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Are We in Another Credit Bubble? And Is It Different than Before?

Are We in Another Credit Bubble? And Is It Different than Before?

Part 1 of our FREE report on the recent build-up in credit includes a chart of U.S. corporate debt issuance since 1998 you don't want to miss

By Elliott Wave International

May 22, 2015

Whatever your politics, creed or nationality -- we can all agree that a huge catalyst for the 2008-9 global financial meltdown was the universal binge of bad credit.

A huge part of that bad-debt pile were the "don't-ask-don't-tell" high-yield bonds -- a.k.a. junk bonds -- which were used to fund a lot of things, including corporate takeovers.

You might still remember how, at the time, few saw any reason to question the upside potential of these lower-grade yet higher-yielding loan instruments. Here, the following articles from 2007 recapture the scene:

"We're in the thick of a period when debt is a good thing rather than a bad thing, at least in the corporate world. And the riskier the debt, the more investors want it. There is a self-sustaining cycle at work here. The global economy has been so strong in recent years that few companies, even those loaded with debt, have had trouble paying their obligations." (LA TIMES)

"We say it isn't politically correct to call them junk bonds anymore. There's not a lot of downside risk because money managers burned in the dotcom era learned their less and portfolios aren't as risky as 10 years ago." (Associated Press)

The ensuing credit implosion systematically restored the political correctness of the word "junk," as high-yielding bonds plummeted in the worst debt crisis since the Great Depression.

Which brings us to the trillion-dollar question: What about now? Or, expanded in a handy bullet-point format, the same question may be phrased like this:

  • Has the world's leading economy learned its lesson?
  • Is the thirst for yield less than the need for caution?
  • Is the credit health of the United States different than before?
  • Is it different this time?

Well, the following chart from Elliott Wave International's May 2015 Elliott Wave Financial Forecast shows you that -- yes! The credit bubble underway in the United States today is different than the one that triggered the 2008-9 crisis.

It's bigger.

"While the total value of investment-grade bond issuance surpassed $1 trillion in each of the last three years, the junk bond total more than doubled from the prior high in 2006 to more than $300 billion.

"'Back in 2006/2007, 28% of debt being issued was B-rated,' says hedge-fund manager Stanley Druckenmiller. Today 71% of the debt that's been issued in the last two years is B-rated. So, not only have we issued a lot more debt, we're doing so with much [lower standards].

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"The quantity and quality of bond issuance over the last three years signals the potential for a credit washout that is even more severe than that of 2008/2009." Our new, May Financial Forecast goes on to explain why it is so with an equally shocking chart of U.S. consumer credit since 1980.

You can see that second chart in part 1 of our brand-new, 3-part report titled

What You Need to Know About Deflation

Credit Insanity: The Biggest Debt Bomb in History and the Fuse is Lit

Created for paying subscribers and now accessible to the public for the first time, this eye-opening new report reveals the precarious consumer, corporate and government debt situation around the world. Read this three-part report now and hear directly from the top analyst at the world's largest financial forecasting firm about key research, statistics and concerns about U.S. and global debt, as well as its imminent threats to investors.

Get your free report now »

 

This article was syndicated by Elliott Wave International and was originally published under the headline Are We in Another Credit Bubble? And Is It Different than Before?. EWI is the world's largest market forecasting firm. Its staff of full-time analysts led by Chartered Market Technician Robert Prechter provides 24-hour-a-day market analysis to institutional and private investors around the world.

Robert Prechter

Founder, Elliot Wave International

 

 

 

 

 

 

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One of Europe's Latest Debt Nightmares

 

One of Europe's Latest Debt Nightmares

 

By Elliott Wave International

May 21, 2015

Elliott Wave International's European markets expert Brian Whitmer often cautions his subscribers to beware of the pitfalls that will accompany the developing deflation in Europe.

On May 20-27, Brian is hosting a free 5-video event at elliottwave.com: Investing in Europe: 5 Critical Insights.

"Europe seems to be leading the way on important global trends, so even if you don't invest in Europe, knowing about these trends in advance can help you determine your investment strategy." -- Brian Whitmer

Read some of Brian's recent analysis of Europe's latest debt nightmares from the April issue of his European Financial Forecast, and then register here to join his free 5-video event.


Excerpted from the April 2015 European Financial Forecast (pub date: March 27.)

One big clue to the size of the oncoming debt deflation is the central bank's ongoing policy shift away from bail-outs -- where taxpayers shoulder the losses at a failed bank -- and toward so-called bail-ins, where the losses are dumped onto bondholders. In February 2015, we commented that "the days of unconditional financial rescues are clearly over," and it took almost no time for this forecast to become another hard-hitting reality. Indeed, "Europe's latest debt nightmare" (UK Telegraph, 3/7/15) quickly thumped bondholders in Austria, as its Financial Market Authority refused to cover €10.2 billion in bond guarantees at Heta Asset Resolution (Heta). Heta, itself, was the so-called bad bank created in 2009 to absorb the soured assets of another failed lender, Hypo Alpe Adria. It's the first major banking failure under Europe's new Bank Recovery and Resolution Directive, and it displays nearly every pitfall that we've spent months cautioning subscribers to avoid. Here, for instance, was our September 2014 admonition to senior debtholders at Banco Espirito Santo, who only narrowly avoided losses when the Portuguese conglomerate went belly up (emphasis added):

The terms of the rescue call for BES's junior bondholders to share in the losses with stockholders.... For now, the rescue won't affect senior bondholders or bank depositors, but, like before, this arrangement should change at some point in the near future.

--European Financial Forecast, September 2014

In Austria's case, the near future proved to be closer than we thought, as sources in Vienna tell the Telegraph that "even senior bondholders are likely to face a 50% write-down." The top panel on the chart depicts a 50% nosedive in Heta's 4-3/8% note, expiring in January 2017. These bondholders have become the "first victims of the eurozone's tough new 'bail-in' rules," according to the Telegraph, but they won't be the last. The bottom panel on the chart depicts the long-term decline in Austria's ATX index, and Bloomberg reports that Europe is "awash with interlinked banking and public liabilities, many of which will never be repaid and basically need to be written off."

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In fact, financial ripples from the Heta debacle started spreading immediately. On March 16, Germany's association of private banks stepped in to rescue Duesseldorfer Hypothekenbank AG, a real estate lender with €348 million in exposure to Heta. Property lender NordLB reported €380 million in exposure, while BayernLB, the German bank with the largest known exposure, reported €2.35 billion in unsecured credit lines to Heta. Germany's Commerzbank (€400 million in Heta bonds) is considering legal action against Austria's decision, but the potential lawsuit provides little comfort for investors sitting on major losses now.

A Simple Fight Over Money
Austria's debt write-down uncovered more than the weak assets that pervade the books of European banks; it exposed the political rifts that divide the country itself. Indeed, most of Hypo's original bonds were underwritten by the southern Austrian region of Carinthia. When Fitch ratings stripped Austria of its AAA credit rating in early March, finance minister Jorg Schelling took to public radio demanding that Carinthia pay its full share. The following day, Carinthia's premier Peter Kaiser shot back. "Carinthia cannot pay," said Kaiser, observing that the €10.2 billion in debt guarantees amounted to more than five times the region's annual budget. (Deutsche Welle, 3/4/15)

It's true. And with nearly €1 billion in Heta bonds coming due, Austria's Der Standard anticipates that a "flood of lawsuits" will inundate the Austrian courts. The problem is that these floodwaters will keep rising in an environment of sustained deflation. In February 2015, the EU commission revealed that national governments are backstopping more than €1.2 trillion of various forms of debt. At €113 billion (35% of GDP), Austria is one of the biggest users of state guarantees. But Ireland, too, has contingent liabilities that amount to 32% of its economy, and Germany is backstopping debt that equals 18% of national output. Last month, GMP warned about the dangerous interdependence between European banks and their respective sovereign governments. The hazard is fast getting real now.


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Europe is flashing signals which point to significant changes ahead. If you know how to read these signals, then you can get out of the way of big threats -- and also, capitalize on new opportunities!

Join host Brian Whitmer for his free event (now in progress) and see five critical pieces of evidence which tell you what to expect from European markets, economies and politics.

