, diversification for its own sake merely reduces profits. Therefore, anyone championing investment diversification for the sake of safety and no other reason has no method for choosing investments, no method of forming a market opinion, and should not be in the money management business. Ironically yet necessarily given today’s conviction about diversification, the deflationary trend that will soon become monolithic will devastate nearly all financial assets except cash. If you want to diversify, buy some 6-month Treasury bills along with your 3-month ones.

Want More Reasons Why Diversification Should be Diverted from your Portfolio? Get our FREE report that explains the holes in the diversification argument. All you have to do is sign up as one of our Club EWI members. It’s free, and it will give you access to more than this diversification report. Follow this link to instantly download this special free report, Death to Diversification – What it Means for Your Investment Strategy.

This article was syndicated by Elliott Wave International and was originally published under the headline On the Docket: The Case Against Diversification. 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.

EWI’s Newest Service Picks ETFs: Interview with the Editor

EWI’s Wayne Stough adds another Flash opportunity service to the line-up: ETFs
October 7, 2010

By Elliott Wave International

Every trader or active investor at times wishes they could pick the brain of a pro that has “pulled the trigger” on real-money trades before.

EWI Director of Analysis Wayne Stough is one of these pros. For several years, several times per month, he’s been alerting his Flash service subscribers to opportunities in futures markets.

And now, there is a new addition to the Flash service line-up: ETF Opportunity Flash. We caught up with Wayne in his office and asked him a few questions:

Q: What method do you use when looking for high-probability trade set-ups?

Wayne Stough: My main approach is The Elliott Wave Principle. I look for clean, precise wave counts — usually ones that other analysts can confirm, so there is a general consensus on market direction. Once the market meets my other criteria for a high-confidence trade, I send out a Flash recommendation to my subscribers.

Q: How do you define a “high-confidence” trade?

WS: That’s a good question, because no market forecast is ever guaranteed, whether you use Elliott or some other forecasting method. Having said that, there are definitely moments when probabilities (or odds, if you will) strongly suggest a particular move. For example — and this is just basic Elliott — the Wave Principle says that markets move in a series of five waves in the direction of the larger trend (labeled on a chart 1, 2, 3, 4, 5) and three waves against the trend (labeled A, B, C). Also, there are certain proportions between these waves that markets often adhere to. So whether I’m counting a 1, 2, 3, 4, 5 pattern in a rally or a decline (i.e., in a bull or bear market), I focus on where the fifth wave should end, according to Elliott wave guidelines.

Once I’ve identified that price termination point, it becomes a matter of waiting for the market to get there. Fifth waves come at the end of the pattern and are usually weaker than third waves. So once I see certain technical indicators diverging (e.g. the RSI), my confidence grows: We are near the end of the pattern, and prices are about to reverse. That’s just one example of a high-confidence situation. But I do suggest a protective stop with every new Flash alert, in case the forecast doesn’t come true.

Q: Are you aiming for a particular percentage gain?

WS: Absolutely. When I send a Flash alert, I’m typically looking for a 3-to-1 ratio, at a minimum.

Q: Does that always work out?

WS: No. I monitor the recommendation for warning signals that let me know when a different scenario is unfolding in the charts. In those cases, I send out another Flash alert suggesting to lower or raise the stop-loss level, or exit the recommendation entirely.

Q: They say you love the S&P Mini as a trading vehicle. Why?

WS: I’d put it differently. I have traded the S&P for a long time, I understand that market’s nuances, and I like the leverage and volatility. But while the S&P comes naturally to me, I’ve also made many Flash recommendations on other markets, like gold and currencies. So, a better way would be to say that I love any market that gives me the desired risk-reward ratio. Now I’m also “looking for love” among various ETFs.

Special Introductory Offer: Get ETF Opportunity Flash now and have 2nd month FREE. Details.

Q: If traders expect a bear market, should they still consider Flash Services?

WS: Absolutely. I think we’re at the cusp of something very big in the stock market. And this is the time to act. Just keep in mind that speculating in severe bear markets (or during extreme volatility) carries additional risks. So be sure you do your research and know how your financial instruments behave under these conditions. And anyone who chooses to trade in this environment must only risk the money they absolutely can afford to lose.

Q: Who do you think should consider subscribing to EWI’s Flash Services — including the newest addition, the ETF Flash?

WS: Anyone who has some risk capital but not enough time or experience to find their own opportunities. Anyone who understands and accepts the fact that when you bet your money, there will be winners and losers. (Sometimes more of one than the other.) Anyone who knows better than to risk all their capital on a single recommendation; the old “all eggs in one basket” situation. I think in terms of quarters: I want all my subscribers smiling at the end of a quarter.

EWI ETF Opportunity Flash service now brings you potential high-probability opportunities in exchange-traded funds (ETFs). Don’t miss this special offer.

This article was syndicated by Elliott Wave International and was originally published under the headline EWI’s Newest Service Picks ETFs: Interview with the Editor. 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.