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Seeing Through Overconfidence in Home Prices
Foreseeing Deflation - Item 2 of 6
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