Many analysts had opinions before the bailout, but no one was talking about the most important indicator
April 26, 2012
By Elliott Wave International
Make no mistake: The stakes for financial and economic survival in Europe are high. Seemingly everyone — from investment bloggers to financial television hosts — has something to say about the European debt crisis.
But with so many divergent opinions to choose from, which ones should you trust?
That’s where Elliott Wave International’s global-market analysis team comes in. Our analysts cut through the noise of endless talking heads with an independent perspective. By focusing on objective Elliott waves and other technical indicators, they equip you to stay one step ahead of Europe’s financial turmoil.
Case in point: Just over one year ago in late March 2011, mainstream analysts conjectured about the probability of a Portuguese bailout. Many people had opinions, but no one was talking about the most important indicator, namely that Portugal’s borrowing costs had just crossed a critical threshold. No one, that is, except EWI European market analyst Brian Whitmer.
Here’s what he told his readers in the April 1, 2011, Global Market Perspective (emphasis added):
Observe the horizontal line on this chart of 10-year borrowing costs in Greece, Ireland and Portugal. It’s no magic number, but 8% seems to be the proverbial straw that breaks the camel’s back. As the arrow on the left shows, Greek authorities activated their bailout package on April 23, 2010, two days after 10-year yields crossed 8%. In Ireland, bond yields surpassed 8% on November 10, 2010, and Irish authorities activated their bailout the following week. Mark your calendar, because Portuguese yields made the treacherous crossing two days ago. The implication is that the continent’s third sovereign bailout in less than a year has become a near certainty.
A "near certainty," indeed. Just five days after Whitmer published this analysis, Portugal’s government officially requested a bailout, and, one month later, it got one.
You see, EWI’s global analysts like Whitmer don’t follow the talking heads nor do they rely on fundamentals — both of which can be misleading. Instead, they examine objective evidence and charts — like this one — to deliver crystal-clear, forward-thinking analysis.
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The European Debt Crisis and Your Investments equips you to get ahead of what is yet to come. You get 11 chart-filled articles loaded with our insights into the European debt crisis — plus a special excerpt from Robert Prechter’s New York Times bestseller Conquer the Crash.
This article was syndicated by Elliott Wave International and was originally published under the headline Portugal’s Bailout, One Year Later: Were You Prepared in Advance?. 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 Global Market Perspective foresaw the shift in European banks from lenders to savers via one remarkable chart
April 23, 2012
By Elliott Wave International
It’s been over two years since the European Central Bank began its open-heart surgery of the eurozone’s anemic economy. So far, the procedure has included an unprecedented $3 trillion-plus in bailouts, monetary transfusions, AND toxic debt transplants.
Yet, according to a recent slew of discomforting news reports, the economies across the pond would still flatline in seconds without constant life support. Here, an April 18, 2012, Wall Street Journal writes:
"Europe Hemorrhages through Refinancing Operation Band-Aid" and reveals that Europe’s banking sector has wolfed down three years of Long Term Refinancing Operations (LTROs) in under four months.
The question is — what went wrong?
Well, to answer this, we have to go back to the drawing board to mid-2010. It was then that the European Central Bank and company released therescue-package Kraken via a $1 trillion bailout of Greece and a full-fledged initiation of its LTRO.
And, as the following May 10, 2010, news items make plain, this credit-reflating beast was set to tear Europe’s economic bear to shreds:
"This is shock-and-awe, part II, in 3D, with a much bigger budget and more impressive array of special effects. The EU package eliminates the danger that Greece’s debt woes will ricochet through Europe’s banks." (USA Today)
"This is a truly overwhelming force and should be more than sufficient to stabilize markets, prevent panic and contain the risk of contagion."(Bloomberg Businessweek)
In the July 2010Global Market Perspective, however, our analysts foresaw a fatal flaw in the plan. The first part was fine: The European Central Bank (ECB) bought packages of debt and resold them to smaller banks at a historically low interest rate.
BUT the second part didn’t work out: Instead of rebundling those loans and passing them on to small businesses to stimulate investment, THOSE banks redeposited the funds with the ECB. Riffing off the famous "Jaws" quote ("We’re gonna need a bigger boat"), the July 2010Global Market Perspective captured the great-white fear circling the lending sector via the following chart of commercial banks’ usage of the ECB’s Deposit Facility and wrote:
"The chart roughly indicates the degree to which banks fear for the insolvency of one another. Banks receive below-market interest rates on their ECB deposits, so they’re generally loathe to hold significant funds there. As anxiety grows, however, so do banks’ deposits in the Facility, mainly because their desire for adequate interest gives way to their more essential need to safeguard principal … Because the [economic downturn] is still young, deposits at the ECB will likely keep rising. Like stocks, the casual approach to banking that existed up until now is in for a massive shift."
