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« The Beginning of the End of the Beginning | Main | Oil in Super Contango! »

Monday, January 12, 2009

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Glenn Loser Neely

The fifth scenario IS:

A CRASH IS IMMINENT AND WE GO TO ZERO...

GLENN LOSER NEELY

Steven_737

Duncan;

I guess the underlying question is:
is the correction of a Grand supercycle
a 5 wave structure (impulse bear wave)
or is it
a 3 wave structure.

I have not seen any clear statements on this issue. Additionally, I believe that nobody can have a definite answer to this question (one can only guess or speculate) because such an event has not been witnessed so far.


In EWP, Prechter states: “A grand supercycle bear market would then 'correct' all the progress dating from the late 1700s (Appendix Long Term Forecast Update, p239, Elliott Wave Principle).

and

he speculates “If ..... then the 1000-year Millenium wave, unless it is extending, has almost run its full course and stands to be corrected by three Grand Supercycles, two down and one up, which could extend over the next five hundred years”. (Chapter "The Millennium wave from the Dark Ages", p 160, Elliott Wave Principle).

Perhaps I have missed a paragraph that clarifies this question.

I would appreciate if you can point to another relevant statement in his book (or Neely's book) that addresses this issue.


Thus, the closest answer that Prechter gives to my question is that the correction of a Grand supercycle
is a 3 wave structure.

This assumption means that the current correction will be a double three or a triple three, the first three wave sequence being a 5-3-5 zigzag. Additionally, the market is completing this zigzag i.e. it has probably started w5 of C (or is still working on w4 of C). An estimate for the end of w5 would be spx 700+-30.

These are the reasons I am not buying a w1 of a bear impulse.
Your thoughts please?

Steven_737

DG

Steven 737,

In Mastering Elliott Wave in the Appendix, Neely says Dow 100K by 2060 and that the Dow's 1987 low should not be broken by more than 100 points.

He doesn't think any of what we've seen over the past year has been impulsive.

min

Yo Loser:

So how much did the "Neely Experience" cost you?

DG

Yo Loser:

So how much did the "Neely Experience" cost you?

Posted by: min | Monday, January 12, 2009 at 08:23 PM

I've also asked him that, along with details of what he traded and what proportion of his portfolio was he risking. Neely will often say things with great confidence and an inexperienced trader might "go for broke" on one of those statements, not realizing that at the end of the day trading is about probabilities, position sizing and risk management.

I had that happen to me before and while it absolutely sucks, you have to take the Jesse Livermore attitude toward it and chalk it up to learning. He says something like "the market is a harsh teacher and it never forgets to collect its tuition". Amen to that.

min

You gotta hand it to the Prech, he really has a penchant for the dramatic.

As someone who got his initiational hazing trying to follow his, on the fly, market calls during the 2000-2002 market debacle, I can tell you that even though he was generally right for these two years (a true rarity) he was also plenty wrong with his short and intermediate term wave counts.

The only ones that made money using him as a guide were unemotional,iron-stomached, seasoned traders that shorted stocks in spring of 2000; somehow knew to stop listening to him in the spring of 2003; covered their positions and never heeded another EWI comment for the next 5 years —and there were very very few of those.

If trying to use him as a forecasting guide and using options or futures contracts were dead because at times he was way off with his wave counting and the market would often do the complete opposite of what he proclaimed was next —including many of his "high confidence calls" issued through apecial EWTs (this is where I began tabulating his batting average).

My point is if he can get it plenty wrong when he is at his best, then what can we expect on a wave count that can take hundreds of years to prove?

These profound pronouncements are his method of being remembered and trying to stay relevant.

It's typical Prech behavior and he makes it work as here we are talking about someone with an overall 10% batting average. I for one will forever remember him as someone who proved that running a famous and profitable forecasting service can be done even if wrong 90% of the time.

Yelnick, I would stick with your road map as Prechter's carries a 90% likelihood of being poop.

min

DG

Yeah, I thought Neely might be another Precther, but upto now "Loser" is just not making his case.

