Deflation: First Step, Understand It
There is still time to prepare if deflation is indeed in our future.
August 16, 2010
By Elliott Wave International
"Fed's Bullard Raises Specter of Japanese-Style Deflation," read a July 29 Washington Post headline.
When the St. Louis Fed Chief speaks, people listen. Now that deflation -- something that EWI's president Robert Prechter has been warning about for several years -- is making mainstream news headlines, is it too late to prepare?
It's not too late.
There are still steps you can take if deflation is indeed in our future. The first step is to understand what it is. So we've put together a special, free, 60-page Club EWI resource, "The Guide to Understanding Deflation: Robert Prechter’s most important warnings about deflation." Enjoy this quick excerpt. (For details on how to read this important report free, look below.)
When Does Deflation Occur?
By Robert Prechter
To understand inflation and deflation, we have to understand the terms money and credit.
Money is a socially accepted medium of exchange, value storage and final payment; credit may be summarized as a right to access money. In today’s economy, most credit is lent, so people often use the terms "credit" and "debt" interchangeably, as money lent by one entity is simultaneously money borrowed by another.
Deflation requires a precondition: a major societal buildup in the extension of credit (and its flip side, the assumption of debt). Austrian economists Ludwig von Mises and Friedrich Hayek warned of the consequences of credit expansion, as have a handful of other economists, who today are mostly ignored. Bank credit and Elliott wave expert Hamilton Bolton, in a 1957 letter, summarized his observations this way:
In reading a history of major depressions in the U.S. from 1830 on, I was impressed with the following: (a) All were set off by a deflation of excess credit. This was the one factor in common. (b) Sometimes the excess-of-credit situation seemed to last years before the bubble broke. (c) Some outside event, such as a major failure, brought the thing to a head, but the signs were visible many months, and in some cases years, in advance. (d) None was ever quite like the last, so that the public was always fooled thereby. (e) Some panics occurred under great government surpluses of revenue (1837, for instance) and some under great government deficits.
Near the end of a major expansion, few creditors expect default, which is why they lend freely to weak borrowers. Few borrowers expect their fortunes to change, which is why they borrow freely. The psychological aspect of deflation and depression cannot be overstated. ...
Read the rest of this important 60-page Robert Prechter's report online now, free! Here's what else you'll learn:
What Makes Deflation Likely Today?
How Big a Deflation?
Why Falling Interest Rates in This Environment Will Be Bearish
Myth: "Deflation Will Cause a Run on the Dollar, Which Will Make Prices Rise"
Myth: "Debt Is Not as High as It Seems"
Myth: "War Will Bail Out the Economy"
Myth: "The Fed Will Stop Deflation"
This article was syndicated by Elliott Wave International and was originally published under the headline Deflation: First Step, Understand It. EWI is the world's largest market forecasting firm. Its staff of full-time analysts lead by Chartered Market Technician Robert Prechter provides 24-hour-a-day market analysis to institutional and private investors around the world.
The Economic Crisis No One Saw Coming: A Convenient Untruth
August 9, 2010
By Elliott Wave International
The single most convenient untruth about the 2008 (and counting)
financial crisis is that it was unforeseen. For two years policymakers
have insisted "There was no way to know ahead of time" that
the liquidity boom would come to a screeching halt. Back in November
2008, in fact, the usually tight-lipped Queen of England herself
publicly described the turmoil of international markets as "awful" and
openly asked a panel of experts from the London School of Economics "Why
did nobody notice?"
Her Majesty is right: Most financial authorities did
NOT notice the crisis before it was too late. Comedy Central's "The
Daily Show with Jon Stewart" of all places provided the
most poignant evidence: A March 2009 video montage
shows executives and economists from the world's leading financial
firms repeatedly forecasting continued upside strength in stocks,
plus renewed bull market growth in financials -- right as debt
markets came unhinged and the US stock market headed into a 50%-plus
Dubbed the "8-Minute Rap" (after the "18-Minute
Gap" of Nixon's Watergate tapes), the Daily Show video feature
sent an equally powerful message, as the clip
below makes plain.
