Saturday, September 26, 2009
Elliot Wave: Faber Versus Mish and McHugh
I am agnostic about Elliot Wave stock charting.
But, as I see it, there are two basic views of those who follow Elliot Wave.
On the one hand, Mish and McHugh think we might be on the verge of a major wave c down crash.
What does this mean?
Basically, a second major leg down in the stock market, just like the second leg down of the Great Depression.
On the other hand, in various recent interviews, Marc Faber - who also follows Elliot Wave - believes that (with some corrections along the way) the market will go up for the next 3-4 years. He then believes the entire capitalist system will crash, but that's another story.
So will we get a major wave C down crash in the near future, like Mish and McHugh think will probably happen?
In 3-4 years, as Faber thinks will happen?
Or not at all?
I don't know. But I think the spectrum of opinion from smart people is fascinating.
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As I understand Faber, what happens in the near to mid-term is dependent on the action of the Fed/Treasury to manipulate the financial system with a view toward restoring the bubble economy in order to reflate the mountain of toxic private debt instead of requiring honest accounting which would require massive defaults at the top of the financial system, perhaps bringing down the system. If present policy continues, the excess liquidity will cheapen the dollar and drive up asset prices.
ReplyDeleteHowever, if the Fed chickens out, which some now see happening in recent messaging, then the "recovery" will stall out, deflation increase, the dollar strengthen, and equities crash.
It's really all up to what the "authorities" decide to do. Ben is caught between Tim, Larry and the president, who apparently are relationistas, and the rest of the FOMC, some whom are getting cold feet about the level of QE and monetization and inflation down the line.
Faber seems to think that the reflationistas will likely prevail. Even if they don't, if the Fed retrenches, the markets will overreact and the Fed will rush back in to "stabilize" them. So Faber makes some good points here.
He seems to feel that without fixing the problems at the top, which the authorities do not seem wont to undertake seriously, the whole financial system will collapse, effectively wiping out global capital and setting the stage for a new global economic order.
Elliot Wave, Future Forecasters and the market itself is telling you we are headed down and soon. With the P/E of the S & P at something like a 100/1 and earnings reports coming due now look horrible, more mortgage bombs, the commercial credit ready to blow, the derivatives ready to blow up. Just common sense tells you we are headed down
ReplyDeleteMish touts deflation and Schiff does the same for inflation but there is a third alternative SPEC-FLATION. In the casino economy we operate outside the laws of gravity. It is as if we were experiencing weightlessness in outer space. Spec-flation was coined by Stacy Herbert and expanded upon by Max Keiser at www.MaxKeiser.com .
ReplyDeleteInflation and deflation relate prices as a ratio of money supply to the total amount of goods and services for sale.
Spec-flation recognizes the emergence of the Dollar Carry Trade as the significant fact of the American economy of 2009. Max says they are in effect shorting the dollar whenever they borrow a few billion dollars and invest at a higher rate of return in overseas markets. By shorting the dollar, they will drive the dollar down faster than would the trade deficit has to date. This will cut the cost of the loan they have to pay back in real dollars.
The problem is that the Dollar Carry Trade will end as the Yen Carry Trade did before it. Then the speculators will have to cover their loans and buy dollars which will send the dollar up in value ata time when the dollar will have no real value. Over 70% of world trade is still done in dollars.
Spec-flation is divorced from the real ecinomy and will drive prices by as much as 20% which will be a disaster for many people still working and living in the real economy. Max said many people will want to simultaneously sell and buy put options on the dollar *i.e. buy a straddle.)
Max also said that gold and gravity have the same functions in the world of the casino economy and in outer space.
Elliott Wave - spelling
ReplyDeletethank you for information news, its very useful refrence. elliott wave technical analysis
ReplyDelete