Seeing Through Overconfidence in Home Prices
While many analysts were jumping for joy about a report of bullish consumer
sentiment over home prices, Bob Prechter read it as a sign for a harsh
reversal to deflationary pessimism:
Homeowners, by the way, are still bullish. A CNBC poll
last week found that no less than 90 percent of U.S. homeowners expect
the value of their homes to rise or stay the same over the coming year.
This confidence fits that case that more price decline lies ahead. The
price of oil and the inflation that propelled it are reaching a historic
peak. When the bull market in inflation is over, an unprecedented number
of IOUs, stacked in an inverted pyramid, will collapse in value in a
deflationary rush, and prices from stocks to commodities to goods and
services will fall along with them. Optimism is at an all-time
extreme in extent and duration. That optimism has fueled the
largest expansion in credit in history. Investors have used this credit
to buy every investment…. When it reverses fully toward
pessimism… investors will want safety above all else.
– Excerpted from the October 19, 2007, Elliott Wave Theorist |