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This article was syndicated by Elliott Wave International and was originally published under the headline One of Europe's Latest Debt Nightmares. EWI is the world's largest market forecasting firm. Its staff of full-time analysts led by Chartered Market Technician Robert Prechter provides 24-hour-a-day market analysis to institutional and private investors around the world.

Robert Prechter
Founder, Elliot Wave International

 

 

 

 

 

 

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Why the IRS Seized All the Money from a Country Store

 

Why the IRS Seized All the Money from a Country Store

Another shot fired in the "War on Cash"

By Elliott Wave International

May 15, 2015

Editor's note: You'll find the text version of the story below the video.

Learn how your hard-earned money may be in jeopardy. Read War on Cash
Follow this link to download your free report »

Lyndon McLellan owns the L&M Convenience Mart in rural North Carolina. A few months ago, the Internal Revenue Service went to McLellan's bank and seized all the cash in his store's account.

Why?

McLellan had violated a "structuring" law by making cash deposits of under $10,000. Structuring laws are supposed to catch drug traffickers and money launderers. But small business owners can also unknowingly run afoul of these laws.

Last July, a swarm of officers from North Carolina's Alcohol and Law Enforcement, the local police and the FBI descended on McLellan's place of business.

The agents told the small business owner something that shook him to his core: The Internal Revenue Service had seized all of the money in L&M's bank account: $107,702.66.

"'Are you telling me you took my money?'" McLellan recalled asking the agents. "I didn't understand what was going on. They dropped a bomb on me. I was lost for five to 10 minutes. I can't believe that y'all guys can walk in here and tell me y'all took every bit of my money out of the bank."

The Daily Signal, May 11

McLellan is still fighting to get his money back.

"In 2005, the Internal Revenue Service made just 114 structuring seizures. By 2012, that number had risen to 639."

This story shows how the government can financially upend the lives of citizens.

Consider this excerpt from the March Elliott Wave Theorist:

The most vulnerable money is sitting in bank accounts. Depositors in Cyprus banks found that out in 2013, when the government seized a large portion of uninsured deposits to pay its debts to the EU. ...

... I have long advocated holding outright cash notes, which are already preserving value better than commodities and negative-interest-rate bonds. But we cannot depend upon government to act fairly. If in a future panic central banks opt to recall cash, even cash-holders will be doomed. All authorities need do is demand that people turn in their cash for new notes worth 1/10 as much. In 1933, the U.S. government confiscated gold because that was the money of the day. Now, dollar deposits and cash notes are the money of the day, and they are even easier to seize.

We've been updating subscribers on the "War on Cash."

  • JPMorgan Chase Bans Storage of Cash in its Safety Deposit Boxes (InfoWars)
  • Citi Economist Says It Might Be Time to Abolish Cash (Bloomberg)
  • Sweden moving towards cashless economy (CBSNews)
  • Large U.S. bank bans wire transfers, limits cash withdrawals (TheCrux)

Giant financial institutions and the government are now waging a large-scale war on cash.

This is the time to get the financial insights you need to protect your hard-earned savings.


War on Cash

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Big government is conspiring with big banks to wage a secret war on cash by limiting and even outlawing the use of physical currency. This development may have a devastating impact on your hard-earned savings unless you prepare right now.

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This article was syndicated by Elliott Wave International and was originally published under the headline Why the IRS Seized All the Money from a Country Store. EWI is the world's largest market forecasting firm. Its staff of full-time analysts led by Chartered Market Technician Robert Prechter provides 24-hour-a-day market analysis to institutional and private investors around the world.

Robert Prechter
Founder, Elliot Wave International

 

 

 

 

 

 

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Big Volatility Shakes Bond Investors

 

Big Volatility Shakes Bond Investors

Is the debt bomb about to go off?

By Elliott Wave International

May 12, 2015

Editor's note: You'll find the text version of the story below the video.

 

The yields on U.S. Treasuries and European sovereign debt have risen sharply in a relative short time.

Bond prices trend inversely to yields -- which means debt portfolios have suffered substantial losses.

From mid-April through May 6, yield on German 10-year bunds spiked 47 basis points. Yields on 10-year U.S. Treasuries jumped 29 basis points in just the past week.

Volatility in the bond market continued on May 7. In just a few hours, the yield on the 10-year bund jumped 21 basis points before pulling back. Bear in mind that sovereign bond yields rarely move more than a fraction of one percent in a day.

Long-term bonds have been hit particularly hard. The yield on 30-year U.S. Treasuries topped 3% for the first time this year.

"We've been hurt," said [an] investment manager at Aberdeen Asset Management. "The movements of recent days have been extremely unusual ... ." (Financial Times, May 7)

German government debt is regarded as a benchmark for European assets.

Take a look at this chart of Euro-Bund futures from our May 6 Financial Forecast Short Term Update:

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Similar to the credit crisis in 2007-2009, the rout is starting in the bond market, where the pace of evaporating liquidity is quickening. Bids are pulled, prices crack, yields rise and it leaks out toward other asset classes. The turn in bonds in the U.S. and Europe is a sign that the "debt bomb" ... is about to go boom.

The April Elliott Wave Financial Forecast warned subscribers about the insanity that pervades the world's bond markets. Take a look at this chart and commentary:

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Many bonds that are perceived to be the safest credit risks guarantee investors a loss. To our knowledge this has never occurred on such a widespread basis in the history of finance. Yields on nearly a third of the euro area's $6 trillion of government bonds are below zero, which means that bond buyers are guaranteed to lose money if they buy these bonds and hold them to maturity.

The risk of widespread defaults also lurks in the world's credit markets.

Here's what well-known hedge fund manager Stanley Drunkenmiller recently said:

Back in 2006/2007, 28% of debt being issued was B-rated. Today 71% of the debt that's been issued in the last two years is B-rated. So, not only have we issued a lot more debt, we're doing so with much [lower standards].

All told, the world's credit markets are on very unstable ground. Expect that ground to get even shakier in the months ahead.


What You Need to Know About Deflation

Credit Insanity: The Biggest Debt Bomb in History and the Fuse is Lit

Created for paying subscribers and now accessible to the public for the first time, this eye-opening new report reveals the precarious consumer, corporate and government debt situation around the world. Read this three-part report now and hear directly from the top analyst at the world's largest financial forecasting firm about key research, statistics and concerns about U.S. and global debt, as well as its imminent threats to investors. 

Get your free report now »

This article was syndicated by Elliott Wave International and was originally published under the headline Big Volatility Shakes Bond Investors. EWI is the world's largest market forecasting firm. Its staff of full-time analysts led by Chartered Market Technician Robert Prechter provides 24-hour-a-day market analysis to institutional and private investors around the world.

 

Robert Prechter
Founder, Elliot Wave International

 

 

 

 

 

 

Continue reading
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Glinda the Good" Deflation Isn't Looking So... Good

 

Glinda the Good" Deflation Isn't Looking So... Good

Cold weather, falling wages, bizarre fluke? The real reason consumers aren't spending is... defensive, deflationary psychology

By Elliott Wave International

May 07, 2015

Editor's note: You'll find the text version of the story below the video.

Learn What You Need to Know NOW About Deflation
 Get Your Free Report Now »

When 2015 began, the mainstream financial experts were certain of one thing: Even if the United States economy were sliding into deflation (which, they said, was open to discussion) that particular kind of Glinda the Good deflation, characterized by plunging energy and food prices, was going to be a boon for consumer spending:

"Good deflation a tax cut for working families," affirmed a February 2 Huffington Post. "Cheaper gas means more flying, more driving, more hotel occupancy, more use of restaurants and leisure facilities. In short, deflation driven by the rapid decline in oil prices is good news for America."

So, what's happened since?

Well, according to an April 16 article in the Chicago Tribune, the sharpest annual decline in oil prices since 2008 somehow translated into not more, but less non-essential consumer spending. In March, U.S. retail sales clocked their third straight monthly decline -- which doesn't make sense, said the Tribune:

"This is puzzling. Why would consumers spend less when the economy picks up steam, and why haven't consumers gone shopping with the 1% extra income that collapsing oil prices have handed them?"

The piece then offers a few possible reasons -- such as cold weather, stagnant wages, business cuts, and so on. But none of them feel adequate, leading back to the initial shock:

"Consumers have defied expectations. Investors who anticipated purchasing-power gains would lead to greater consumer spending must be sadly disappointed."