Wavist

DG, on Neely's call for Dow 100k - I know that everyone hears that and thinks wow, but to me that's actually a really bearish prognostication. Yes I know what everyone thinks when I say that (well besides for wth dtm) but if you actually do the maths that only comes to a 5% annual growth rate - barely above inflation, equivalent to a savings account with infinitely more volatility and risk to capital. It's also less than you'd get from many corporate bonds, again at higher risk. So if true I would say to anyone wanting to do the buy-and-hold investing trick that they need to look for high long-term dividends and focus on income rather than growth.

yelnick

Steven737 - I don't expect such a plunge in the short term (2009).

On a wave structure basis, the A wave from 2000-2003 has always counted best as a 3, especially as the waves were mightily overlapping until May02 when we had a 3000 pt drop. Hence I have expected this whole period to be a flat (335) or triangle (33333) and I still hold to that The C wave we are in so far is still a 3, although it seems poised for a 5th wave down. If so, we may be in a big flat, which also explains the B wave cresting the 2000 high. Or, the c leg of this triangle may be about to break as a zig zag, with this so-called wave (1) actually the A of an ABC zig zag (535 structure). The excessive B wave of 2007 means this would be a running triangle.

On a deeper level, where Prechter has been shown prescient, is that the scale and scope of the financial debacle we are in looks like at least a 20% GDP drop over several years, and maybe 35%. This is not a Recession brewing, but a Depression. A Depression is different in kind as well as degree from a Recession: a Recession tends to come when the central bank tightens credit (raises rates), whereas a Depression tends to come when a central bank lowers rates (ie spurs a credit bubble). A 20% drop is the scale of 1937-1942; a 35% drop is the scale of 1929-1932 (yes, we had two Depressions back to back in the '30s.)

While that appears to be coming, I do not expect the stock markets to correct all at once, but to grind their way down as the economy continues in free fall. Hence, a running triangle with downward slope off leg a to leg c and a steeper slope from leg b to leg d.

DG

Wavist,

I'm not trying to give Neely an "out" but he does say 100K is a minimum and it can happen as early as 2020, which would make for a very different CAGR. So, we could end up in a 5% CAGR world or a 7% CAGR world or a 10% CAGR world, depending on when we get to the minimum and how far we overshoot that minimum, if we do.

I guess the important thing I take away from it is that we're not in some Grand Supercycle decline to correct all the progress from the 1700's. I'm as pessimistic as the next person but unless humanity forgets the scientific method, there's only so far we can fall as a species.

It's like I've said before about Neely finding corrective counts where EWI finds impulses, when the former are probabilistically more likely than the latter, given the ratio of time wave theory hypothesizes between them, which is that EWI wants to make things sound dramatic and so plays up certain aspects of Elliott Wave and plays on people's fears of cataclysm, whereas Neely just wants to accurately track wave patterns and try to make money trading them. I know some have found Neely's "emergency" emails just a tad over the top, but, ironically, the "emergency" email he sent out in October of 2007 with a bearish path marked out for the S&P actually had us bottoming higher than we did and taking longer to get there, so if anything his October 2007 warning wasn't pessimistic enough, even though it was his most pessimistic ever, by his own admission.

For what it's all worth.

HO

Damm, I hate Elliot Wave. LOL.

Al from Oz

From what I have read and hear about Precter, he is looking for 600 points yes thats right sixhundred points on the DJIA before this downward pattern ends. Close to insanity in my view.
Al

Grasshopper

Yelnick,

Concerning the current move down from the highs of last year -- most seems to think we are in Wave 4 and that it may be over soon. However, by my count in weeks it seems that waves 1 through 3 were 24, 29 and 14 weeks, respectively. While the current Wave 4 is only 8 weeks old. I'm new to EW and learning as I go but it seems odd to me that Wave 4 could be over after such a short time. Can you comment on this?

Many thanks for your assistance.

Steven_737

Duncan,

Thank you for your analysis.

