Currency Market

Years ago a pundit (I believe it was James Dines) described the 1980s as a rare currency market, meaning it was reacting to changes in monetary policy, not fundamentals.  At the end of an inflationary Kondratieff Summer, someone finally breaks the back of inflation, and we enter the 'false plateau' of the Kondratieff Fall. In 1980, Volcker broke its back.  In 1982, we entered the false plateau - the "decade of greed."  Once inflationary expectations were flattened, all financial assets were undervalued, since their future cash flows would have been heavily discounted against inflation.  Once their discount rate is lowered, they immediately are of higher value.  With the magnitude of Volcker's success the re-marking to market was quite a spread.  It took a while for markets to catch up to the new reality, but they did, faltering only in 1987 with a new Fed chairman and a change in US monetary policy, to cheapen the Dollar against the Yen.  Today, with markets in lockstep - a very unusual circumstance - are we in another Currency Market?

We normally would not be in another currency market so soon, but the Greenspan Indian Summer has flooded the world with liquidity.  This has caused markets to rise together somewhat since 2003 - they have been driven by easy credit, not fundamentals.  A different cause than in the '80s, but the same result - driven off financials not fundamentals.  In the early 1980s bonds and stocks rose while commodities fell.  Now they are both falling in lockstep, while the Dollar is rising, or at least holding its own.  As some of the comments have indicated, liquidity is being pulled from markets.  In Japan, rising rates have scared off the carry trade, and the Yen should be strengthening.  Russia is making noises of going to a hard currency.  The European central bank has tightened.  The Fed is clearly in a dilemma: tighten to protect the Dollar and risk recession, weaken and risk inflation.

The Elliott community still has a few bulls.  MHD asked me about Neely.  He does not think we go below the 2002 lows, but is not a bull, at least not in the near term.  This is more like a triangle playing out - a large trading range.  (His method is a bit different than Prechter.)  Prechter made an interesting confession in his recent EWT: he "finally" made some good calls.  He missed on gold (it went higher), although he was directionally correct - it is now lower than his premature top call.  He got silver right - it is now 44% down, in a very short 5 weeks.  More relevant to this post is that he is one of the few who has stuck with a deflationary depression prediction, and one of the first to point out in 2004 how and why markets were moving in tandem. 

Curiously, he predicts that the Fed will soon have to lower rates, even as markets collapse and the Dollar rises.  Why?  The demand for money will slacken as the economy slows. This should unfold over the next 8 years, not immediately.  Yet if we are entering a Kondratieff WInter, the deflationary pressure should be quite persistent, albeit short-lived (3 sharp years is what happened in the 1930s and the 1890s).  As credit is withdrawn, those caught on the wrong side will have to liquidate assets, accentuating the slide.  This is already happening in real estate, with foreclosures up sharply.  It should feel inevitable, impossible to withstand, during the sharp period.  Given the coming US election, the sharp period may not happen until 2009 or after.  Expect one final set of pump-priming into the election, followed by the next President taking the medicine to clean house and blame it on Bush. 

As to the wave count, we are still in a down trend.  The downticks are sharper than the corrections.  The 'complex correction' we are in is but a minor degree wave that is over or will be shortly.  The corrections have not retraced very far, either; stalling out.  The deepest drop should happen shortly - the 3 of the 3 (at a minor degree). 

Lots of good comments in the last few posts; I encourage readers to listen to the others and join the dialog. 