We absolutely agree. Consumers have defied expectations -- those of the mainstream experts, that is. But they have completely complied with our long-standing expectations of a shift toward thrift, as laid out in chapter 9 of Bob Prechter's business best-seller Conquer the Crash.

There, Prechter explained how, in times of deflation, the trend toward non-spending is not a rational decision; it's an emotional one:

"The psychological aspect of deflation cannot be overstated. When the social mood trend changes from optimism to pessimism... consumers change their primary orientation from expansion to conservation. As consumers become more conservative, they save more and spend less. These behaviors reduce the 'velocity' of money, i.e. the speed with which it circulates to make purchases, thus putting downside pressure on prices."

Then, in November 2014 Elliott Wave Financial Forecast, we showed definitive proof that deflation -- not the "good" kind -- was set to arrive in the United States:

In other words, the conservatism called for in Conquer the Crash arrived in 2006-2008, and it continues to restrain consumers and corporations.

For years now, the Fed along with most economists have anticipated the imminent return of inflation, but it continues stubbornly subdued. This long-term chart of the CPI shows a succession of lower highs since the early 1980s, as inflation turned into disinflation, which is on the cusp of leading to outright deflation. Some argue that the CPI is rigged to show milder levels of inflation, but the bottom graph shows the same steady move toward the zero line in the Personal Consumption Expenditures Index, an alternate inflation measure favored by the U.S. Fed.

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As it approaches, deflation will introduce itself to people in subtle and not-so-subtle ways.

The first way was consumer spending. Now, our brand-new May 2015 Elliott Wave Financial Forecast shows you an equally compelling chart of U.S. consumer credit since 1980 that confirms: deflation is now "playing catch up" to debt.


What You Need to Know About Deflation

What You Need to Know NOW About Protecting Yourself From Deflation

Get this free report about the unexpected but imminent and grave risk to your portfolio. You can read this special 10-page report -- with highlights from Robert Prechter's New York Times bestseller Conquer the Crash -- You Can Survive and Prosper in a Deflationary Depression. You'll get 29 specific forecasts for stocks, real estate, gold, cultural trends and more.

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This article was syndicated by Elliott Wave International and was originally published under the headline "Glinda the Good" Deflation Isn't Looking So... Good. EWI is the world's largest market forecasting firm. Its staff of full-time analysts led by Chartered Market Technician Robert Prechter provides 24-hour-a-day market analysis to institutional and private investors around the world.

 

Robert Prechter
Founder, Elliot Wave International

 

 

 

 

 

 

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The Power of Context

The Power of Context

Biotech stocks: A real-life example of Elliott-wave forecasting at several degrees of trend

By Elliott Wave International

April 27, 2015

Since joining Elliott Wave International in 1993, the editor of our Trader's Classroom, Jeffrey Kennedy, has traveled to at least a dozen countries, teaching seminars to some of the best professional and individual traders.

Through April 28, you have a free chance to learn Jeffrey's trading "tips and tricks" during our free Trader Education Week, an event for traders who want to improve. Every day through April 28, we are releasing Jeffrey's training videos, full of valuable insights.

Here's a clip from one of the video lessons now available, where Jeffrey looks at charts of a biotech stock to show you how to use Elliott wave analysis on several degrees of trend. Enjoy!


Watch the rest of this lesson now, free, as part of our Trader Education Week 
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This article was syndicated by Elliott Wave International and was originally published under the headline The Power of Context. EWI is the world's largest market forecasting firm. Its staff of full-time analysts led by Chartered Market Technician Robert Prechter provides 24-hour-a-day market analysis to institutional and private investors around the world.


Robert Prechter
Founder, Elliot Wave International






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Why 2 of U.S. Dollar's Recent Bottoms Have 1 Thing In Common

Why 2 of U.S. Dollar's Recent Bottoms Have 1 Thing In Common

In 2009 and 2014, a simple chart pattern enabled us to turn bullish the dollar, just in time for HUGE rallies. Learn to use this pattern now.

By Elliott Wave International

April 24, 2015

Imagine you're on an airplane, mid-air, when the intercom from the cockpit accidentally turns on. You and the entire cabin crew overhear the pilot say this to his copilot:

"I know we're heading northeast at 430 mph. But... I have no idea when or where I'm supposed to land."

That's when you cough up your bag of peanuts!

Dramatic? Sure. Imaginary? Yes. But it also highlights the real limits of mainstream financial analysis, which has no trouble identifying the current trend in a financial market -- but has little idea as to when or where that trend will end.

This is where the Wave Principle really can help you. Elliott wave analysis recognizes about a dozen distinct price patterns in financial markets. Each pattern conforms to clear, objective rules and guidelines that help you -- the investor or trader -- determine,

  1. Exact price levels where each wave should end
  2. Fibonacci price levels to help you further fine-tune price targets
  3. Support and resistance price levels -- to manage your risk
  4. And, ultimately, where the entire pattern will end -- and the next opportunity will begin

One Elliott wave pattern above all else signals the trend will soon end: the aptly named, Ending Diagonal. It only forms in the final position of a wave sequence -- i.e., wave 5 of a 5-wave impulse, or wave C of a correction, just as the trend is about to turn.

Most importantly, when this pattern ends, it's followed by a swift and powerful reversal that retraces the entire length of the diagonal. Here's an idealized depiction, in bull and bear markets:

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To fully appreciate the wonder of ending diagonals you have to see them in a real-world market -- like the U.S. dollar, where this pattern precipitated not one, but two of the most dramatic turning points in the buck's recent history.

First, 2009, the year the music of the world's main monetary unit was supposed to die:

  1. The U.S. dollar circles the drain of a 15-month low
  2. Global central banks accumulate the lowest proportion of new U.S. dollar reserves on record (Nov. 6, 2009 Time Magazine)
  3. And, the UN calls for a "new global currency to replace the dollar, proposing the biggest overhaul of the world's monetary system since World War II." (Sept. 8, 2009 Telegraph.co.uk)

Lo and behold, all the mainstream "pilots" could see was the dollar's descent continuing into total oblivion:

"Dollar Slump Persisting As Top Analysts See No Bottom... As long as the Fed maintains interest rates at historical lows, the EUR-USD should return on a bullish trend." (Nov. 23, 2009 Reuters)

Of course, you know that the Fed has kept interest rates at the same low levels, near zero, since 2009, for 6 long years -- yet EURUSD did the opposite of what the mainstream pundits expected.

On the other hand, thanks to the ending diagonal Elliott wave pattern, you knew of the coming bullish reversal in the dollar/ bearish reversal in the EURUSD ahead of time. Elliott Wave International's October 21, 2009 Short Term Update wrote:

"The [U.S. Dollar Index] still has not 'spiked beneath 74.92, the lower trendline of the fifth-wave ending diagonal that we've been discussing. Absent this price behavior, a rally above 77.48 would be another signal that a significant low is in place. Until then, we patiently wait for the current wave structure to complete."

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Reinforcing the bullish outlook was Elliott Wave International's October 2009 Elliott Wave Theorist (notice the ending diagonal on the dollar's price chart):

"The dollar sentiment remains bleak as night... and the wave count once again appears terminal. The coming advance in the dollar should be exceptionally powerful."

alt

Result: As the ending diagonal pattern suggested, soon after the U.S. dollar index took off in a powerful rally to a one-year high against the euro.

Now, flash ahead to May 2014: Once again, U.S. dollar "doom talk" is back. Against the euro, the dollar stands at a 2.5 year low, near $1.40.

This time, Elliott Wave International's June 2014 European Financial Forecast saw a bearish ending diagonal on the EURUSD price chart, suggesting another greenback comeback ahead:

"The wave labels on the chart denote the pertinent legs of the rally...Wave C of (4) traced out an ending diagonal to complete the advance. Last month, prices broke below the diagonals lower boundary, confirming the end of the large degree rally. The decline should be the first of many down waves that carry the euro lower over the remainder of 2014."

alt

Result: From that May 2014, the U.S. dollar soared (and the euro slid) in the fastest rise in 40 years, ascending to a 12-year high against its European foil by March 2015.

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This is why ending diagonals are one of the most high-confidence Elliott wave patterns. But it's just one of many. Imagine how much knowing other patterns could help you with your markets.