“Prechter also expects a much deeper drop than a flat or triangle, especially as he sees this as not a wave 4 of a continuing bull market but a much larger and deeper bear market, potentially correcting the whole Industrial Revolution back to 1784”.

For all practical purposes correcting the rally since 1974 (dow ~1000 spx ~100) is the same as correcting the whole Industrial Revolution back to 1784 (dow ~0 spx ~0). (on a dollar denominated Dow Industrials; maybe there is a difference on gold denominated Dow industrials). hehehe....
The tricks of marketing a forecasting service.

"Elliott logic suggests that the Grand Supercycle from 1789 to date must both follow and precede other waves in the on-going Elliot pattern with typical relationships in time and amplitude" (EWP page 160, 2005 edition).”

For what is worth, my point is: in the absence of an Elliott wave clean answer to the analysis problem, you (and I for this matter) look at the price chart to identify pivots.

My eye-balling the chart identifies SPX 600 (indu 5500 ~ 5800), the 1996 pivot, which although you do mention, it seems that you do not use in the sequel. I consider this as an important level, being 0.382 * 1576, corresponding to a 0.618 correction from 0 (the dark ages) to the 2007 top. Worth noting that 610 is a Fibonacci number. The 1576 top was 21 points shy of Fibonacci number 1597.

This would fit in your #3 scenario, let us call it 3b (as opposed to the dire 3a that you have listed); i.e.
Complex WXY from 2000-2014, where W ends in 2009 at the 1996 level i.e. 600, a large X rally brings Hope, which is dashed in a Y leg down to either the 1996 level i.e. spx 600 (flat)
or the 1994 level i.e. 430(zigzag).


Your thoughts on scenario 3b?

Steven_737

Steven_737

Additional comments:

Is a 200 SPX (1987 level) in accordance with the fore mentioned
" ... must both follow and precede other waves in the on-going Elliot pattern with typical relationships in time and amplitude"... an 87 % correction is not typical in my understanding; it is not impossible, but it is not typical either.

There is nothing stopping Prechter from saying that SPX will reach Fibonacci 377, 233 or even 144, why not 89; heck 55 is a beautiful number.... but does it make sense?

“If ...... then the 1000-year Millenium wave, unless it is extending, has almost run its full course and stands to be corrected by three Grand Supercycles, two down and one up, which could extend over the next five hundred years." is followed by:
"It is difficult to think of a low-growth situation in world economies lasting for such a long period."
and
" This broad hint of long term trouble does not preclude that technology will mitigate the severity of what might be presumed to develop socially."(EWP page 160, 2005 edition). This last phrase is not English; it is mumbo jumbo to obscure the issue, and confuse the reader.
Leading to a fail-safe statement:
"The Elliott wave Principle is a law of probability and degree, not a predictor of exact conditions. (EWP page 160, 2005 edition).”

Duncan, what is your interpretation of

"This broad hint of long term trouble does not preclude that technology will mitigate the severity of what might be presumed to develop socially." ?

Steven_737

Steven_737

Wavist;
Thanks for your analysis;

“ Wave 3 of the larger impulse completed at the millenium top, followed by wave 4 down to 03 and 5 up to 07. In which case this is wave 1 of a new impulse down. This count's a hell of a lot prettier.”

Or it is a the wave A of a 5-3-5 ABC; a heck of a lot better and prettier.

The fundamental question is:
is the correction of a Grand supercycle
a 5 wave structure (impulse bear wave)
or is it a 3 wave structure?

Steven_737

Steven_737

DG,
Thank you for your post. Would Neely answer your question (being a subscriber)
if the correction of a Grand supercycle is
a 5 wave structure (impulse bear wave)
or if it is a 3 wave structure.

Min,
“These profound pronouncements are his method of being remembered and trying to stay relevant. It's typical Prechter behavior and he makes it work,
as here we are talking about someone with an overall 10% batting average..”

Well stated, Min.

“You gotta hand it to Prechter, he really has a penchant for the dramatic.”
The tricks of marketing a forecasting service....

