What has been happening in the financial world over the past year is painful but not surprising to those who read Bob Prechter's book, Conquer the Crash, How To Survive and Prosper in a Deflationary Depression. The information and advice is as useful today as the day it was published in 2002. But Bob doesn't rest on the laurels of his previous efforts -- although, truth be told, hardly anyone wanted to crown him with a laurel wreath for foretelling the future we're now living in. He expands on his theme of staying independent from the government to protect yourself in a deflationary environment in his latest Elliott Wave Theorist.

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Do You Wonder if the Dow Will Head Back Down? Then you just might be interested in the views of Bob Prechter who sees a credit implosion resulting in a much lower Dow. Read more about it in his April Theorist.

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Excerpted from The Elliott Wave Theorist by Bob Prechter, published April 18, 2009

Stay Independent from the Government
If you read Conquer the Crash carefully, you saw that not one line in the book advises you to depend on the government. It says: Don’t depend on government pensions, municipal bonds, Fannie Mae or Freddie Mac, FDIC bank-deposit insurance or even the Treasury’s ability to inflate the credit supply. Fannie Mae and Freddie Mac stocks have already collapsed. The Fed and the Treasury were unable to stop a deflationary plunge in the value of outstanding credit and correspondingly in the financial markets that credit was levitating. Banks that took bailout money are now racing to figure out how to get out from under the government’s retroactive constraints. Auto companies that took tax money from the Treasury now have to run their companies according to the dictates of politicians even more than before. Soon investors in municipal bonds will be wondering what possessed them to take such a risk. Now newspapers are reminding us of yet another dependence upon government that spectacularly failed:

Since 1975, the SEC has anointed a small group of firms as Nationally Recognized Statistical Rating Organizations (NRSROs), and money market funds and brokerages have no choice but to hold securities rated by them. To this day, the Fed will only accept assets as collateral if they carry high ratings from S&P, Moody’s and Fitch. (WSJ, 4/15)

Government sanctions of any companies, whether they sell mortgages or rate bonds, can lead only to disaster. The SEC did not simply sanction these firms, either; it barred brokers and money-fund managers from relying upon any other firms when seeking ratings on their investments. Naturally, the government’s sanctioned companies are precisely the ones that over-rated almost every bond under their purview until their values collapsed. Why would government make such a law? One would need a flow chart of who hired whom and who contributed to what campaign over the past 45 years to answer that question definitively, but you can be sure that the most fundamental reason was not to protect investors; connected individuals gained from the deal. Everyone else got killed, and even the anointed companies suffered in the long run.

Conquer the Crash recommended using services that rate banks and insurance companies, but it specifically listed companies that were apart from the pack and had a history of being unafraid to point out problem firms. The book steered you in the direction of three independent firms, ones that answered only to customers, not the government or the companies they rate.

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Do You Wonder if the Dow Will Head Back Down? Then you just might be interested in the views of Bob Prechter who sees a credit implosion resulting in a much lower Dow. Read more about it in his April Theorist.

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