Comments

[rdneu56]

Yelnick wrote: “Prechter made an interesting confession in his recent EWT: he "finally" made some good calls. He missed on gold (it went higher), although he was directionally correct - it is now lower than his premature top. He got silver right - it is now 44% down, in a very short 5 weeks.”
Yelnick, thank you this is great entertainment. Prechter admits that he finally made some good calls? I am still recovering from rolling on the floor laughing. Prechter was directionally correct on gold. That is just too funny. He got silver right. Yes he may have, but without being wrong on it for much longer than he will ever be right on anything.
Prechter’s mode of operation is so transparent. Make frequent forecasts on anything and everything. Make sure that anything that accidentally turns out correct will not be forgotten by your followers. Rub their noses in it every chance you get. Make sure as best you can that the majority of your wrong calls fall into oblivion as fast as possible. By the way, who still remembers the “diamond calls” Prechter put out at the end of 2005, forecasting a swift, immediate decline of the stock market?
Next, take everything you can twist into correct forecast by representing the original forecast in slightly different light, i.e. the recent self evaluation on his gold and silver calls.
Now, the depression has apparently been downgraded from imminent to sometime within the next 8 years. I’ll start to worry about deflation when Prechter says there won’t be one!

[tony caldaro]

Welcome back!
How was Europe?

[hendrik]

rdneu:

maybe if you spent a little less time laughing and a little more time subscribing to Precter you wouldn't be so bitter.

Precter is very good. He makes a lot of calls because he works hard, not because he "wants" to. He is a good trader, a decent man, and a keen student of the markets.

Subscribe and stop whining. It's worth the 161.80

[Bobby Prechter]

CRASH IS IMMINENT!!
AS IT HAS BEEN FOR THE LAST 19 YEARS!!

bob

[fair warning]

Do not impersonate real people. You put yourself at risk of legal action. It's okay to joke, but do not use real names of real people.

[MyLovelyLittleRibs]

The only person at risk of legal action is Prechter and idiots such as yourself for false claims.

I am interested in hearing from any other subscriber to Prechter's Flash service. Recently I used his service and his calls pratically wiped out the capital set aside for trading the flash service. I have spoken to a lawyer about this who has examined the claims on EWI website and states there is ground to recover at the very least the cost of the subscriptoin. If any one else is interested participaing as a joint action please let me know.

[attorney]

I would be unable to participate in such a class action suit as I have no money with which to make a phone call, buy a phone, or eat. I have lost all my money to bad advice from snake oil conmen who cater to the panic-prone-set they purport to soothe.

[Olive "Snake" Oyl]

I'll trade you. Do not pretend to be a good analyst. You put yourself at risk of legal action from consumer protection. It's okay to have some good theories, but do not persuade normal people that they should trade them, because your application of your own theories is a JOKE.

[Olive "Snake" Oyl]

I'll trade you. Do not pretend to be a good analyst. You put yourself at risk of legal action from consumer protection. It's okay to have some good theories, but do not persuade normal people that they should trade them, because your application of your own theories is a JOKE.

[Paul]

Today's Elliotwave.com testimonial:

I’d like to compliment you on the accuracy of your forecasts. GREAT JOB!
-B.W.
Platte Center, NE

[rdneu56]

Well, it looks like every time the US dollar is weakening a bit, the SM is putting on a rally. We are well off the June 13 lows. I do not know whether the SM will go to new highs or whether it will break the recent lows. If we break the lows, it is very likely that the tide has changed. If we go on to new highs the Greenspan-Bernanke bull market (this thing is now 3.5 years old, we should give it a name) is still alive and well.
I do know with near certainty, that every time Prechter pipes up with a forecast, the market proves him wrong. Sorry, I could not help myself - I had to slip this in here.

[rc]

More to this bounce in the SM (few days/few weeks... let things play out with the fed's upcoming rate increase), then new lows. We're at least correcting the late 2002/2003 bull, and that's not nearly done (months to go).

[rc]

Why rally into a fed increase? That's what's happening... it's been accepted and has removed uncertainty... and can be anticipated as a stopping point. Anyway, it's buy the rumour, sell the news (or vice versa), so look to counter any move into the increase and the release of the minutes.

[MHD]

With the 2 year at 5.25% a quarter point move up is assured. Debt is just no fun when you have to pay it back, and with higher interest to boot. Lots of people with ARM's are going to find that out in the near future.

[tony caldaro]

Buy the rumor, sell the news ... if it's good news, not bad.
A rate increase should create a ... sell the rumor, buy the news.
The market is giving a message here: rally into the FED meeting, sell the increase, then make new highs...