Steven_737

DG

Steven 737,

This was a recent Question of the Week. Notice that Neely does not talk "degree" when answering such large-scale questions. This fits with his opinion that degree, once you start to get at the level of "Grand Supercycle", is simply subjective and one man's Grand Supercycle is another man's Supercycle, etc.

Question:
Many orthodox Elliott Wave analysts believe we are in a secular bear market and that the Dow Jones Industrial average will bottom near its 1920s bull market top (i.e., 400). Do you agree?
Answer:
For nearly 25 years my long-term stock market perspective has been at odds with that of orthodox Elliott Wave analysts. It began in mid/late 1987 when I turned very bearish on the Dow, expecting a 38% market decline in just three months off the high. Turns out, nearly 90% of that bear market occurred in 1 day (from top to bottom the bear market took less than 2 months), but it did produce a decline of the magnitude expected. Where I really began to diverge from the orthodox Elliott Wave camp was when I turned "wildly" bullish in mid/late 1988 (see CYCLES magazine, the Sep/Oct 1988 issue where I revealed my 73 year stock market forecast, complete with a prediction the 1987 stock market low would not be broken for the rest of my life and that the Dow would exceed 100,000 by the year 2060)! Not only had such a long-term and specific stock market forecast never been attempted before, but it is the ONLY forecast made in that era by anyone that is still coming true today and still has 50 years to go!

In the mid and late 1990's, while nearly every Elliott Wave analyst was bearish, I was calling for a powerful continuation of the advance. Finally, on September 5, 2000 (which under wave theory was the actual day the bear market began), I told my subscribers the bull market was over. I remained bearish on the Dow until early 2003, at which time I proclaimed the bear market was over and that a 5+ year bull market - pushing the Dow and S&P back above their 2000 highs - was underway. At the same time, nearly all orthodox Elliott Wave analysts were calling for a major stock market crash, a deflationary depression, social upheaval, possibly nuclear war, etc. Finally, in late 2007, for the first time in nearly my whole career, I and many orthodox Elliott Wave analysts were finally in agreement, calling for a major bear market and a retest or break of the 2002 low.

Sometime in 2009 or 2010, with the S&P around 500 and the Dow around 5,000, I will once again be a major odds with the orthodox Elliott Wave camp (and most likely the rest of the analytical world - just like in 1987) when I say the bear market has bottomed and that the 2009-2010 lows will not be broken for at least 50 years!

So, to answer your question, NO I do not agree with the scenario that the Dow will return to 400 or that the stock market will fall more than 90% off it highs. As I have said many times in the past, the wave count that produces that scenario is flawed and has been flawed for the last 25 years, which is why most Elliott Wave analysts keep getting the major market turns wrong. My logical, scientific NEoWave approach allows for more accurate, unemotional and objective wave counting that tends to be right a far greater number of times than is possible with orthodox Elliott Wave techniques.

Optionist

This is my first post so I`ll be brief and to the point in my attempt to offer something useful. In over 50 years of trading the markets I have found that a 1.618 market projection to a negative level or zero is not very reliable or useful, but you know that. When dealing with large movements a more helpful, reliable method is to work with percent moves. If we assume an SP500 A-B-C correction started in 2000 with a drop from 1552.87 to the 2002 low of 768.63 we get a 784.24 point drop which is 50.50%. At a 1.618 of drop A, the C wave should drop to about 1.618 X 50.50% OR 81.70%. An 81.70% drop from the 2007 B wave top at 1576.09 is a 1287.81 point drop giving a C wave target low of 288.28 which is a pretty good test of the 1987 low of 216.46. Works for me.

Steven_737

DG

Thanks for the post;
I appreciate it.

