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Mix-Ansicht- Can the European Central Bank Save Germany from Depression? Prechter (e) - Aristoteles, 20.11.2002, 23:32
Can the European Central Bank Save Germany from Depression? Prechter (e)
-->Can the European Central Bank Save Germany from Depression?
11/18/2002 3:11:57 PM
Is Europe’s economic leader in danger of deflationary depression?
A quick pulse check of Germany’s vital signs confirms that deflation is beginning to take hold: (The specific symptoms of deflation can be found in EWI president Robert Prechter’s best-selling Conquer the Crash.)
Negative social mood -- the index of investor sentiment is at an 11-month low.
Economic distress -- the DAX Index has shed almost 40% this year.
Debt -- the budget deficit is at 3.5% of Gross Domestic Product.
Business contraction -- the growth rate forecasts have been slashed to.5%.
Joblessness -- the unemployment rate is 9.9% of the workforce
Even the recent character assassination of Chancellor Gerhard Schroder is indicative of the trend reversal; Prechter’s Perspective explains, “In a bear market, heroic symbols of the old bull market are torn down.”
When Schroder was elected in 1998 and Germany’s market was thriving in the midst of a third-of-third wave up, the public enthusiastically received him as the “Spartan symbol…of the rise of a new generation of German leaders.” In current headlines, as the DAX Index suffers through a bear market, Schroder is condemned as the “Chancellor of Inaction.”
How can the third largest world power suddenly be on the verge of economic collapse?
Germany did not just wake up one day to deflation. In fact, the DAX Index started to turn down shortly after the New York Times wrote the following:
“As we prepare for the 21st century, a united Germany is the economic engine that will drive all of the European Union and is recognized by its peers as Europe’s future world power” (January 1, 2000).
In contrast, the January 2000 issue of Global Market Perspective (GMP) alerted readers to a critical juncture in the German stock market, providing special “anecdotal” and analytic evidence of a major market top nearing; as the February 2000 issue explains, “a break of key trend-line support…would signal that the top was already in, and that a correction of the entire bull market from 1993…was underway.” On March 7, 2000, Primary wave 3 peaked at 8136.16 and the countertrend in wave 4 was initiated.
The German market has been weakening ever since.
So, why doesn’t the E.C.B. cut interest rates to revive the economy?
Well, Japan’s experience has served as a cautionary tale: the land of the hiding sun has nearly slashed its interest rates to zero and the country shows no signs of recovering from its 12-year long economic slump. Thus, the E.C.B. is determined NOT to cut interest rates.
Are they correct?
They are right to think that lowering interest rates will not immunize Germany from deflation. The fact is that no fundamental can alter the course of Germany’s economy.
The major factor influencing the movement of any market is Elliott waves; they are propelled by collective social psychology, which cannot be controlled.
So what you are saying is, evacuate the German market A.S.A.P?
NO! With the crucial data provided by GMP— critical support and resistance levels and plotted wave counts— investors know ahead of time when to buy into rallies and short declines.
Down does not equal financial doom during deflation.
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