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verfasst von XERXES, 25.12.2002, 00:08

-->Market Seer Prechter Called 1987 Crash, Says Dow to Fall to 800
By Adam Levy
Gainesville, Georgia, Dec. 24 (Bloomberg) -- Forget about the Dow Jones Industrial Average returning to 11,000. Try Depression- era levels below 1,000.
And don't flock to bonds for safety: Municipalities will default and corporate bonds will be wracked by downgrades. Even the U.S. government's credit status may sink low enough to make Treasury bills shaky.
If you believe in such gloomy prophecies, you probably know about Robert Prechter Jr. He's a former rock-and-roll drummer turned stock market technical analyst who first gained fame in the 1980s.
Prechter is now undergoing a renaissance. His book ``Conquer the Crash: You Can Survive and Prosper in a Deflationary Depression'' (John Wiley & Sons, 2002), which warns of a looming economic cataclysm, reached the top of Amazon.com's financial bestseller list in 2002. His two main monthly newsletters have increased their subscriber base by more than 50 percent.
Even some investors who don't buy into Prechter's apocalyptic views say his analysis of the markets makes sense.
``I like his macro view, and his short-term ideas give me trading opportunities that are making me money,'' says Peter Hegel, a private investor and longtime Prechter client who ran Van Kampen American Capital Inc.'s $20 billion fixed-income investment business until retiring in May 2000.
Prechter, now 53, peaked in popularity in the fall of 1987. On Oct. 5 of that year, he cautioned investors that stocks would crash.
Exactly two weeks later, Black Monday, the Dow plummeted 22.6 percent -- and Prechter's reputation was solidified.
`Everyone Stopped'
``Like those old E.F. Hutton commercials: Everyone stopped when he spoke,'' says David Gannon, an environmental consultant who traded municipal bonds in the 1980s for what was then Shearson Lehman Brothers. ``Bob Prechter could and did move markets.''
Prechter's standing suffered in the 1990s because he missed the almost decade-long bull market. He spent much of that decade building up his firm, Elliott Wave International, outside the spotlight.
Today, Prechter's company employs 70 people -- mostly market analysts and technicians who provide about 700 investors and firms with frequent, sometimes hourly, commentary on worldwide stock and bond markets, currencies, commodities and energy futures.
The cost of all of this information: up to $19,200 a year. Two main newsletters, Elliott Wave Theorist and Elliott Wave Financial Forecast, each have 6,000 subscribers. That's up from 4,000 subscribers each during the lean 1990s.
Prechter is an advocate of the wave principle, a mathematically complex theory developed by accountant Ralph Nelson Elliott during the Great Depression.
Pernicious Anemia
A specialist in corporate financial rescue, Elliott was bedridden for years in the 1930s with pernicious anemia. He spent his time studying stock market charts and gradually became convinced that there are identifiable, repetitive patterns within market indexes.
Recognizing that it's not enough to point out that markets move in cycles, Elliott set out to describe the swings of ups and downs. He called them waves and concluded that they follow a predictable, five-stage structure of three steps forward, two steps back.
In addition, the waves share a variety of features: Wave two never falls below the starting level of wave one; wave three is never the shortest; waves one and five tend to be of equal length; and wave sizes are often related by a series of numbers known as the Fibonacci sequence, wherein each number is based on the sum of the two previous ones.
Gigantic Stock Moves
Four decades later, as a stock market technician at Merrill Lynch & Co., Prechter applied those principles to gigantic stock moves that spanned generations.
Prechter was equipped with tools that Elliott had lacked, such as computers, and he dug up historical stock data dating back to the South Sea Bubble of 1720. That's when stock prices collapsed in Britain, throwing the world into a 64-year bear market.
Historians say the events were brought on by investors' mania over the riches promised by Spain's colonies in South America.
Prechter, like Elliott, says the cycles within financial markets are driven by swings in human emotion: If the majority of investors are optimistic, prices rise; if not, they fall.
In an age when many technical analysts and investors use elaborate computer models of economics and applied mathematics to forecast the market, Prechter uses other gauges -- like watching television and listening to popular music -- that he says reflect the mass psychology of our time and provide evidence of when a wave will change direction.
Led Zeppelin
Prechter believes that reports of the reuniting of Led Zeppelin, the British rock band that was popular during the bear market of the 1970s, are as important an indicator of looming financial doom as the fact that today's 2.25 percent stock market dividend yields are near historic lows.
Prechter says his interpretation of current societal trends and sentiment forces him to conclude that we are approaching something just short of Armageddon.