Steven_737

yelnick

Steven737 - on your question regarding technology mitigating the Millennium Wave count, I think that Moore's Law has not run its course, and after the Greater Depression the tech industries will rush out with new improvements in fundamental factors of production (chips, software, websites, etc.). Prechter's lomg term view can be rebutted with a very simple change in his count - that the wave from 1789 to 1929 was wave 1 of the Industrial Revolution - essentially the British Empire heyday. What we have been in since in Constant Dollar terms looks like a flat correction (A = 1932, B = 1966, C= 1982 is one count; A=1942, B=2007, C=?? is another). The question is, has industrial society failed, or is this but a serious hiccup? It is very difficult to conclude that the Industrial Revolution is over. I don't pay it ANY heed. Even if we have entered K-Winter after a long K-Autumn (1982-2007), perhaps extended by a Greenspan Indian Summer (2003-2007), K Winter will end within our investment life, in 2011 (earliest), 2014 (likely), 2017 (possible), 2021 (if we try too hard to cure it).

yelnick

Steven737 - your 3b is quite possible. It is difficult to pick a down point, especially as we haven't even retested the recent lows! Dow5440 and ~SP600 are the jitter on the way up. I tuned my numbers off support levels (1987, 1994, 1997) but after such a long time the rationale for these to be support - lots of buyers or sellers at those levels - seems to me long laundered by the decade in between. A lot of fund managers of those times are retired for example. So view them as useful shorthands. Dow5440 was not much of a support level.

Hence an alternative way to think of your 3b is what are the logical Fib levels? Depending on what degree correction, they can be estimated. The bigger issue is that if we are correcting the rise from 1974 or 1982, we started at such low levels compared to today (in nominal terms) that the targets will be much lower than my floor at the 1997 1998 2002 2003 2008 lows around Dow7400. I think the best advice is from one of the other comments, that it is better to start looking at this in percentage terms (or on a log scale). Or, look at it in Constant Dollar or Dollar/Gold terms (real money), where we have already dropped a lot more than it appears in nominal terms.

I would welcome any comments on the target levels in nominal, support, Fib, percent, log or real-money terms.

yelnick

Grasshopper - yes, timing of this 4 is so far a bit short. The STU first thought it would go into Feb, which, counted as a running triangle from Nov4 would go 14-15 weeks. Now counted as a zigzag from Nov21, it is short. Hence don't be surprised if the market surprises and bends into a longer and more complex corrective structure. Or, it may be this is wave 4 of 3, a lower degree wave 4, and when it ends we will have completed only 3 waves down off Oct07.

Steven_737

Duncan;

thanks for your reply.

do you have wavespeak's count and situation assessment?

Steven_737

optionist

When I find it difficult to determine what an elusive wave structure is developing into - which is quite often, I usually work a cycle analysis for possible added insight. Now, In the past 2 years the SP 500 has made cycle lows of 108-108-120-92 days which average 107 days. We finished 33 days in the next cycle yesterday with 74 days to go till the next average low determined to be March 12th. Top cycles are more difficult to analyze reliably, but are now suggesting that this wave "structure" (whatever it turns out to be), is likely to be complete in the next 8 days or so around Jan 23rd which allows for one brief up move before starting another decline into the March 12th low. A mid-March top seems unlikely. One final important note - If the next March 12th 107 day cycle low holds above the 11-21-08 low of 741.02 then there should be a more significant up move lasting at a few months. Incidentally, this structure appears to be a broadening 4th wave triangle of wave 3 with the E wave nearing completion which is supported somewhat by the cycle analysis.

Donald Trump

When will my real estate bottom?

Steven_737

"On a deeper level, where Prechter has been shown prescient, is that the scale and scope of the financial debacle we are in looks like at least a 20% GDP drop over several years, and maybe 35%."

Duncan, is this the result of an econometrics model?
is it your analysis
or do you have a reference?

you are saying that we face a 4.4% annual decrease in GDP for 5 consecutive years. this is no small potatoes.

The 35% estimate corresponds to an ~8.3% annual decrease for 5 consecutive years. I guess that estimate is based on the 1929 - 1934 period 35% GDP drop by 35%.

I won't say that it is not possible, but it is a large drop for too long. What is your estimate based on??
My point is that if it is not backed up by a solid model, Prechter's guesstimate wont cut it for me.