Flash two years ahead. The April 2012Global Market Perspective’s updated chart below shows that usage of the ECB’s Deposit Facility has indeed risen, nay doubled, since the original forecast.
The question now is not whether monetary policy will save Europe’s economy, but whether the one precondition for recovery — confidence — will return to lenders.
What the European Debt Crisis Could Mean for YOUR Investments
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This article was syndicated by Elliott Wave International and was originally published under the headline European Central Bank: "Great White Fear" Takes A Bite Out of Recovery. 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.
Divorce yourself from the crowd. Independence is good.
April 19, 2012
By Elliott Wave International
In the play "The Secret to Freedom," Pulitzer prize writer Archibald MacLeish had a character say this:
The only thing about a man that is a man is his mind. Everything else you can find in a pig or a horse.
MacLeish knew how to state the truth plainly.
And the truth is, you can use your mind in any way you wish.
When it comes to financial markets, most allow others to do their thinking for them. You’ve heard the phrase "the blind following the blind." Yes, they both fall into the ditch.
At Elliott Wave International, our mission is to keep our subscribers out of the ditch. To do so, we must first do our own financial thinking before offering our conclusions to subscribers.
Robert Prechter found it easier to think independently by being physically removed from Wall Street. In this excerpt from the book Prechter’s Perspective, Prechter was responding to an interviewer who asked about Prechter living 60 miles north of Atlanta:
It’s an advantage in my opinion to be away from the storm of mass psychology that exists in the financial centers. I have purposely distanced myself from New York to avoid the overload of superfluous information that you are exposed to there. I am an observer of crowd behavior. I think it is extremely difficult to shield yourself from the crowd’s influence when you are part of it.
Now, we don’t advocate contrarianism for its own sake. That would be just as big a mistake as letting the Wall Street crowd do your thinking for you.
That said, our financial analysis is born of deliberate independence.
Granted, the crowd might be right for a time, but generally not for long, and never at important turning points.
Learn to Think Independently
Being an independent investor never goes out of style — whether the markets are bullish or bearish. Learn to challenge conventional notions about investing and explain market behaviors that most people consider "inexplicable" with theFREE 50-page Independent Investor eBook.
You’ll get some of the most groundbreaking and eye-opening reports ever published in Elliott Wave International’s 30-year history; you’ll also get analysis, forecasts and commentary to help you think independently in today’s tumultuous market.
This article was syndicated by Elliott Wave International and was originally published under the headline Stock Market Turning Points: Has Wall Street Ever Warned You in Time?. 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.
I came across some research on the subject of worry. Here’s how it was presented:
Things People Worry About:
things that never happen – 40%
things which did happen that worrying can’t undo – 30%
needless health worries – 12%
petty, miscellaneous worries – 10%
real, legitimate worries – 8%
Of the legitimate worries, half are problems beyond our personal ability to solve. That leaves 4% in the realm of worries people can do something about.
I thought about our gigantic national debt and weak economy. These seem to fit into both subcategories of "real" worries. You can’t do much as an individual to solve the nation’s debt and economic problems, yet you can prepare for a worsening economic downtrend.
Do we see evidence for an economic turn for the worse?
Well, consider that the evidence is so overwhelming that it took 456 pages of the second edition of Robert Prechter’s book, Conquer the Crash, to cover it. And since that book published, Prechter has consistently devoted his monthly Elliott Wave Theorist to the facts and evidence behind his forecast.
Here’s a chart from the book that was updated by Elliott Wave International in March 2012:
The downturn from 2008 is critically important, as it shows that after an almost unbroken 60-year climb, the contraction is underway. It surely has much further to go, because it is still a third higher than it was at the outset of the last debt deflation in 1929.
– The Elliott Wave Financial Forecast, March 2012
The rating agencies are well aware of what the above chart means. You probably know that Standard & Poor’s downgraded U.S. debt from the nation’s long-standing triple-A to AA+. Now, another rating agency has taken their rating even lower:
Rating firm Egan-Jones cuts its credit rating on the U.S. government to "AA" from "AA+" with a negative watch, citing a lack of progress in cutting the mounting federal debt.
