When I woke up this morning to a discussion about a deflationary spiral on National Public Radio's morning news show, I knew the world had finally come to its senses – or at least had finally come round to what Bob Prechter has been writing about for years. His 2002 best-selling business book,
Conquer the Crash, laid out as clearly as can be what a deflationary crash looks like. In it, he also explained how people should get ready for the deflationary crash we were headed for here in the United States.
The good news is that Bob isn't resting on his laurels. He constantly looks ahead and tells his subscribers how to work with deflation. A perfect example is the excerpt from his just-published
Elliott Wave Theorist.
Deflationary spiral got you worried? Learn what it takes to stay ahead of the economy and the markets by reading the words of the man who first forecast the current financial state of affairs. Bob Prechter's
Conquer the Crash is a book that you will want to read to understand what's taking place and how to survive it.
Read more here.
Excerpted from The Elliott Wave Theorist, published November 12, 2008
Deflation Is Winning. Are You?
The old mantra was "Borrow from me." The new mantra is "Pay me."
Figure 1 shows that cash is soaring in value, as creditors demand dollars, and debtors sell everything they can to come up with them. Cash now buys 1.7 times as much stock and real estate, twice as much silver, and 2.5 times as much oil as it did a short time ago. And if you are incautious enough to want high-yield bonds or asset-backed (in)securities, you can get a wheelbarrow more of them for your dollar as well. Is that a bull market, or what? This trend is far from over. The longer you hold onto your money, the more it will be worth, until the deflation ends.
Now we know, by the way, why the interest rate on T-bills was so low despite the falling dollar during 2005-2007. Analysts were nearly unanimous in predicting that T-bill rates would soar because, against the background of the weak dollar, low rates appeared to make "no sense." Indeed, something had to give, but there was another way for the market to resolve the situation and simultaneously reward contrarian dollar holders, which was for the price of dollars to soar. That's what's been happening. Sentiment toward the dollar was so one-sided in embracing the scenario of perpetual inflation that it took several years for investors to finish dumping all their dollars and loading up on euros. It should take about that long for those same investors to move back into the dollar, ultimately at higher prices than they sold it.
Conquer the Crash (page 200) said this about a stock-market short position during deflation: "The opportunity to make money on the downside in a deflationary crash can hardly be overstated, because you will be making more dollars as the value of dollars is soaring. It's a double benefit." Our short sale of July 2007 is taking advantage of this very rare situation. Shorts for the long run?
Deflationary spiral got you worried? Learn what it takes to stay ahead of the economy and the markets by reading the words of the man who first forecast the current financial state of affairs. Bob Prechter's
Conquer the Crash is a book that you will want to read to understand what's taking place and how to survive it.
Read more here.