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This article was syndicated by Elliott Wave International and was originally published under the headline Why 2 of U.S. Dollar's Recent Bottoms Have 1 Thing In Common. EWI is the world's largest market forecasting firm. Its staff of full-time analysts led by Chartered Market Technician Robert Prechter provides 24-hour-a-day market analysis to institutional and private investors around the world.


Robert Prechter
Founder, Elliot Wave International






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Toil and Trouble in Tech Stocks

Toil and Trouble in Tech Stocks

By Elliott Wave International

April 16, 2015

Editor's note: This article is from Elliott Wave International's brand-new investment report, "U.S. Investors Face a Giant, Historic Bubble." It originally appeared in the March issue of The Elliott Wave Theorist, published March 13, 2015. For a limited-time, EWI has agreed to give our readers exclusive free access to the full report. Please click here to read it now.

On March 2, the day of the all-time closing highs in the major stock indexes to date, a swift-acting subscriber snapped a photo of this headline on financial news television.

Notice the subhead: "Back from the bubble." I think it should read, "Back in the bubble." But few people agree with that idea.

An article published on March 3 -- which means the interview took place on March 2, the day of the Nasdaq's high so far -- included a revealing quote. The reporter asked a gentleman who started a tech fund in late 1999 (a few months before tech stocked topped and crashed), "Will investors ever see a bubble like the dot-com boom again?" The answer: "It's unlikely."

This Q&A is more evidence that people forget their prior moods and rationalize present extremes into normality no matter what is happening.

Will we see another bubble? We are in one now, by some measures the biggest one yet. If people do not consider this a bubble, then I guess it makes sense to say that those living will not see one again.

Most articles focusing on the Nasdaq Composite index's return to 5000 quote professionals saying that this time it's different: The last time was "dreams," but this time there are "real profits.

Investors are often non-rational in the past but never now.

It is true that the 2000 top in the tech sector capped a bigger mania than we have today. But today's condition is still a mania. Last year saw just shy of $50 billion worth of venture capital invested in start-up businesses, most of which are technology companies. The only years of higher investment are 1999 and 2000, as the stock market reached its greatest overvaluation ever, by multiples.

So, 2014 is "only" the third-bubbliest year in U.S. stock market history. Yet most bubble talk today excuses the situation. It generally comes in three types:

  1. "There is no bubble" (that's from the Fed and most economists);
  2. "It's early in a bubble with much more to go" (that's from the average money manager); and ...
  3. "It's definitely a bubble, but it's not as extreme as the last one, so stay invested" (that's from most other people who've commented).

Mark Cuban gets it. Calling the current tech bubble worse than the last one, he highlights the fact that there is no liquidity underlying angel investors' huge investments in tech companies. That's the same message we get from the overall stock market's low volume. When tech investors and other stock owners decide they want out, low liquidity will mean few buyers, and even willing buyers will have little or no credit available, per the margin-debt statistics cited above.

Money manager Crispin Odey gets it, too. On January 27, he was quoted as saying that the bear market is "likely to be remembered in a hundred years... there will be a painful round of debt default."

These comments sound like ours here at EWI. The following comments are far more typical:

"There's no basis to call for a market peak," [a respected manager of over $9 billion], 71, said today in an interview on Bloomberg Television. "It could be a couple more years. I don't see signs of euphoria in the stock market," he said. "Maybe a pocket or two of overpriced equities but, by and large, people have been very conservative in their approach, so that's not an issue." (Bloomberg, January 22)

"People are underinvested and continue to want to own this market," says [a highly regarded technical analyst]. He sees things aligning with the market of the 1950s and early 1960s, when U.S. stocks ultimately rose five-fold. In the current bull market, the S&P 500 has roughly tripled off of 2009's low, and "if this plays out like I think it will, this is still the early innings of a secular bull run." (The Wall Street Journal, December 30)

Here's a headline from this week:

How long can the bull market run?
Most analysts expect continuing rise, with no signs of peak on the horizon

-- Atlanta Journal--Constitution (AP), March 10

Comments in the press in more recent days include: "The United States is back, and ready to drive global growth in 2015." "Plunging oil prices are a big reason for the optimism." And: The economy is "like a perfect storm to the upside."

In the meantime, an incredible 89% of large-cap-stock money managers -- who are about 96% invested -- have produced less return than the S&P over the past five years:

86% of big-cap fund managers trailed S&P 500 in 2014

In 2014, 86.4% of large-cap equity fund managers underperformed the S&P 500. Over a five-year period, 88.7% of large-cap managers failed to beat the benchmark, and over a 10-year period, 82.1% underperformed. Among mid-cap managers, 66.2% lagged the S&P MidCap 400 on a one-year basis, and 72.9% of small-cap managers lagged the S&P SmallCap 600, S&P Dow Jones Indices said in a news release Thursday. In fixed income, a significant majority of the actively managed funds in the longer-term government bond and longer-term, investment-grade corporate bond categories underperformed their benchmarks, the release said. (Market Watch, March 12)

The reason for this lag is that there is a mania in the benchmark, which managers can't outperform, while quiet weakness attends a broad list of stocks. The same thing was happening when the S&P was the focus of speculation in 1999.

Editor's note: This article is from Elliott Wave International's brand-new investment report, "U.S. Investors Face a Giant, Historic Bubble." It originally appeared in the March issue of The Elliott Wave Theorist, published March 13, 2015. For a limited-time, EWI has agreed to give our readers exclusive free access to the full report. Please click here to read it now.


Robert Prechter
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Tech bubble: Different this time?

Tech bubble: Different this time?

By Elliott Wave International

April 13,2015

Editor's note: This article is from Elliott Wave International's brand-new investment report, "U.S. Investors Face a Giant, Historic Bubble." It originally appeared in the April issue of The Elliott Wave Financial Forecast, published March 27, 2015. For a limited-time, EWI has agreed to give our readers exclusive free access to the full report. Please click here to read it now.

In March, we covered the return to a popular fascination with technology.

The striking resemblance to 2000's technology mania is not going unnoticed. How can it? With the NASDAQ's much heralded return to 5000 and magazine covers proclaiming "Google Wants You To Live Forever," concern about an "asset bubble" is being raised. But this is actually another throwback to early March 2000, when the NASDAQ reached its all-time high and the Financial Forecast remarked on a "public ambivalence toward warnings of any kind."

The March issue of The Elliott Wave Theorist explains that while people may remember some of the details, they "forget their prior mood and rationalize present extremes into normality."

This March 7 headline from a major financial paper offers a perfect example of how this "normalization" works: "Forget 2000. It's a Different Investing Ballgame." Really? Yeah, really. "It really is different this time," says another. "The crazy valuations seen at the turn of the millennium -- when silly concepts, such as collecting eyeballs, attracted billions of dollars from breathless speculators wanting to get in on the new, new thing -- are absent."

There's just one problem with this assessment, it's not accurate. Here's the reality, or should we say surreality, as depicted in Bloomberg on March 17:

The Fuzzy, Insane Math That's Creating
So Many Billion-Dollar Tech Companies

The article discloses how companies are shooting to "astronomical valuations," mostly with Internet ideas that capture people's bullish imaginations and, as in 2000, cause them to look beyond mundane things such as cash flow and profits. Once again, such stone-age metrics are less important than "the number of people using the product" and "whether they pay for it. Investors salivate over what's called 'hockey-stick' growth curves, indicating massive uptake. Costs, especially operations costs, are largely ignored."

As in 2000, the fever has been spreading fast. According to Bloomberg, start-ups with billion-dollar valuations were once dubbed "unicorns" because of their rarity. Now, Bloomberg counts more than 50 of them. Many have expanded ten-fold, so a new buzzword, "decacorn," now applies to those with capitalizations of more than "$10 billion, which includes Airbnb, Dropbox, Pinterest, Snapchat and Uber."

Of course, the driving force behind many of these investments is the same--a fear of missing out (FOMO).

"A severe case of FOMO can cause some to do crazy things to get into the hottest deals," says Bloomberg. This is exactly what the Financial Forecast said in March 2000, when we explained why people fail to heed ample warnings in the final throes of a mania: "Acting on such an opinion might mean missing something on the upside. 'The average person must ride it out,' says [a] Nobel Prize winner. Quotes such as these will deserve preservation in bronze when the bear market is mature." Clearly, that time still lies ahead.