Yet even as the mainstream authorities failed to detect the
economic earthquake moving below their own feet, somebody did "notice" well
in advance. That person was EWI's president Bob Prechter.
The clip below is from a 2007 Bloomberg interview.
Clear as PLAY, the foreseeable nature of the crisis emerges from
Bob's October 19, 2007 interview.
As the historic trend change began to unfold, Bob issued this
"We've seen the first crack in the credit structure
with a huge drop in commercial paper... These are the harbingers
of a change toward the downside for the stock market, commodities
including oil, and the debt market itself."
Don't believe the convenient untruths. Get objective market
analysis today. Download
this free report that contains valuable market forecasts directly
from the desk of Bob Prechter.
Q&A with an experienced Elliott wave trader reveals seven common trading mistakes.
August 12, 2010
By Elliott Wave International
To be a successful trader demands knowledge.
If you'd prefer to become an unsuccessful trader, you can start by making the following common trading mistakes, detailed by a professional who spent 25 years in portfolio management, trading and forecasting in the financial capital of the world, New York City.
In 2002, Wayne Gorman, long-time Elliott wave trader and current head of trader education at Elliott Wave International, left his 35th floor Manhattan apartment and moved to the quiet of North Georgia. He's been sharing his knowledge and skills with aspiring traders ever since -- in both online seminars and before live audiences around the world.
Wayne graciously agreed to a Q&A about trading mistakes. In his interview, Wayne reveals seven common mistakes traders make.
EWI: Could you name two mistakes frequently made by stock traders?
Wayne Gorman: (mistake 1) The first big mistake is the flawed logic of extrapolation. Many traders and investors assume that a trend will remain in force until an "event" comes along to change it. But market trends are not like billiard balls on a pool table. This false assumption will put you on the wrong side of the market more times than not, especially at major turning points.
(mistake 2) The second big mistake is to suppose that news events drive market trends. In fact, the opposite is true: economic, political and social events lag market trends.
EWI: What are two common mistakes among options traders?
WG: (mistake 3) One common mistake is to buy puts or calls that are way "out of the money," with no other transactions to compliment them. Unless your timing is absolutely perfect -- and who has perfect timing? -- your chance of success is low. It’s like buying a lottery ticket.
(mistake 4) Another common mistake is to buy options with too little time left to expiration. With less than one month to expiration, the time decay begins to accelerate and the chances of success diminish.
EWI: Please name a frequent mistake among traders who aim to catch the beginning of a particular Elliott wave.
WG: (mistake 5) In the middle of a corrective pattern, it's common to run out of patience while waiting for confirmation of a trend change. You have to give corrective patterns time to unfold before you jump in. This requires discipline, and a solid understanding of the many ways corrective patterns can unfold.
EWI: What's the biggest misconception among traders about using Elliott waves?
WG: (mistake 6) Too many traders think Elliott wave is a trading system that tells you exactly where to enter and exit a particular market. That's the biggest misconception. The reality is that it's an analytical and forecasting tool, which helps you develop and use your own trading system, based on your own personal risk tolerance.
EWI: What technical indicators do you believe traders over-rely on, and why?
WG: (mistake 7) Traders tend to over-rely on momentum indicators such as RSI, Stochastics and MACD to precisely spot turning points. But to paraphrase Mark Twain, markets can stay overbought or oversold a lot longer than either you or I can remain solvent.
EWI: How would you characterize today's market action, and do you teach courses that address this environment?
WG: This is a difficult stock market in the near term. Prices haven't strayed far from where they began in January. The action has yet to break out significantly to the downside or upside. This situation may not last much longer. I can suggest these online courses to deal with the current situation, and to prepare for the next big move:
How to Spot Trading Opportunities, Parts 1 and 2
How to Trade Choppy, Sideways Markets
5 Options Strategies Every Elliott Wave Trader Should Know
Trading the Line – How to Use Trendlines to Spot Reversals and Ride Trends
This article was syndicated by Elliott Wave International and was originally published under the headline Do You Recognize These Six Common Trading Mistakes?. EWI is the world's largest market forecasting firm. Its staff of full-time analysts lead by Chartered Market Technician Robert Prechter provides 24-hour-a-day market analysis to institutional and private investors around the world.