``We've entered a bear market that's so big, we haven't had anything like it since the 1700s, and that was a 64-year corrective process,'' says Prechter, who has wavy hair parted in the middle and kneels on an ergonomic, backless chair. ``This is a great opportunity to get out. By the time this whole thing is over, you'll be able to buy your favorite neighborhood mansion from the bank at 10 cents on the dollar.''
Prechter also says a major world war may be looming.
`Warlike Activity'
``It's disturbing that we have already been the victim of and are now posing to be involved in warlike activity,'' he says. ``It's pretty rare that it happens this early in a trend, and I suggest that we will probably have a substantial war.''
Prechter says he realizes his views are extreme. ``I'm once again calling for events that few expect,'' he says.
Still, the wave principle has successfully forecast some big market shifts. Elliott announced in the middle of World War II that a multidecade bull market was about to begin. And it did: the Dow rose more than eightfold from 1942 to 1966.
In September 1982, Prechter used his principles to announce that a superbull market had begun. The Dow more than tripled to 2,736 from 893 during the next five years.
Prechter's recent U.S. stock market forecasts have been on the mark: He recognized a buying opportunity immediately after Sept. 11, 2001, and he urged investors to sell as the Dow reached its 2002 peak last March.
$7 Trillion in Value
The wave principle isn't foolproof. Prechter's 1995 book ``At the Crest of the Tidal Wave: A Forecast for the Great Bear Market'' (New Classics Library, 1995) predicted a slump early -- way early. Published in 1995, the book was off by six years and $7 trillion in stock market value.
Michael Thorson, a former trader at the Soros Fund, calls Prechter a ``quack.''
``His advice tidily sums to the oh-so-helpful, `Be nimble enough to see major trends coming, and make changes accordingly,''' Thorson says. ``This is the kind of advice my mother used to tell me before I ventured into the haunted house.''
Robert Shiller, the Yale University economist whose book ``Irrational Exuberance'' (Princeton University Press, 2000) warned that U.S. stocks were overvalued, says that Prechter is making an extremist case.
``I'm making a much more modest prediction about overpricing in the market,'' says Shiller. ``I anticipate declines, perhaps steep declines, but I don't see a long deflationary period ahead of us -- and certainly not a depression.''
Followers
At the same time, Prechter has his fans. ``His work is as relevant now as it ever was,'' says Henry Van der Eb, who runs the Gabelli Mathers Fund. ``I follow a variety of disciplines, and I believe just like there are patterns that repeat themselves in nature -- like the nautilus shell -- that there are distinct patterns of waves that influence behavior and markets. Elliott wave has validity, and Prechter is its preeminent practitioner.''
Van der Eb's $82 million fund has been all in cash for years.
Hegel, the retired Van Kampen fixed-income chief, has subscribed to various Prechter services since the 1980s and says he's still profiting from the advice.
``Prechter's folks have been very good for me of late,'' Hegel says. ``His analysts are disciplined and provide good trading opportunities.''
Hegel, who spends $400 a month for Elliott Wave's stock market outlook, points to a series of calls by Prechter disciple Robert Kelley, 36, a former technical analyst at J.P. Morgan Chase & Co. Kelley monitors U.S. markets and precious metals for Elliott Wave from his Miami Beach home office.
Wave Analysis
Bearish for most of September, Kelley reversed course on Oct. 10 after completing a wave analysis of 15 years' worth of charts on the volatility index of the Chicago Board Options Exchange, the largest U.S. market for trading put and call options.
``He switched gears as the market was changing,'' Hegel says of Kelley. ``Most analysts stick with opinions when things are going well. This guy changed on a dime. It made for a very tradable perspective on the market in real time.''
Kelley says there are lots of Wall Street technicians who use the wave principle: ``It's the single best tool for technical analysis because it provides a framework of expectations and tells you when you're wrong.''
Prechter didn't seem destined for a career as a renowned financial forecaster. Born in New York and raised in Atlanta, he majored in psychology at Yale University.
Playing Drums
After college, he spent four years playing drums in a rock band called the News, a name later taken by Huey Lewis. ``He can have it,'' Prechter says. ``It's not a good name for a band.''
While touring with the band, Prechter read stock market newsletters his father mailed to him. He says the one he liked best was Richard Russell's Dow Theory Letter because it had occasional input from stock market commentator A.J. Frost, who admired Elliott's wave theory.
``I used to carry stock charts and newsletters around with me when we played,'' Prechter says.
In 1975, Prechter applied for a job as a technical market specialist at Merrill Lynch. Seated before the head of research, he rattled off three reasons why he, a rock drummer, should be chosen from among 30 other candidates for the job: ``I have no experience, so I can learn things your way; I'm a fast learner; and I fronted in a rock band for three years, so I'm not afraid of crowds if you need me to go on the road to speak.''