For compelling Elliott wave evidence of a culmination of the Mania Era, see the five-wave advance in the share price of the current technology leader, Apple Inc., on page 3 of the March Elliott Wave Theorist. As the Theorist notes, after rising more than 14,500% over the past 12 years, S&P Dow Jones Indices added the stock to the Dow Jones Industrial Average on March 19.

This is one more remarkable parallel to the prior technology mania, as Microsoft was added to the Dow Industrials just prior to its January 2000 top. Here's how EWFF interpreted its addition in November 1999:

The ultimate concession to technology is due November 2, when Microsoft will be inducted into the Dow Jones Industrial Average. For most of the bull market, the world's most dominant stock was excluded from the world's premier blue-chip average. But just as RCA was added to the Dow in October 1928 (and removed in 1932), Microsoft has assumed its rightful place at the head of the pack, in time to lead the way down.

Apple has just been acknowledged in the same way and for the same reason. The pressure to pile onto the technology bandwagon has proved irresistible to the Dow's purveyors. This has generally happened when the most important stock market reversals were at hand.

Editor's note: This article is from Elliott Wave International's brand-new investment report, "U.S. Investors Face a Giant, Historic Bubble." It originally appeared in the April issue of The Elliott Wave Financial Forecast, published March 27, 2015. For a limited-time, EWI has agreed to give our readers exclusive free access to the full report. Please click here to read it now.


Robert Prechter
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EURUSD: Why Recent Ups and Downs Are NOT Random

EURUSD: Why Recent Ups and Downs Are NOT Random
How Elliott wave analysis can bring some certainty into the oh-so-uncertain world of forex trading

By Elliott Wave International

April 08, 2015

How do you know what "your" forex market will do tomorrow?

You don't. We don't. Nobody does. All anyone can do is guess. But some guesses are more "educated" than others.

In a recent interview, Elliott Wave International's Senior Currency Strategist, Jim Martens, explained why for the past almost 30 years his favorite method to "guess" at the market's trend has been Elliott wave analysis:

Jim Martens"Markets are doing what they are supposed to be doing: inflicting the most pain on the most number of people. Markets fool the most number of people at the most unexpected moments, but by tracking Elliott wave patterns, sentiment (and the news) you can prepare yourself.

"What separates Elliott wave fans from the rest of the public is that the public has no basis for determining when the trend may be over."

Let's take a look at a recent example: namely, price action in EURUSD on April 5-7.

Since the mid-March low in EURUSD, Jim and his Currency Pro Service team have been tracking a "messy" Elliott wave pattern in the euro-dollar: a correction. "Messy," because corrections are just that: choppy, overlapping, often directionless moments when it's just plain hard to make heads or tails.

Yet, under Elliott wave analysis, even corrections have rules and guidelines. There are 13 known corrective Elliott wave price patterns, and if you nail what part -- and of which pattern -- you find yourself in right now, you can make a strong case about where the market will go tomorrow.

Case in point -- on Sunday, April 5, Jim Martens posted this bullish euro-dollar forecast in his Currency Pro Service:

alt

EURUSD
[Posted On:] April 05, 2015 04:57 PM
[Higher in a correction??]

The EURUSD recovery carried into Friday and, as a result, we have to consider the idea the rise from 1.0462 is incomplete. We've been considering the idea the euro decline ended at the recent low. The problem is the structure of the subsequent recovery. It is not clearly impulsive. That means it could represent a correction.

Jim's bullish forecast was based on the fact that the rising corrective Elliott wave pattern you see in the chart above was not complete, leaving more room to the upside. The next day, EURUSD indeed rallied:

alt

Despite the expected rally, though, the wave pattern also warned that the push higher would end soon. So, on April 6 Jim posted this update for his Currency Pro Service followers:

EURUSD
[Posted On:] April 06, 2015 11:29 AM
[Sideways to higher]

Whether 1.1051 is exceeded or not, gains might come as the result of a bullish triangle... which would make the push to a new high above 1.1051 a fifth wave. A correction should start soon after and from not much higher. The area of the triangle to 1.0964 might act as support...

The reason why Jim knew on April 6 that EURUSD should soon reverse lower was because at a larger Elliott wave degree, EURUSD was likely building a triangle price pattern. Triangles are sideways moves labeled ABCDE:

alt

In the chart above you see that on April 6 EURUSD was likely ending wave D up, with wave E down soon to follow. That's why Jim warned that any rally would not go too high. And it didn't -- EURUSD reversed sharply lower (in wave E) the very next day, April 7:

alt

That's just one example of how you can make "educated guesses" about the market's direction using Elliott wave analysis. We have plenty more!

In fact, to learn more about the Elliott wave method, we invite you to read our free 10-page eBook, "Trading Forex: How the Elliott Wave Principle Can Boost Your Forex Success."

The eBook is yours free, instantly, with a quick sign-up for Club EWI, the world's largest online community of Elliott wave investors and traders (325,000 free members strong!)


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This article was syndicated by Elliott Wave International and was originally published under the headline EURUSD: Why Recent Ups and Downs Are NOT Random. EWI is the world's largest market forecasting firm. Its staff of full-time analysts led by Chartered Market Technician Robert Prechter provides 24-hour-a-day market analysis to institutional and private investors around the world.

Robert Prechter
Founder, Elliot Wave International







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Deflation Watch: Key Economic Measures Turn South

Deflation Watch: Key Economic Measures Turn South
A developing deflationary trend hinders the economic "recovery"

By Elliott Wave International

March 27, 2015

Lots of media stories say the Federal Reserve is weighing signs of economic strength to see if the economy is ripe for higher interest rates.

In truth, economic weakness has appeared on various fronts.

Such as, for example, the financial health of U.S. companies.

Profits for US companies are expected to decline over two consecutive quarters for the first time in six years... .

Not since the aftermath of the financial crisis have S&P 500 companies recorded two straight quarters of falling profits on a year-over-year basis.

Financial Times, March 6

Elliott Wave International released the March issue of the Elliott Wave Financial Forecast. It discussed signs of economic weakness, via these charts and commentary:

Corporate Profits are [a] key measure that turned down months ago... . In addition to trailing off ahead of market downturns in 2000 and 2007, the chart shows that in mid-2013 corporate profits completed a five-wave advance from 1990. The reversal from that all-time high of $1.67 trillion should continue and eventually move below the wave 4 low of $793 billion in late 2008.

In January, Real Retail and Food Service Sales fell 0.8%. A breakdown shows the declines ranged well beyond energy expenses, as furniture sales fell 8.7%, clothing was down 9.5% and sporting goods, hobby, book and music sales fell 31.7%. The year-over-year change in Real Retail and Food Service Sales has actually been angling lower since February 2011. Note how this measure reversed in much the same manner ahead of the stock price peaks in 2000 and 2007 and the recessions that followed. ... U.S. Total Construction peaked in June 2006, a year and three months ahead of the October 2007 high in the Dow Industrials. U.S. Hourly Wages are weaker still. At 2.5%, the most recent peak rate-of-wage-growth is well below the prior highs of 4.3% in May 1998 and 4.2% in December 2006.

Also, the "recovery" in employment has gained back only about 40% of the jobs lost during the recession (despite new highs in the stock market). The data also suggests that over half of those new jobs are due to government borrowing.

Mind you, all these economic indicators have turned south despite unprecendented stimulus from the Fed.

Why?

The January Elliott Wave Theorist says "deflation is starting to win."

Oil is down 61% in seven months. Bitcoin is down 86% in thirteen months. Commodities have made new lows for the past five years. Gold and silver made their highs over three years ago. The inflation rate is negative in Europe. And interest rates just went negative in Switzerland. But remember what ... inflation forecasters have insisted all along: central banking guarantees that deflation is impossible.

Since that issue of the Theorist published, it's been revealed that January brought a year-over-year decline of 0.1% in U.S. consumer prices. It was the first fall into negative territory since October 2009. On a monthly basis the decline was 0.7%, the largest since December 2008.

Want to read more? Take a look below for details on how to get a free report from Elliott Wave International.



U.S. Economy Still on Life Support

For years, the government has manipulated its unemployment statistics to line up with its claim that the economy has recovered strongly. But that's not ALL the government is hiding from you. From foodstuffs, to crude oil prices, to GDP, the numbers and analysis reported by the government and mainstream financial press are misleading at best, downright falsehoods at worst.

