It all began innocently enough, goes the story – with a few bad mortgages. At first, they said that the U.S. subprime mortgage crisis would not affect the rest of the world – because seriously, how can someone's foreclosure in Ohio or Kansas do that?
Later, when it became clear that the credit contraction was actually a global problem, they said that if worse came to worst, the Federal Reserve and other central banks would simply "inject liquidity into the system" and save the day.
And here we are – a year-and-a-half later, and hardly out of the woods. I won't recite the poor economic statistics you already know. Let me just quote from this article (emphasis added):
Dec. 28, New York, (AP) – Investors are preparing to close out the last three trading days of 2008 with Wall Street's worst performance since Herbert Hoover was president. The ongoing recession and global economic shock pummeled stocks this year, with the Dow Jones industrial average slumping 36.2 percent. That's the biggest drop since 1931 when the Great Depression sent stocks reeling 40.6 percent. The Standard & Poor's 500 index is set to record the biggest drop since its creation in 1957.
What I find remarkable is that people still say that no one could have predicted this crisis. Let me demonstrate, once and for all, that it is simply not true. This is the caption of the Special Section that appeared a year ago in EWI's January 2008 Elliott Wave Financial Forecast:
Below is the opening paragraph of that issue. Count the number of forecasts that have already come true – and keep in mind that this was written a year ago:
BOTTOM LINE A break of the August 16 intraday low, 12,518 in the DJIA, will confirm the onset of the bear market. This crucial break will eliminate any remaining bullish potential and indicate a decline that should carry the major stock indexes much lower over the next several months. Long term U.S. Treasury bond yields should eventually break to a new all-time low. The gold/silver price ratio should continue its persistent rise, signaling a rising risk-aversion among investors. Gold bullion is near the end of a post-triangle thrust, which will be followed by a significant downward reversal. Silver should move in sync with gold. The intense pessimistic conditions necessary for a major market bottom are prevalent in the U.S. Dollar Index.
Let me also say that while we at EWI take pride in having prepared our subscribers, we take no pleasure in watching the devastation that this crisis has been causing. But it is here. And, probably like you and lots of other people, I keep asking myself these three questions:
- Is it too late to do something to protect myself and my family?
- Just what, exactly, can I do (that I haven't done already)?
- How do I know when this mess will be over?
Only you know the details of your personal situation, but there are three things I would say to anyone:
- It's not too late. What got us into this mess was not the mortgage crisis – it was the extreme confidence of the past two decades. "No-doc" mortgages were just one of the expressions of our collective carelessness. EWI's founder and president Bob Prechter explains it beautifully in his Conquer the Crash. If you've not read the book yet, do it: The second half is filled with practical "how to" tips on how to survive (and even prosper) in a deflation.*
- Once you've read Conquer the Crash, think about what recommendations, specifically, apply to your present situation the most. Prioritize and act accordingly.
- When will this mess be over? When looking at the markets and economy, it's important to differentiate a long-term trend from a short-term one. Here at EWI, our forecasts are not based on conventional economics; we study stock market patterns. We've looked at them going all the way back to the South Sea Bubble in the early 1700s. And by our account, the long-term drama is likely not over.
Short-term, however, we could indeed see some light at the end of the tunnel. Our Mon-Wed-Fri Short Term Update has been keeping track of an Elliott wave pattern in U.S. stocks that, once complete, should give way to a strong rally. This could be yet another opportunity to prepare for what may come next.
Bottom line, there are still options for those willing to protect themselves. But they begin with the right, forward-looking information. Our publications can give it to you right now, risk-free.
*You get a free copy of Bob Prechter's Conquer the Crash with any EWI subscription. You can start (risk-free) with our most popular package, The Financial Forecast Service. Here's what's in it.