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Super Bowl to Super Tuesday to Super Economic Letdown
Sunday's Super Bowl crowned the New York Giants as the National Football League champion. But the Super Tuesday primaries are history, and we still don't know who will be the Democratic and Republican nominees for the U.S. presidency this year.
It's a situation similar to not yet knowing whether the U.S. economy has already slipped into a recession. Or whether we will even have one. One analyst says we will have a "muddle-through" recession, meaning a mild one. Other analysts see stagflation ahead; some see a recovering economy.
Here at Elliott Wave International, we have been preparing our subscribers not only for a recession but for a full-blown deflationary depression since 2002 when Robert Prechter first published
Conquer the Crash, which became a business best-seller. Our research has foretold the real estate collapse and the junking of AAA-rated bonds, to name just two harbingers of tough times ahead.
But before the crash can happen, the market's animal spirits will have to be broken. "Animal spirits" is the phrase that John Maynard Keynes coined to describe confidence in the economy and the financial markets.
On Groundhog Day this past weekend, the nation watched for a sign from its own animal spirits to predict whether winter will be long or short. It turned out that the furry rodents in different locales (including Punxsutawney Phil in Pennsylvania and General Beauregard Lee in Georgia) couldn't agree, similar to how economists can look at the same data and not agree about whether or not we're in a recession.
In our just-published February issue of
The Elliott Wave Financial Forecast, our analysts don't pay any heed to predictions by groundhogs, but they do point out that changes in the financial world are "breaking the market's animal spirits."
Here's what they offer as the latest signs of confidence leaking out from battered markets:
- The initial public offering (IPO) market is shutting down. "According to Bloomberg, 24 companies froze plans for initial public offering in January, the most in at least a decade." Without IPOs, Wall Street doesn't have new stock to push on investors.
- The private equity game is over. "'Deals have dried up,' says the New York Times." Without private equity deals, Wall Street can't take its cut.
- Investment banks are turning their backs on collateralized debt obligations. "Some central bankers believe that 'securitization is not coming back in any meaningful way in the foreseeable future.'" Without securitization, there go those wonderful fees that Wall Street collected.
What do these changes add up to? Our analysts, Steve Hochberg and Pete Kendall, put it this way: "So the whole risk-shifting apparatus that turned the debt markets into a casino and stretched the credit bubble to extremes is suddenly endangered."
Now, that's the kind of market analysis that will help you to decide for yourself where the markets are headed and whether they will take the economy with them.