[Drillnick]

Does anyone know how to make Elliott wave cope with sideways markets?

[Warren Henson]

Folks, chill out on the markets and laugh your asses off with a fun movie. It's called "Click" and it opens this weekend starring that loveable goof Adam Sandler, a clown with a goofy temper and a heart of pure gold.

Haven't you always wondered what it would be like if you could consolidate all your remotes: VCR, TV, DVD, stereo, garage opener... HOW ABOUT THE WHOLE WORLD? That's the priceless and all-too-relevant premise in our ever faster world. Sandler has some fun with his "universal" remote but learns some "universal" truths along the way. Like the power of love, forgiveness, and family.

I urge you to run out and check this doozy out. It'll make you laugh til you laugh harder, cry til your catharsis has been cartharted, and just love life and realize what a petty, silly fools game these markets really are. Remember: In the long run we're all dead. Laugh a little!

[rc]

The critics are raving about Click!

"I urge you to run out and check this doozy out."
Warren Henson, Yelnick Blog

"I laughed so hard it hurt!"
Joe Schmoe, Golf World Magazine

"The Best Comedy of the Year! Maybe the Decade!!"
Jim Smitherson, The Sioux City Observerer

Personally, Adam Sandler irritates me. When I first saw him on SNL I thought he had little talent. Now he's a success -- filling a void for comedies no matter how lame. No thanks.

[rc]

MHD: I'll betcha (gentleman's bet) that we make new lows (below the current low of this correction), before we make new highs (above the starting point of the correction -- for the dow that'd be up against or past the record high).

You see up into the fed, then a sell the news, then up...
I see up into the fed, then down.

Loser has to go see Adam Sandler's Click (and pay -- no waiting for the dvd), and proclaim the Winner the market forecasting guru of the Year! No, the Decade!!.

[I am a cinemaphile]

art is wasted on the intellectuals. LAUGH a little. He's so, so, funny. Adam Sandler is probably the funniest guy on earth and you guys get all self serious about it and critique him.

Go treat yourself to Click. Smoke a doobie if you have to but GET INTO the vibe of this awesome "remote control" movie. It's like Tivo on Acid, or like your garage opener can control your wife. Hilarious. Fast forward, rewind, whatever. It's brilliant.

[rdneu56]

I am with rc on Adam Sandler. He holds top rank of the most insipid in my book.

[rc]

Yelnick et al - yields on 10 year treasuries have just hit the upper trendline of a very clear parallel down channel that goes back 20 years. I urge everyone to take a look at this on a chart. The last peaks occurred in 1999/2000, which preceded a major equity bear, and 1994/1995, which preceded a major equity bull. The earlier peaks were in '89, '90 and '91. Trendline bottoms occurred in 2003, 1998 and 1993.

Not sure what to make of the above -- just pondering -- except of course that those trendline hits presaged fundamental changes.

According to Yelnick's piece, Prechter would see the TL holding and yields going lower. And if the fed stops at 5.25 then that'd fit also. OTOH, an upward break would indicate the ending of a 20-year downtrend. We're right at the moment of truth -- we should know within a few weeks if not days.

[sandler fan]

You're entitled to your opinions, but it makes no sense to denigrate Adam Sandler's work. He's made hundreds of millions in a field that requires people to vote on good or bad. It's like the stock market: it is elegant in its disclipline. You're right or you're wrong. Say what you want about Sandler the man (and by all accounts he's a gentleman), his work is unassailable.

Try watching Click, with an open mind of course, and you will be delighted.

[Drillnick]

What's any of this Adam Sandler chat got do with Elliott waves?

[MHD]

Maybe Adam Sandler's moods are tied in to the waves :-)

[click]

go see click! it'll click for you! sandler! click! celebrate humanity's love of beauty and truth and Tivo, remote controls, etc.

please

[This is a stupid blog]

I think Adam Sandler's movies are great...seriously, I've like almost all of them. F*ck the stock market, F*ck politics...go see a movie...I mean really, who f*cking cares about this sh*t when we're all here for just a BLINK in the big scheme of things.