Prechter says he's still not sure why he got the job. He went on to do a 3 1/2-year stint at Merrill.
Elliott's Theories
Once he became interested in Elliott's theories, he located in the New York Public Library stacks the only available copies of his idol's original works and began publishing wave studies on the stock market.
In 1978, with Frost, Prechter co-wrote ``The Elliott Wave Principle: Key to Market Behavior'' (New Classics Library). Over the next two years, he quit Merrill and started Elliott Wave Theorist, a monthly newsletter devoted to analysis of U.S. financial markets.
Prechter's business prospered in the 1980s with his prescient calls. It then faltered when he stayed bearish during the 1990s.
``I would have loved to have caught the rally, but I'd rather not run with the lemmings because it means taking a risk,'' he says. ``There's virtually no risk right now to be short. If I err anywhere, it's on the side of caution because most people aren't suited for speculation.''
Antidote to Analysts
Prechter says he wants to be an antidote to securities analysts, whose work he dismisses as worthless.
``It's difficult to impossible to talk to people in companies and look at balance sheets and make decisions about where a stock is going,'' Prechter says. ``A company and its stock are very different things.''
Most money managers, he says, are either oblivious and always bullish or immoral, merely giving the public what it wants. ``To most investment advisers, it's only a question of, `Is it this group of stocks or that group, this sector or that sector, European or U.S. stocks?''' he says.
Prechter works in Gainesville, Georgia, a mountain town about an hour's drive north of Atlanta. His company occupies the third and fourth floors of the Hunt Building, which at six stories is the tallest building in town.
Most employees spend their days in their small offices, blinds drawn, watching TV for the latest market news and charting trends on their computers. Memos are banned, and there are no staff meetings.
`Total Autonomy'
``I pretty much have total autonomy,'' says Kelley. ``I rarely speak with Bob.''
In early 2002, after U.S. stocks had rebounded sharply from their post-Sept. 11, 2001, lows, Prechter says he believed the market was at a critical juncture and was poised to tumble. He hunkered down and wrote ``Conquer the Crash.''
``I couldn't resist the opportunity,'' Prechter says. ``During the post-Sept. 11 rally, I said `Man, this is a real chance to get a book out that can help people.'''
With the book out of the way, Prechter and a small group of analysts are gathering data on social and cultural trends in an attempt to show that the wave principle, which he applies for market forecasting, can also help explain various social actions.
People like to believe in cause and effect, he says, because they know it: Kick a stone, and it moves.
`Social Moods'
``As a result, most people think that economics, politics and war and peace affect people's moods, but it's the other way around,'' Prechter says. ``Social moods shape events.''
For example, he says, the prevailing wisdom is that the Sept. 11 terrorist strikes triggered a stock market decline. That's wrong, he says: The market's decline set the stage for the attacks.
``The market was going down for a year and a half, and the anger and fear culminated into sloppiness on the part of authorities who were supposed to identify these threats,'' he says.
Similarly, Prechter says, Enron Corp. didn't collapse because reports of scandals unsettled investors. Rather, the psychological climate of the bull market encouraged companies to mislead investors. In other words, it was the investors who brought on the Enron scandal -- not the other way around.
Prechter also charts the popularity of a certain financial guru: himself. In late 1987, when the number of his newsletter subscribers exceeded 20,000, Prechter says, his own personal chart clearly showed him at the end of the fifth wave -- a sure sign that his popularity would crest.
`My Fall in Fame'
``It was predictable, my fall in fame,'' he says. ``In fact, I did predict it. Popularity waxes and wanes, like everything in nature.''
Prechter says that though he probably won't regain the popularity he once had, he's positioned his company to succeed in the upcoming market crash.
``I wouldn't be surprised if we are the only prosperous firm during the bear market,'' he says. ``Brokerages won't be. Money managers won't be. Maybe some really good bearish hedge funds, but I bet we're tops.''
Prechter may be wrong about that -- like he was during the 1990s, when he forecast that stocks would tumble. Then again, maybe he's right. He's been right before too.

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gesamter Thread:

• Vom Weinhnachtsmann an die Bären.....;-) - XERXES, 25.12.2002, 00:03
  • und einen speziell für ELLI - XERXES, 25.12.2002, 00:08
    • Re: und einen speziell für ELLI / danke, aber nicht nur mich,.... - -- ELLI --, 25.12.2002, 00:23
  • Re: Vom Weinhnachtsmann an die Bären.....;-) - Luigi, 25.12.2002, 23:19