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Learn the Basics of Corrective Waves

Learn the Basics of Corrective Waves
Senior Analyst Jeffrey Kennedy outlines three important Elliott wave patterns in three markets

By Elliott Wave International

March 25, 2015

See how three Elliott wave patterns develop -- in Cliffs Natural Resources Inc (CLF), iShares Russell 2000 Index (IWM) and Direxion Daily Financial Bull 3X Shares (FAS) -- in this classic 5-minute video excerpt from Jeffrey Kennedy's Trader's Classroom service.


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The Elliott Wave Basic Tutorial is a 10-lesson comprehensive online course with the same content you'd receive in a formal training class -- but you can learn at your own pace and review the material as many times as you like!

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This article was syndicated by Elliott Wave International and was originally published under the headline Learn the Basics of Corrective Waves. EWI is the world's largest market forecasting firm. Its staff of full-time analysts led by Chartered Market Technician Robert Prechter provides 24-hour-a-day market analysis to institutional and private investors around the world.

Robert Prechter
Founder, Elliot Wave International






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A Very Weak Economic Recovery

A Very Weak Economic Recovery

By Elliott Wave International

March 24, 2015

Editor's note: The following article is excerpted from Elliott Wave International's new free report, "U.S. Economy Still on Life Support." For years, the government has manipulated its unemployment statistics to line up with its claim that the economy has recovered strongly. But that's not ALL the government is hiding from you. From foodstuffs, to crude oil prices, to GDP, the numbers and analysis reported by the government and mainstream financial press are misleading at best, downright falsehoods at worst. Get the hidden truth -- click here to read the full two-part report now >>

For years, the government has been manipulating its unemployment statistics to line up with its claim that the economy has recovered strongly.

Jim Clifton of Gallup finally couldn't stand it anymore and wrote a terrific op-ed on the subject. Here is the meat of it:

If you, a family member or anyone is unemployed and has subsequently given up on finding a job--if you are so hopelessly out of work that you've stopped looking over the past four weeks--the Department of Labor doesn't count you as unemployed. That's right. While you are as unemployed as one can possibly be, and tragically may never find work again, you are not counted in the figure we see relentlessly in the news--currently 5.6%. Right now, as many as 30 million Americans are either out of work or severely underemployed. Trust me, the vast majority of them aren't throwing parties to toast "falling" unemployment.

There's another reason why the official rate is misleading. Say you're an out-of-work engineer or healthcare worker or construction worker or retail manager: If you perform a minimum of one hour of work in a week and are paid at least $20--maybe someone pays you to mow their lawn--you're not officially counted as unemployed in the much-reported 5.6%. Few Americans know this.

Yet another figure of importance that doesn't get much press: those working part time but wanting full-time work. If you have a degree in chemistry or math and are working 10 hours part time because it is all you can find--in other words, you are severely underemployed--the government doesn't count you in the 5.6%. Few Americans know this.

There's no other way to say this. The official unemployment rate, which cruelly overlooks the suffering of the long-term and often permanently unemployed as well as the depressingly underemployed, amounts to a Big Lie.

--Jim Clifton, Gallup.com

The following chart depicts the substantial decline in employment since 2000.

alt

Notice that the recovery in jobs during the stock market rally of 2003-2007 was only about 1/3 of the decline from 2000-2003. The recovery during the even longer and bigger rally of 2009-2014 has been about 40% of its preceding decline. In both cases, the recoveries have been weaker than the declines, despite new highs in the major stock averages both times.

Editor's note: This article is excerpted from Elliott Wave International's new free report, "U.S. Economy Still on Life Support." For years, the government has manipulated its unemployment statistics to line up with its claim that the economy has recovered strongly. But that's not ALL the government is hiding from you. From foodstuffs, to crude oil prices, to GDP, the numbers and analysis reported by the government and mainstream financial press are misleading at best, downright falsehoods at worst. Get the hidden truth -- click here to read the full two-part report now >>


Robert Prechter
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Forex Traders: The Only Question You Should Be Asking

Forex Traders: The Only Question You Should Be Asking
Elliott wave analysis foresaw the USDJPY's recent rally. Find out what else we're expecting for the world's leading forex markets (plus stocks, gold, oil and bonds) -- absolutely FREE

By Elliott Wave International

March 10, 2015

I can't help it. Whenever I read the mainstream financial news, I feel like I'm eavesdropping on a job interview at Microsoft.

In case you don't remember -- Microsoft was made famous, in part, for asking prospective employees one single question: Why is a manhole cover round?

They wanted to assess how a person approaches a question that has many answers. And, many answers are what they got, from the most practical (i.e. "Because a manhole is round") to the most philosophical (i.e. "The circle is the most aesthetically pleasing shape for the human eye.")

I'll now take you back to the world of mainstream finance where those in charge are regularly asked to answer this basic question: Why did market "X" move this way today? And, many answers are what they give.

Take, for a real-world example the March 9-10 upsurge to a 7-and-1/2 year high in the Dollar/Yen currency exchange pair. As for why the USDJPY rallied, the experts offered up these (and many more) explanations:

  • A February 6 robust U.S. jobs report
  • A February 9 hawkish speech by outgoing Dallas Federal Reserve President
  • A February 9 triple-digit rally in U.S. stocks
  • A February 8 government report showing Japan's fourth-quarter GDP was lower-than-expected

The truth is, anyone can come up with endless reasons to explain market action -- after the fact.

But what about anticipating the market's next move -- before it occurs? That is a question only EWI's Currency Pro Service is equipped to answer. Case in point: At 9:44 a.m. on March 9, Currency Pro Service posted intraday analysis for USDJPY that identified a bullish contracting triangle on the pair's 15-minute price chart.

For newbies, an Elliott wave contracting triangle is a sideways pattern comprised of 5 waves, A-B-C-D-E. They most commonly form in 4th wave or B wave position. And when one ends, the resolution is usually sharp and swift. Here is an idealized diagram:

alt

The March 9 Currency Pro Service pinpointed the contracting triangle on the USDJPY chart and set the stage for a powerful near-term rise:

"The pattern can be counted complete, which suggest USDJPY will thrust higher toward the 121.84 high established in early December."

alt

The next chart shows you how the post-triangle thrust propelled prices right into the cited upside target at 121.84.

alt

The mainstream experts always give you plenty of reasons why a certain market did what it did.

But EWI's renowned Currency Pro Service analysts enable you to anticipate what a certain market likely will do in the coming hours, days, weeks and more.

And, there's no better time to experience the incredible resource first hand. Why? Because for the second-time only, EWI has launched a Pro Service Open House event. Open, as in you get complete, no-cost access to Pro Service's premier forecasts for not only Forex -- which Investopedia calls "the most traded market in the world" -- but also the world's leading energy, metals, interest rates, and stocks.

This amazing one-week opportunity begins on Tuesday, March 10. Find out what's in store for the markets you follow, free! Simply join the thousands of Club EWI members already taking part in the Pro Service Open House as we speak.


This article was syndicated by Elliott Wave International and was originally published under the headline Forex Traders: The Only Question You Should Be Asking. EWI is the world's largest market forecasting firm. Its staff of full-time analysts led by Chartered Market Technician Robert Prechter provides 24-hour-a-day market analysis to institutional and private investors around the world.

Robert Prechter
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Market insight: U.S. Dollar at 11-Year High Against Euro

Market insight: U.S. Dollar at 11-Year High Against Euro
And why now may not be the best time to bet on the greenback

By Elliott Wave International

March 10, 2015

Editor's note: You'll find a text version of this story below the video.

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On March 4, we spoke with Jim Martens, our Chief Currency Strategist. His Currency Pro Service is participating in our Pro Services Open House, a free week-long event that starts next Tuesday at elliottwave.com.

Elliott Wave International: Jim, it's a good time to talk about currencies, because the euro has just touched an 11-year low against the dollar. Did you ever think you'd live to see this day?