Thanks,

Steven_737

TObject

>When will my real estate bottom?
Donny,
there will be small retracte in 2013-2014
new real estate boom starts in 2020

Forkoholic Serge

Optionist,
is that the cycle you're talking about?
http://forkoholic.com/images/nymo120908.jpg

yelnick

Steven737, I am working on a major piece to lay this out. The number is the excess of mal-investment, bubble borrowing, wasted spending, etc. that has to be worked off.

At a high level, the world borrowed $24T for $10T of GDP growth - a $14T excess. One can say that the world has to suffer a multi-year $14T downturn to pay this off, except to the extent the $14T was invested wisely. Pick your ratio - 50% wise - and you get the potential GDP fall.

The US had a $6T GDP growth, but $2T (33%!!) went into financial intermediaries, an astounding burden. Usually the finance sector sweeps only 10%. That sweep is NOT productive but a burden or tax on the productive. Question is how much did debt increase above the $6T and you get an outside estimate of the excess, plus the excess in 2000 that we didn't work off. Then work through where the debt (or asset value increase, say in houses, which is the other side of the double accounting ledger) was bubblicious or unwise, and you get to the GDP excess that has to be worked off.

In the US this excess was in the range of $3T by 2007 and will be at least $1T higher by YE 2009, based upon household savings going from -3% to +5%, an 8% swing or $800B (household spending is $10T), plus the 'stimulus' of $300B that is coming, which should be saved to the tune of $200B. The net is a total of 10% or $1T that is saved and not spent. The $3T in 2007 + $1T saved = $4T, which off a $14T economy is 30%. The coming $1T bailout of Obama, plus the bailouts to date, may be adding to this total.

The problem with bailouts is the money comes from one pocket and goes into another. Hal Varian had a great editorial in the WSJ a few days ago (NYT rejected it since it was not consistent with Obamamania) in which he went through how to revitalize a moribund economy, and concluded only increasing PRIVATE investment was sustainable, which is precisely what Obama is NOT going to do. When the $1T of savings goes into money market funds or similar, little new investment occurs; instead it rotates back into the Federal maw of deficits.

The same thing happened in the '30s. The excessive borrowing from 1925-1929 that had to be worked off turned out to be ~30% of GDP; it was accentuated by many of the steps Hoover took to try to stem the tide. Then the steps FDR took created another 20% excess that got worked off from 1937-1941.

In Japan's case, they have never taken the pain and have had a dismal economy for 19 years. It would have been better for them to take the initial Depression and then come out stronger.

nmelendez

I recently read about what the US Govt may be trying to do. At the present, the total future US debt, including Social Security, is about 53 trillon dollars. The US Debt was about six trillion. Now the banks loan at a 10 to 1 ratio. Take 7 trillion dollars given to banks and you have a hedge of 70 trillion dollars. The dollar will be devalued by 80%. Right now the deficit is expected to go up to 13 trillion. 13-6=7! Now if our market goes up to 70 trillion that is hyperinflation. However, with a 70 trillion GDP, 53 trillion is easily manageable. Looking at an 80% devaluation of the dollar from the peak S&P goes down to approx 300, 1984 level! House go up, salaries go up, money starts flowing again and voila, once again we are normalized. Some may say rest of the world will be upset. So? We have the most powerful weapon in the world, FOOD. The US is the world's breadbasket. Also if our GDP goes up we start the cycle all over again. Thing is 5 times 300 puts us back at S&P 1500, but with a 10X kicker it flings it up to 15000 in the long run, Dow to 30,000 or 40,000.
I am bearish and holding my cash for the downturn. S$P hits 600 i am 30% in and if does go down to 300 i will be 75% in. I have a good feeling about this.