I used to be like you guys, concerned about how much money I had, how much I was earning...every year I made more and more and it was never enough. Not anymore though...all that matters is my relationship with God, my family, my friends, and laughing & smiling. It's funny, ever since I stopped caring about money, I've made way more than I would have ever thought possible years ago. Laugh more, guys...it'll do you and everyone around you alot of good.

Rock On!

[Butt Flange]

Did I tell you all HOW MUCH I love all you beautiful people here in this blog?

[love]

I love you. Adam Sandler reaches me deep inside and makes me giggle and love life. I love his movies. they speak to me. I laugh and laugh and laugh. I also laugh at other silly things. I try to laugh three times a day. It's spiritual medicine! I love cuddling, garfield, and i HATE Mondays. I love fun and kindness and stock markets. I don't care about money. Family and God and Jesus and Christ's desire to suffer for our bloody sins on the cross of pain, jews, etc.

good luck to all!

See Click NOW. It will lower your F***ing blood pressure.

[YOU ARE A moron?]

Morons don't pay to see Click! We laugh at pictures of the poster, imagining all the zany takes on remote controls those dastardly funny (and zanily crazy!) Robin Williams-esque things they come up with. Those guys must drink a lot of Beer!

I love laughing at funny joke humors.

[gem-x]

Yelnick, I saw you online last night at wavegenius.com/forum before the hackers destroyed it.
Yelnick. Is that russian name?

[gem-x]

Yelnick, I saw you online last night at wavegenius.com/forum before the hackers destroyed it.
Yelnick. Is that russian name?

[yelnick]

Gem-x, oh boy! I hope you got your site back up, and Neo Trinity up again.

"Yelnick" comes from a joke - a Cheers episode that highlights the perils of prediction. Cliff Clavin pontificated that he knew how to predict the next President of the United States. So just before the 2000 election, he ran his method, and said:

"If you go back in history and take every president, you'll find that the numerical value of each letter in their last name was equally divisible into the year in which they were elected. By my calculation, our next president has to be named ... Yelnick McWawa."

Hence this site, which began as a private newsletter, got named by one of my readers as a way of poking fun at Prechter and the whole gang of technical analysts who believe they can divine the future. Nothing to do with Russia, or Prechter, or anything like that.

One of my emails for this site is [email protected], and I have been in an extended and rather tiresome dialog with a person whose name truly is Yelnick to get that name from me. He asked: "Are you a Yelnick or a Cheers fan?" That episode must have set back the proud Yelnick name for a generation.

Then there is one joker who keeps on flaming this site. He sometimes plays cute, as above, but often is just crude. Not sure why he bothers. My son (who is 22) thinks he is 14 years old and acting to age. But nothing like hackers taking down a site. Why do they pick on the Elliott community? Fairly innocuous and not really of the Generation D world. Who knows.

[yelnick]

Tony, back from Europe and watching this curious market. John Mauldin just posted a fabulous explanation of what is going on among the Forex world. Oil up drives demand for Dollars, and many nations have taken a short position ie. borrowed heavily assuming the Dollar will drop. But as oil stays high, the Dollar will continue to rise, which at some point will force these shorts to cover and buy Dollars - driving it even higher. Hence I believe the Dollar will go to above 100 on the Dollar Index. The Fed is in a trap, since inflation is poking up, and they will likely raise rates this week and in August, further strengthening the Dollar and causing consternation in oil importing countries. The world has a large incentive to get the price of oil down again. Otherwise we see an inverted yield curve at the end of the summer, a looming recession, and then a scramble during the runup to the 2008 election to pump liquidity back in. So a down market until Oct +/- a month, and then a nice rally into 2008 before all those chickens come home to roost.

[stumandel]

Bob Hoye has been predicting a suprisingly strong US$ for the past two years based on very broad historical trends.