Jim Martens: Did I ever think I'd live to see this moment... Well, back in mid-2011, when EURUSD was trading near $1.50, we started talking about the upcoming retest of $1.1876, the 2010 low. We were convinced that the rally from that level was a correction -- so EURUSD would ultimately fall back to it. It took a while to get there because what followed was a wide-ranging sideways consolidation in EURUSD -- a triangle, in Elliott wave terms, an overlapping pattern labeled ABCDE that you see on this chart:

alt

That triangle ended in May 2014 with EURUSD almost hitting $1.40. From that point we had been expecting a move below $1.1876 -- and we had lower targets, as well. Most of them have been hit, and the interesting thing is that now, all of a sudden, the idea of the dollar/euro parity is becoming popular. Someone at Goldman recently talked about parity by the end of 2017.

Elliott Wave International: Do you think we'll see parity?

Jim Martens: Well, in 2008-2009, we spotted a three-wave rally in EURUSD from 2000 to 2009 -- and we classified it as a correction. That, again, suggests that the euro will eventually revisit the lows we saw back in 2000:

alt

But maybe not just yet. The current timing of the "parity" talk in the media is key. It's interesting that we see it now, after a huge decline. This is very typical! At major turning points, sentiment is supposed to be extreme. There is a reason why extreme sentiment signals a turning point: First the trend gets popular, then it becomes too popular, then there is no one left to buy (or sell).

But the markets are doing what they are supposed to be doing: inflicting the most pain on the most number of people. The majority always gets caught on the wrong side at big reversals. Always. For me, the news of the public piling into a trend is another snapshot of the market sentiment. That's useful information. Markets fool the most number of people at the most unexpected moments, but by tracking sentiment -- and the news -- you can prepare yourself.

The key is, just because the environment is right for a turn doesn't mean there is evidence of the turn. Wave analysis has built-in indicators that give you that evidence, and you have to wait until you see it -- before you act.

What separates Elliott wave fans from the rest of the public is that the public has no basis for determining when the trend may be over. In fact, the longer the trend continues, the more people join in -- and the more committed they become. But right now is not the time to stay committed to your EURUSD shorts.

Elliott Wave International: Thank you for the insights, Jim.


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This article was syndicated by Elliott Wave International and was originally published under the headline Market insight: U.S. Dollar at 11-Year High Against Euro. EWI is the world's largest market forecasting firm. Its staff of full-time analysts led by Chartered Market Technician Robert Prechter provides 24-hour-a-day market analysis to institutional and private investors around the world.

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Here's What Stock Market Bulls Might Be Overlooking

Here's What Stock Market Bulls Might Be Overlooking
A growing economy is not necessarily bullish -- see for yourself

By Elliott Wave International

March 04, 2015

Editor's note: You'll find a text version of this story below the video.

Learn how you can get our FREE, 53-page State of the Global Markets report now >>


On Friday (Feb. 27), the 4th quarter U.S. GDP was revised downward to 2.2% from the original 2.6%.

"U.S. stock markets shrugged off the revision," wrote Fox Business. And why wouldn't they -- after all, the conventional wisdom says that as long as the economy is growing, so is the stock market.

Except, it's not exactly true.

See, if that notion were true, then you'd have to assume that the U.S. economy was in a bad shape in 2007, when the stock market began its biggest decline since the Great Depression. But the facts show the opposite.

alt

When the Dow topped in October 2007, key economic measures were indeed strong:

  • In the quarter preceding the market peak, GDP expanded at 2.7%
  • Unemployment in 2007 was 4.6%
  • Consumer confidence was very strong, too (top red circle; chart: Bloomberg)

If a strong economy means a strong stock market, then stocks should have continued higher. They didn't. The Dow fell more than 50% over the next year and a half:

alt

If you think that's counterintuitive, then fast forward to early 2009. That's when we saw the opposite economic picture:

  • Consumer confidence fell to an all-time low (the second red circle on the blue chart)
  • GDP growth fell to a negative 5.4%
  • Unemployment rate more than doubled to almost 10%

Because of such terrible economic data, few mainstream economists were optimistic in early 2009. And yet the stock market bottomed in March of that year.

This reminds me of a quote from our monthly Elliott Wave Theorist:

"Suppose you were to possess perfect knowledge that next quarter's GDP will be the strongest rising quarter for a span of 15 years, guaranteed.

"Would you buy stocks?

"Had you anticipated precisely this event for 4Q 1987, you would have owned stocks for the biggest stock market crash since 1929.

"GDP was positive every quarter for 20 straight quarters before the 1987 crash -- and for 10 quarters thereafter.

"But the market crashed anyway."


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Why Expectations for Future Global Business Activity are Plunging

Why Expectations for Future Global Business Activity are Plunging
Enjoy an excerpt from "The State of the Global Markets 2015 Edition," a comprehensive report by Elliott Wave International

By Elliott Wave International

February 27, 2015

Editor's note: This article is excerpted from "The State of the Global Markets 2015 Edition," a comprehensive report by Elliott Wave International, the world's largest independent market-forecasting firm (data through December 2014). You can download the full, 53-page report here -- 100% free.

In its November issue, published on Oct. 31, EWI's European Financial Forecast discussed the plunging 5-year/5-year forward swap, a market-based gauge that measures inflation expectations from five years to 10 years out, and stated, "Even the central bank's preferred inflation metric shows nothing but flat or falling prices over the foreseeable future."

In November, a "sharp deterioration in sentiment" (WSJ, 11/17/14) popped up in the economic surveys.

According to a poll conducted by Germany's IW Economic Institute, nearly one quarter of the 2,900 companies surveyed (almost double the percentage from last spring) plan to cut investments in 2015. Likewise, the percentage of companies planning to increase spending fell from 44.1% to 29.8%.

In fact, the more officials seem to push the story of a great global recovery, the harder the deflationary evidence seems to push back.

Global Business Activity Expectations

Notice that the balance of companies expecting to increase business activity in the next 12 months just fell to its lowest level since the survey began five years ago.

Markit's accompanying analysis presents many more lowlights (emphasis added):

Worldwide

  • Expectation of business activity weakened among both manufacturers and service providers.
  • Hiring and investment plans rest at post-crisis lows.
  • Price expectations deteriorated further.
  • Optimism in manufacturing fell to its lowest since mid-2013, while optimism in services slumped to the lowest in the survey's five-year history.

In the United States

  • "The most striking development was the extent of the downturn in the U.S., where optimism hit a new survey low, with the service sector seeing a particularly dramatic decline."

In Europe and Emerging Markets

  • Business confidence in Spain and Italy was the lowest recorded since this time last year.
  • In Germany and France, confidence was far lower ... with both 'core' countries seeing the lowest levels of optimism since June of last year.
  • Business expectations across the main emerging markets fell on average to the lowest seen in the survey's five-year history.

To be clear, deeply rooted economic pessimism often precedes a low in stocks and social mood. But what exists today is something quite different: Namely, investors display excessive optimism toward stocks, while economic fundamentals only continue to deteriorate. We have noted, for example, that J.P. Morgan equity strategists just upgraded European stocks from underweight to overweight, believing that the region is "due a period of outperformance vs. the U.S." (Reuters, 11/17/14) Yet, economists at J.P. Morgan just downgraded its GDP forecast, calling for world growth to come in at 2.6%. The International Monetary Fund likewise cut its forecast for global growth -- for the sixth time in less than two years. At 3.3%, world growth will fall from 3.6% a year ago and from 4.1% a year before that.

We simply don't buy any of these projections. The critically stretched position of the world's major stock markets calls for economic downgrades to persist until the worldwide economy enters another full-blown contraction, which is likely sometime in 2015.

Editor's note: This article is excerpted from "The State of the Global Markets 2015 Edition," a comprehensive report by Elliott Wave International, the world's largest independent market-forecasting firm. For a limited time, you can download the full report, for free, and use its year-in-preview insights to prepare, survive and prosper through the global investment landscape of 2015 and beyond. Download the full, 53-page report here -- it's free.


This article was syndicated by Elliott Wave International and was originally published under the headline Why Expectations for Future Global Business Activity are Plunging. EWI is the world's largest market forecasting firm. Its staff of full-time analysts led by Chartered Market Technician Robert Prechter provides 24-hour-a-day market analysis to institutional and private investors around the world.