optionist

Forkoholic Serge, The cycles I am referring to correspond to your Aug07 low, the positive divergent low in Jan08, the July08 low, and the positive divergent low in Nov08. It looks like all your cycle points are about 67% of my cycle points - One of my cycles are equal to 1 1/2 your cycles. I`m glad you raised this question because I noticed that I had put in the wrong date for the next projected 107 day (~22.17 wk) cycle low which should be April 28 and not March 12. I`m trying to do too many things at one time. It looks like you are doing some interesting work. One area you might enjoy investigating is customizing your indicator parameters for the RSI, MACD, STO, and others to correspond closely to the cycles time frames you have identified. Your cycles appear to be about 72 days. By dividing the 72~ by 2 (72-36-18-9-4.5) or 3 (72-24-8-2.7), and using these numbers appropriately as indicator parameters in a trial and error method, you can refine your signals so that they come closer to the expected cycle points giving better buy prices with increased reliability. You can gather hints from how your 72 day cycle is breaking down into its smaller cycles - 1/2 or 1/3 smaller cycles. The fast stochastics respond well to these "time cycle adjustments" as well as moving averages, CCI, and others. It could prove to be an interesting, enjoyable and profitable exercise for your type of work.

da bear

Wave 1 down ended last spring, then the rally was a wave 2, the big wave 3 down then occurred in the summer and fall, with wave 3 of 3 down being the '29-style October crash. then the wave 4 of 3 rebound, then the slightly lower low in November completing wave 5 of 3. The 1929 market also made a slightly lower low in November. Then the market rallied into spring 1930. Then fell huge after that. Right now we could be in the wave 4 up sucker bounce and after it is over then a huge Wave 5 crash. Wave 5 down could extend given that wave 5 of 3 was not that big (alternation).

da bear

KRG

DG : That answer seems to be straight from Neely. Was wondering becos you write it in first person!!

Y : Bailouts merely increase base money & are of no use to improve GDP as velocity of money goes down in a recession/deflation. Becos of low credit confidence, i doubt if private investment can take up the slack. What is required is "public" investment a la Keynes and Minsky

Cheers

yelnick

KRG, you have walked into an interest economics issue. It is not clear public investment can knock an economy out of a deflationary depression following a credit bubble. Certainly it didn't work in the '30s nor in the '90s in Japan. Keynes thought it a one-time type of intervention to kick-start the banking sector out of a liquidity trap, and later denounced the continual government intervention in the economy that was called Keynesianism in the late '40s.

Conventional Wisdom of latter-day Keynesians is that we didn't spend enough in the '30s, nor did Japan in the '90s, so now we have plans to spend at 2x the level of WWII to get out of this (yes, our $7T plan is 2x the $3.6T in 2008 Dollars of the WWII spending). How can this be anything other than a huge admission of the failure of economic understanding? Say the size of the problem in 2007 was $3T; now we have to spend $7T to fix a $3T problem? What next if that fails? We would have turned a $3T excess into a $10T excess! Imagine digging our way out of that ...

Hal Varian's point about private investment being the only way out requires the banking sector to be fixed first; then private investment can flow. But you cannot fix a credit bubble by giving out more credit. JP Morgan did it correctly in 1907 when he got the major banks in a room and figured out who was solvent and who wasn't, and he rationalized the banking sector. The solvent banks went back to lending when they trusted each other, and the other banks got absorbed.

KRG

Y : Agree with you. I was merely highlighting "public vs private" issue. Ultimately the excess has to be deleveraged and the pain has to be spread (like as you said GDP of -20%). Another way of looking at this is that the $10T excess may not get into any assets (or circulated as credit) but simply will be hoarded (is this the classical liquidity trap!)

I was going thru your K-wave section and thought you had some interesting posts in 2003/4. You may like to update!

A related thought. Is technolgy and human progress prolonging the peaks and shortening the troughs? May be we need some adjustment matrix (like what the neo-wave stuff has done to traditional EW)

DG

KRG,

Nope, I just cut and pasted that piece from the NeoWave "Question of the Week" forum.

As you can see from his response, Neely's count is that we're likely to have a C wave that's equal in time to the A wave (Sept 2000 to Oct 2002). If our C wave started in Dec 2007, we've got 11 months to go, hence the bear market we're in will end in late 2009/early 2010.

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