He Said That? 3/13/15

Robert Prechter is recognized by technical financial analysts as one of the greats. He’s usually right, but usually early. Here are a few quotes from Mr. Prechter in his latest Elliot Wave Theorist:

The risk in the stock market is epic.

The persistence of extreme net optimism among financial advisors—shown graphically in the January issue—is a crushing weight on the stock market’s shoulders that warns of a deep, long bear market. The only time optimism probably lasted longer was over the peaking process of the Roman Empire.

When companies buy back their own stock at a fevered pace, it’s a mania. When they accelerate their buying to double a previously gargantuan amount, and borrow to do it, it’s the top of a mania….Heavy buybacks also indicate that companies lack worthy economic investments, which is a terrible situation. Yet worse, stock buybacks seem to be just another way for investors to loot a company.

Consider the looming consequences of all these buybacks: If the profits of these companies are being generated by a rising stock market, which is rising due to their own stock buying, what will happen to corporate profits when the market turns down? It will turn their big paper profits into even bigger losses….Volume has been both light and declining since early 2009, a period of six years….Light-volume rallies are usually bear market rallies.

Last month’s issue made an extended case for a final high in the price of the benchmark 30-year U.S. Treasury bond. Since the last trading of January, 30-year T-bonds have fallen 10%.

It is impossible to overstate the risk in the bond market.

If the current interest rate cycles plays out much as it did back then [1929-1932], we face the immediate prospect of a stock market collapse, debt defaults and soaring interest rates, even on Treasuries.

As interest rates rise over coming years, the Fed, which holds $4.5 trillion worth of long term government bonds and mortgages, is not going to know what hit it.

The Fed is not alone. Bond investors of all kinds are set up to lose a fortune.

Despite mounting evidence of deflationary forces, economists, for the most part, haven’t budged on their stance.

Potential deflation is severe because the credit situation is insane.

Central banks love to talk about the people their programs supposedly help. But values aren’t free. Some people are always stuck on the paying side, even if you can’t see them. European pensions are not the only ones in trouble; they’re faltering in the U.S.

Because pensions invest in debt, stocks, real estate and even commodities, all of which are in or approaching bear markets, they are doomed to implode.

Large gobs of non-self-liquidating (consumer) debt are poisoning the financial system. Yet all governments and central banks have to offer to counteract the deadly effect is…more poison.

Prechter has made some way-to-early or outright wrong calls, but among the ones he got right: the 1980s bull market in stocks and the bear market in precious metals right; the tech wreck of the early 2000s; the bull market in gold and silver that started around the same time; the housing bust and financial crisis of 2006-2009; the 2009 bottom of that crisis; the top of the gold and silver markets in 2011; and the commodity—including oil—deflation and big rally in the dollar that began last year. Generally his calls are met with skepticism or outright derision, and his longstanding warning of an impending  financial disaster of epic proportions have been treated in many quarters as the rant of a deranged madman. SLL says ignore these quotes at your financial peril. See also “Crisis Progress Report (5)-The Black Hole,” SLL, 3/ /15.

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