Robert Prechter
Founder, Elliot Wave International







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"Audit the Fed"? We've Already Done That (Well, Kind of)

"Audit the Fed"? We've Already Done That (Well, Kind of)
Our conclusion: The Fed is not in control of the economy -- here's why

By Elliott Wave International

February 25, 2015

If there's one thing the Federal Reserve Board of the United States is not known for, it's assertive language. After all the obfuscation and verbal sidestepping, Fed speak is usually as easy to comprehend as Marlon Brando's Godfather character Don "Mumbles" Corleone. 

But on February 24, Fed chairwoman Janet Yellen was 100% candid in expressing her disapproval of the controversial bill known as "Audit the Fed" -- legislation that would open the central bank up to full government regulation and scrutiny: 

"I want to be completely clear.

I strongly oppose 'Audit the Fed'"

No - Confusion - There!

But, whatever side of the bill you stand on -- nay or yay -- for us, the prospect of pulling back the curtain on the most elusive quasi-government body seemingly besides the C.I.A. is irrelevant. Because we at Elliott Wave International have long since conducted our own "audit" of the Fed -- and the results are like nothing you've ever heard before from the mainstream pundits.

The purpose of our "audit" was simple: Determine, once and for all, if the most powerful monetary institution on the planet does, in fact, have the power to control the U.S. economy or marketplace.

We published our findings in a 30-plus page eBook titled "Understanding the Fed," a compilation of excerpts from the selected works of EWI president Robert Prechter -- including his 2002 best-seller Conquer the Crash and several past Elliott Wave Theorist publications. This riveting report articulates in no uncertain terms that the two main tools in the Fed's arsenal -- interest rate policy and money creation -- will be, and always have been, futile against the forces of deflation.

These two passages from the "Understanding the Fed" eBook set this radical claim in motion (excerpted from Chapter 13 of Conquer the Crash):

"The problems that the Fed faces are due to the fact that the world is not so much awash with money as it is awash with credit... For the Fed, the mass of credit that it has nursed into the world is like having raised King Kong from boyhood as a pet. He might behave, but only if you can figure out what he wants to keep him satisfied.

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"Conventional economists excuse and praise this [Federal Reserve] system under the erroneous belief that expanding money and credit promotes economic growth, which is terribly false. It appears to do so for a while, but in the long run, the swollen mass of debt collapses of its own weight, which is deflation, and destroys the economy."

In the decade since Conquer the Crash first brought these assertions to light, the Fed has only lived up to its limitations.

First, from 2003 to 2007, the central bank attempted to remove the froth from the bubbling housing market and cool the overheated credit sector via 17 interest rate HIKES -- from a half-century low of 1% to 5.25%. Yet, in 2007-2009, the top blew off both sectors anyway.

Hoping to finesse the economy into a "soft" landing, the Fed then adopted the opposite tactic: Slashing rates 10 times between 2007 and 2008 to a record low of 0%, and from 2009 to 2012, embarking on the largest inflationary campaign in history via three rounds -- $4.5 Trillion -- of quantitative easing (QE).

Yet, again, all of these measures failed to prevent:

  • The worst financial meltdown since the Great Depression
  • A full-blown bear market in oil and commodity prices, which stand at a 6- and 12-year low respectively
  • A stalled housing and jobs market
  • An inflation rate that has been running below the Fed's 2% target for nearly three years

And, as our updated chart of "Total Credit Market Debt as a Percentage of GDP" below shows, the deflationary scenario outlined in Conquer the Crash -- when "the swollen mass of debt collapses of its own weight" -- is also coming to pass:

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Whatever action Congress decides to take regarding "Audit the Fed," the fact remains: One of the most comprehensive and objective inventories of the Fed's actual economy-saving abilities is not on Capitol Hill. It's right here, in EWI's 30-plus page "Understanding the Fed" eBook.

The best part is, the entire report from start to mind-blowing finish is available to all Club EWI members, 100% free.

So, what are you waiting for? Join our Club EWI community today (350,000 members strong!) and start reading the full, free eBook immediately -- or at your leisure.


This article was syndicated by Elliott Wave International and was originally published under the headline "Audit the Fed"? We've Already Done That (Well, Kind of). EWI is the world's largest market forecasting firm. Its staff of full-time analysts led by Chartered Market Technician Robert Prechter provides 24-hour-a-day market analysis to institutional and private investors around the world.

Robert Prechter
Founder, Elliot Wave International






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Why the Workforce Still Shrinks as Job Growth Rises

Why the Workforce Still Shrinks as Job Growth Rises

By Elliott Wave International

February 20, 2015

Editor's note: This article was adapted, with permission, from the February issue of The Elliott Wave Financial Forecast, a publication of Elliott Wave International, the world's largest market forecasting firm. All data is as of Jan. 30, 2015. Click here to read the complete version of the article, including specific near-term forecasts, 100% free.

A significant hint of economic softening is the slight decline in average hourly earnings in December. It came despite "a healthy 252,000 increase in jobs. Economists are struggling to explain the phenomenon," says the Associated Press. "I can't find a plausible empirical or theoretical explanation for why hourly wages would drop when for nine months we've been adding jobs at a robust pace," says a perplexed economist.

Workforce is still shrinking

The chart above of the U.S. Labor Force Participation Rate presents a similar conundrum. Why is it falling when job growth is rising? The answer, we think, is the emerging force of deflation.

Notice that the peak participation rate of 67.3% came from January to March 2000, as the major stock indexes topped, after which inflation first began to falter. When stocks rallied to their 2007 top, there was a mild bounce in the rate, but the latest stock market rally failed to generate any sustained rise in the rate of work force participation. Workers appear so discouraged that the pool of available employees is back to where it was in 1978.

The opening chapter of Robert Prechter's best-seller, Conquer the Crash, illustrates various other measures depicting a long-term economic deterioration and states, "The persistent deceleration in the U.S. economy is vitally important, because it portends a major reversal from economic expansion to economic contraction."

As "great" as it was, the Great Recession of 2008-2009 was just a prelude.

Click here to continue reading the complete version of the article as part of a lengthy excerpt from the newest issue -- including specific market forecasts, fully labeled charts and more -- 100% free.


This article was syndicated by Elliott Wave International and was originally published under the headline Why the Workforce Still Shrinks as Job Growth Rises. EWI is the world's largest market forecasting firm. Its staff of full-time analysts led by Chartered Market Technician Robert Prechter provides 24-hour-a-day market analysis to institutional and private investors around the world.

Robert Prechter
Founder, Elliot Wave International







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Autos Subprimed for a Fall

Autos Subprimed for a Fall

By Elliott Wave International

February 20, 2015

Editor's note: This article was adapted, with permission, from the February issue of The Elliott Wave Financial Forecast, a publication of Elliott Wave International, the world's largest market forecasting firm. All data is as of Jan. 30, 2015. Click here to read the complete version of the article, including specific near-term forecasts, for free.

With gas prices tumbling and car sales surging in December, analysts expect total vehicle sales to rise to 17 million units in 2015, close to the 17.3 million record in 2000. But a closer look reveals that this presumed "pocket of strength" is actually another deflationary sinkhole.

A big clue to this potential is the source of much of the industry's recent sales surge: debt.

Just as home sales received a boost from slackening underwriting standards in 2005, subprime car deals jumped in 2014 as loan terms lengthened to as many eight years and credit standards slipped markedly.

According to a New York Times examination of five large auto lenders, subprime credit companies "are loosening credit standards and focusing on the riskiest borrowers."

Equifax reports that as of October, 31% of car loans (6.5 million) went to borrowers with credit scores below 640.

Honda's top U.S. executive warns that "competitors are doing 'stupid things' to boost auto sales including making seven-year-long loans that harm buyers."

Yet Honda feels it has no choice but to join in. "We've seen this movie before, we know how it ends, and it's not pretty.... but we've already paid the price of admission. So we might as well stay to the end."

We've seen this we-have-no-choice thinking before. Somehow, knowing the ending doesn't do anything to change behavior or to alleviate the pain when it comes.

Click here to continue reading the complete version of the article as part of a lengthy excerpt from the newest issue -- including specific market forecasts, fully labeled charts and more -- 100% free.


This article was syndicated by Elliott Wave International and was originally published under the headline Autos Subprimed for a Fall. EWI is the world's largest market forecasting firm. Its staff of full-time analysts led by Chartered Market Technician Robert Prechter provides 24-hour-a-day market analysis to institutional and private investors around the world.

Robert Prechter
Founder, Elliot Wave International







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