Concerning the direction of stocks, I still buy into DR. Ravi Batra's idea that a shift in wealth concentration causes Depressions. Ok, so his book "The Great Drepression of 1990" was way off the mark - it still makes some good points.

He never quite makes clear the mechanism which the data suggests is happening, but that's becoming clear in front of our eyes.

Massive liquidity added to an "equitable" playing field = inflation

Massive liquidity into a wealth concentrated situation = unprecedented boom followed by bust.

We can only wish for the 70s to happen again and have all the massive liquidity hang around long enough for us to buy bigger GM cars and pet rocks for years to come. Looks to be spilling away faster than that.

liquidity might be going quickly because it's concentrated in too few hands, and since those hands have been forced to take bigger and bigger risks...well, you do the math.

...and that's the nature of a wave - which is not, by the way, a psychological state of mind. Its a real situation based upon circumstances and events which are real - not simply fuzzy feelings inside our the navel.

Pretcher has had the overall picture right (he's had it for too long a time) but for the wrong reasons.

For those of you who love to bash Pretcher - ask yourself - IF the US had the same immigration policy as Japan, would we not be in open deflation like Japan is now? I mean, after all, you add 100 million new people to your country in 25 years (that's counting illegals too) of course you're gonna have something of party...til' your kids end up in a class of 50.

that statistic alone puts the BULL back into the Greatest Bull Market Ever theory.

[rdneu56]

Let me see whether I get this right. Prechter got the big picture right, but we could not see it because US immigration policy is a lot looser than Japan's. I am not sure whether I should laugh here...
Let me say this instead: Prechter got the big picture wrong - completely wrong for the last 2 decades!

[Bob Pecker]

Yelnick:

Lets make a deal. You allow me to post again and I will behave and make constructive comments. And this site will become friendly again.
Please let me know what you decide about this.

Bob Pecker!

[stumandel]

it's not really a laughing matter... it concerns our collective (oh, what a liberal sounding word) definition of wealth.

if Japan could've fit in 100 million new people, they'd have done so. What do you think the War was about? Japan can barely find room to build new roads or new forests to pave over. how else are they supposed to reinflate?

it really comes down to expanding the money supply, to keep that debt ball in the air.

I've kept my eyes on Australia. If and/or when their housing and/ or currency implodes (I'm guessing 40% would be required)
EW's 20 years of dire warnings might come true, but not because of change in social mood, but because the postwar money supply mechanism has failed.

[rdneu56]

stumandel,

The laughing matter is the Prechter got the big picture right thing - not the current state of affairs.
How could Japan reflate? Simple, they could build up their military and make their troops available to the US for the so called war on terror. The possibilities are endless.

[Crash Always Imminent]

EWI has released a special report concerning tomorrows Fed Announcement

-->>> CRASH IMMINENT

Sell Stocks
Sell Gold
Sell Real-Estate
Sell Hot Dogs
SELL EVERYTHING!!!!!!!

[yelnick]

Bobby, if you truly want to contribute to this community, welcome back. Play nice in the sandbox. Keep it clean and humorous, or clean and insightful. The scatological fake email names are juvenile - be more clever. And we shall see how it goes. There have been sociological analysis of online communities, as well as game theory simulations of proper behavior, trying to find what approaches optimize a community rather than cause members to leave in disgust. One conclusion is that online communities need to be monitored to prevent falling to the lowest common denominator of bahavior. I have a day job, so I lack the time to do that, except in a small way, and must rely on member behavior & reaction, especially about whether they find cleverness funny or annoying. Another conclusion is that "Tit For Tat" is the best strategy, as it tends to cause the 'defectors' to also begin to follow a similar approach, and support the community rather than try to trash it. So I am willing to give you a 2d chance. In the end, it is up to this community.

[Free Prechter MP3's]

Free Elliottwave MP3s for iPod listening....

http://www.netcastdaily.com/
1experts/exp060102.mp3

http://www.netcastdaily.com/ 1experts/2003/exp020103.mp3

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1experts/2003/exp120603.mp3

[stumandel]

"...Some analysts and economists, including the brilliant Stephen Roach of Morgan Stanley, have applied the Nash equilibrium as a reason for the failure of the U.S. dollar to fall further than it has versus other currencies, especially Asian ones, and as the reason that U.S. market interest rates have not risen further...."