– CNBC.com, April 5
Robert Prechter’s bestseller, Conquer the Crash, provides practical information about what you can do to protect your finances in the coming economic implosion. And right now, Elliott Wave International is offering 8 lessons from Conquer the Crash in a free 42-page report that covers:
What to do with your pension plan
How to identify a safe haven
What you should do if you run a business
A Short List of Imperative "Dos" and Don’ts"
And more
In every disaster, only a very few people prepare themselves beforehand. Discover the ways you can be financially prepared and safe.
This article was syndicated by Elliott Wave International and was originally published under the headline How to Handle an Economic Implosion. 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.
To meet ambitious investment return targets, some public pension funds must now swing for the fences.
But many are down two strikes already, due to their previous big bets with hedge funds.
….the [pension] funds with a third to more than half of their money in private equity, hedge funds and real estate had returns that were more than a percentage point lower than returns of the funds that largely avoided those assets. They also paid nearly four times as much in fees.
New York Times, April 1
The same article describes how other pension funds have embraced this risky strategy, and how funds generally have their assets at risk. In 2007 pension funds allocated 10.7 percent to "high-growth" investments; by September 2011 they had increased that bet to 19 percent. All the while, hedge funds have underperformed, as this chart from our January 2012 Financial Forecast shows:
The [HFRX Global Hedge Fund Index] hit a new low on December 14, producing a rash of articles about how hedge funds got tripped up in 2011. "Many hedge-fund managers who came into 2011 riding a wave of momentum ended the year scratching their heads and nursing losses, whipsawed by markets that seemed to punish them month after month." "Head scratching" is just right for this still-early stage of the bear. Through the first ten months of 2011, 123 Asian hedge funds shut their doors, the second highest number of closures since 2008, the year world markets collapsed.
Financial Forecast, January 20
The California Public Employees’ Retirement System (CalPERS) is the nation’s largest public pension fund. It recently lowered its investment return target from 7.75 percent to 7.5 percent. The system’s actuary had recommended lowering it to 7.25 percent.>
The CalPERS board members were told by their staff that they had only a 50 percent chance of hitting or surpassing the 7.5 percent target, yet they adopted that assumption. Others say the odds are even worse than that.
If CalPERS loses the bet, as it is likely to, the next generation will pay the shortfall…
….if CalPERS or any other public-pension system banks on higher-investment returns, it must take greater risks to meet the target…Cal-PERS chief investment officer told Pensions and Investments newspaper last year, his system has "a reasonably ambitious return target" and "needs to have a portfolio with a lot of growth exposure."
San Jose Mercury News, March 24
Is now the time to take greater risks? You saw the 2011 performance of hedge funds, and that was a year when the DJIA was up. Imagine the scenario if the market takes a serious tumble.
As an independent thinker, you have a way to prepare for your retirement: An unbiased, objective analysis of the facts and the future. That’s exactly what you get when you download the free 50-page Independent Investor eBook. It’s filled with analysis that will help you prepare for your financial future.
You’ll get some of the most groundbreaking and eye-opening reports ever published in Elliott Wave International’s 30-year history; you’ll also get new analysis, forecasts and commentary to help you think independently in today’s tumultuous market.
This article was syndicated by Elliott Wave International and was originally published under the headline Public Pension Funds: Tens of Billions at Significant Risk. 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.
Today we sit down with Elliott Wave International’s Futures Junctures Editor and Senior Tutorial Instructor Jeffrey Kennedy to discuss his favorite wave pattern of all: the diagonal.
EWI: You say if you had to pick just ONE of all 13 known Elliott wave structures to spend the rest of your technical trading life with, it would be the diagonal. First, tell us what the diagonal is.
Jeffrey Kennedy: The diagonal is a five-wave pattern labeled 1 through 5, in which each leg subdivides into three smaller waves: 3-3-3-3-3. Unlike impulse waves, however, diagonals are the only five-wave structures in the direction of the main trend in which wave 4 almost always moves into the price territory of wave 1. (See illustrations below.)
EWI: So, what makes this pattern so darn special?
JK: As you can see in the above charts, the diagonal is a terminating pattern. They can only occur in waves 5 of impulses or C-waves of corrections. This is why they’re so exciting. Diagonals precede a dramatic change in trend. And, when they end, prices tend to retrace the entire pattern, or more, and fast — in 1/3 to 1/2 the time it took the pattern to form.
Put simply: If you see a diagonal, you know the train of change is coming into the station.