"...According to Roach, the general agreement is that the dollar must fall another 20 percent to 25 percent in order to alleviate our persistent trade deficit and future inflation problem. The question is whether the drop is orderly and less disruptive according to a plan put together jointly by the G-7 industrialized countries and the International Monetary Fund or violent and disorderly..."

http://www.kansascity.com/mld/kansascity/business/14907761.htm

Roach has been just as wrong as Pretcher.

think about if Roach is right and the US $ declines 25%. that makes commodities 25% cheaper for the rest of world....so let me get this straight...US multinationals spent the entire Cold War gobbling up the developing world's resources and now they're gonna sell it all back to them at a 25% discount? Just what planet do Goldbugs / US$ Bears come from?

people like Roach have an agenda. it's easy to make good calls when you have an agenda (though he hasn't) there's huge positions behind what is said. We all know the EW people have no rich uncle. that's why they get so much wrong but are (I believe) more right than random chance.

I think Goldbugs & US$ Bears are peddling snake oil - the same guys/gals who sold time-shares in the 70s. (probably a few are) I recall those going up in value, at 1st...I still got a friend spending burning hot Julys' in Carson City one week every year because of that!!!

[roger]

Trying to predict the stock market is one of the most hopelessly complicated goals there is. People who do consistently well trading are either lucky or privy to inside information or early deals. Hucksters often toss around words like "chaos" and "fractal" and "self-similar" but they don't really understand what they're talking about. It's sort of like shampoos and creams that advertise "amino acids" and "ceremides" that are just chemicals du jour.

[rdneu56]

stumandel,

Right on this time in the Roach department.

[rc]

I'd appreciate it if anyone can englighten me on the following:

I just downloaded average, non-farm, hourly wages since 1964 from the bls along with the cpi-u. Then I divided and graphed the wages divided by the cpi to get real (inflation adjusted) wages. The result is a shock!

The peak was in 1972/73 with a bottom in 1995. It went up again till about 2003, and we've bumped a bit lower since. They're roughly 11% or so lower than in 1972/73.

I'm reasonably sure I got the math right and the right data series, but I didn't expect this result. Of course other things like benefits such as healthcare aren't included, or taxes, but still wages are wages. And I know people seem far better off than in the early 70's. Is this because of 2-income households making up the difference?

[Cornhusker]

Look at the quarterly revenue growth on this one. What do you guys think? Should I invest in this company?

http://finance.yahoo.com/q/ks?s=AMEN

[MHD]

The Fed's statement should have been a disaster for the market as there was no wording of a "pause". Instead the market shoots to the moon. So what else is new! One thing that I noticed that is strange is most of the SPX put options have a 3 dollar spread instead of the normal 2 dollar spread. This usually happens when the writers are scared of an impending downturn. Even with all the buying today the spreads stayed at 3. Should be an interesting next couple of weeks. I still don't understand what the market liked about the Fed's statement. To me it left much uncertainty as far as future rate increases. The statement that inflation remains under control has been said 17 times, so that can't be it.

[yelnick]

MHD, normally we see run-ups into the Fed announcement. This one was larger than normal, perhaps because it was ahead of a four day weekend plus three day week next week plus end of month, hence a good time for mutual funds to lock in this quarter and go away for 10 days. The market had expected a 25 bp increase, and they got it; so not a disaster. What is now starting is anticipating when the rate increases end. If this had been 50 bp, this might have been considered the end; but now the assumption will be another 25 bp in August. Watch for light volume tomorrow and next week. Heavy volume means something else is going on.

[tony caldaro]

Hi Yelnick,

Expecting the bears to attempt to take control friday. Feel the pullback will be a buying opportunity come after the holiday. Looks like the bull market is back on the rise.