EWI: Well, in your Daily Futures Junctures service, you do, in fact, see a diagonal underway in the recent price action of a major grain market. There, you present the following Elliott wave chart (some Elliott labels have been removed, while I took the liberty to draw a blue circle around the diagonal pattern for clarity):
JK: Yes. This is a classic diagonal unfolding in the final wave of the larger trend. As you can see, prices have put the finishing touches on wave (v) of c (circled). And, if my wave count is correct, this market’s prices are about to board the "Exciting Southbound Turn" Railway.
EWI: Thank you so much for taking the time to explain the ins and outs of your favorite structure, the diagonal. And also, for alerting readers to the possible DRAMA in store for this major grain market thanks to this Elliott wave pattern.
Learn More about Diagonals and Other Elliott Wave Patterns
Get a better understanding of Elliott wave analysis with our Elliott Wave Patterns educational feature. You’ll have access to basic lessons on Elliott wave patterns, along with video clips from our online courses which will explain the pattern, the rules and the guidelines.
Plus, you’ll see real-life examples that show you how each pattern fits into the overall wave structure. Some patterns will even offer a brief quiz to test your knowledge and ensure that you understand the material.
This article was syndicated by Elliott Wave International and was originally published under the headline Diagonal: Straight Shot to a Trading Opportunity. 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 Wave International (EWI) has released a free 10-page trading eBook: How You Can Find High-Probability Trading Opportunities Using Moving Averages, bySenior AnalystJeffrey Kennedy.
Moving averages are one of the most widely-used methods of technical analysis because they are simple to use, and theywork. Now you can learn how to apply them to your trading and investing in this free eBook. Let EWI’s Jeffrey Kennedy teach you step-by-step how moving averages can help you find high-probability trading opportunities.
Jeffrey’s trading eBooks have been downloaded thousands of times because he knows how to take complex trading methods and teach them in a way you can immediately understand and apply. You’ll be amazed at how quickly you can benefit from Moving Averages with just this quick, 10-page lesson.
Improve your trading and investing with Moving Averages!
(Don’t miss out. It’s only available until April 16.)
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.
Signs of deflation are visible but the public will be fooled
March 23, 2012
By Elliott Wave International
Deflation requires a precondition: a major societal buildup in the extension of credit (and its flip side, the assumption of debt).
– Conquer the Crash, 2nd edition (p. 88)
Has the United States met that precondition?
Well, consider that total credit market debt as a percent of U.S. gross domestic product was
280 percent in 1929 at the start of the Great Depression
380 percent in 2008
The current build-up of credit goes far beyond major — it’s unprecedented.
It’s been rising steadily for 60 years. The slope literally looks like the side of a steep mountain.
Bank credit and Elliott wave expert Hamilton Bolton studied every major depression in the U.S. In 1957, he made this observation:
All were set off by a deflation of excess credit. This was the one factor in common…the signs were visible many months, and in some cases years, in advance. None was ever quite like the last, so that the public was always fooled thereby.
Let’s read again from the second edition of Conquer the Crash (p.92):
A deflationary crash is characterized in part by a persistent, sustained, deep, general decline in people’s desire and ability to lend and borrow…
The U.S. has experienced two major deflationary depressions, which lasted from 1835 to 1842 and from 1929 to 1932 respectively. Each one followed a period of substantial credit expansion. Credit expansion schemes have always ended in bust. The credit expansion scheme fostered by worldwide central banking…is the greatest ever…If my outlook is correct, the deflationary crash that lies ahead will be even bigger than the two largest such episodes of the past 200 years.
Is there evidence now that a deflationary trend is underway? Dear reader, the evidence is abundant and growing by the day.
To begin with, just a casual observation of our national economic life reveals a deep general decline in people’s desire and ability to lend and borrow.
But there are many specific signs pointing to bankruptcy, default and a deflationary spiral.
Yet they’re not grabbing the headlines. The "good" economic reports and levitating stock market are. The public will likely be fooled again. But make no mistake, the signs are there.
Learn Why Deflation Is the Biggest Threat to Your Money Right Now
Discover Robert Prechter’s views on the unfolding deflationary trend by reading the 90-page report, The Guide to Understanding Deflation. This guide will help you survive a major deflationary trend, and even equip you to prosper.
This article was syndicated by Elliott Wave International and was originally published under the headline What All Major Depressions Have in Common. 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 NEW free report, The Economic Rot Beneath, reveals important economic numbers that you are not currently reading in the mainstream headlines — but you should be.
For instance, did you know stocks priced in real money (gold) are down 87%? Or that U.S. manufacturing jobs are halfof what they were in 1979? Or that housing starts per capita are back to 1922 levels?
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