Ignorance May Mean Bliss
But Never in the Stock Market
By Robert B. Gordon Sc.D
July 19, 2002
kitco.com
CONVENTIONAL WISDOM
Twenty-seven months into this great bear market, our local newspapers have just discovered it and are featuring front-page articles from "expert" local sources. Although presumably intended to help their readers, they are doing much more harm than good. Typically, they quote words of wisdom from locally available representatives of the brokerage or financial services industry whose personal income depends on keeping everyone fully invested in something.
This morning, our main daily paper The Arizona Republic carried a huge illustrated piece on the center of the front page with the headline What’s an Investor to Do. In bold print, the text quoted a local financial planner: "The professionals were on the sidelines letting the amateurs beat themselves up. When it was over, they moved in and carted off the bodies."
Another prominent local financial advisors stated "I am confident that investors that own or buy stocks today will enjoy good returns over the next five years".
I sent an e-mail to the Arizona Republic reporter who wrote the article quoted above as follows:
"In my considered opinion, your article will not be helpful to its readers. We are in a once in a century market where virtually all opinions are wrong. Certainly no one whose income depends on keeping investors in the market can give an honest opinion. Unfortunately that is the people who are always quoted. With 62 years in the market and heavy experience in the1966-74 mini boom and bust cycle, I have made an exhaustive study of all past manias back to the Tulip Bulbs in 1637. In every past case where the corrective process is finished (thru 1929) the market always drops below that at the start. This means the Dow is going to 800 or lower! With the current articles in the press, nearly all investors are bound to lose most of their money. I cannot influence that result but I can help educate the group of influential reporters in our press. Read Robert Prechter's great 1995 book At the Crest of the Tidal Wave which predicted this crash and so far is right on target. Also read his just published book, Conquer the Crash, available at all bookstores which explains why we are headed for a depression worse than 1929 and what individual investors can do about it".
In yesterday's Daily News Sun, which covers the Sun Cities retirement community, the front-page headline read: Investors taking Stock and a sub headline read. Bear Market hurts Retirees. The leading quote from a local financial planner was: " I think that the economy is reasonably healthy". Later he guessed that "the downturn would go on for some time", but that "most people should have some of their money in the stock market" - a vivid example of the blind leading the blind!
In the same issue of the Daily News Sun, the Editorial page published my most recent letter, one of about ten in the past several years:
The Worst is Yet to Come
"This is the very last chance that you, our friends and neighbors, have to escape the carnage that lies just ahead in our stock markets. And, for your children and grandchildren, their retirement accounts are at huge risk. For your sake and theirs, please read and act on my words of warning.
The current 3 year old bear market is now ahead of all others in our history except the Great Crash of 1929. But every objective expert I read expects this market crash and its associated depression to eventually exceed that of l929.
The most serious problem facing the market now is the decline in the U.S. dollar which threatens to cause heavy foreign selling of U.S. stocks and bonds. Close behind it is the specter of mass selling of mutual funds. The mutual funds have only 5% cash to meet redemptions. When that runs out and the funds have to liquidate their stocks, prices will plummet to unbelievable levels.
You must not listen to CNBC and the sales hype from Wall Street. These self-serving "experts" are only interested in their survival , not yours.
Sell your stocks and funds now before the panic selling of the investor masses begins. This could literally happen an any time. Do it right now!"
At this writing, the day after the above letter was printed, I have received two phone calls from retired neighbors. Typically I will get a few more. In five years of steady effort, I have learned that it is very hard to combat ignorance with truth. Among retirees in their 70's, 80's and 90's it is close to impossible. Accordingly, have decided to publish my essays exclusively on Internet web pages where it will be read by individuals of varying age, education and experience levels.
THE TRUTH AS I SEE IT
On July 13, I sent the following urgent message to my children, grandchildren and close friends by e-mail or letter:
MARKET UPDATE 7/12/2002
"This could be my last update on the economy. Most of the preliminary events have now occurred. The market will soon fall very sharply in a crash that will be greater than that of 1929. It will be followed by a depression greater than 1929.
These events were all described and predicted in the 1995 book At the Crest of the Tidal Wave by Robert Prechter. The basis for this prediction is the 60 year old Elliott Wave Theory discovered in the 1930's and 1940's by Frank Elliott, a very brilliant retired CPA . Elliott proved that stock market waves have a single fundamental basis whether they are measured in minutes, weeks or centuries. They form a hierarchy like the structure of the Catholic Church. Each big wave is made up of similar little waves. He determined the basic rules that all stock waves behave. From Elliott's work, we now know that the enormous wave that peaked in early 2000, started in London in 1784 and was Wave 3 of a Grand SuperCycle wave.
Advancing stock waves consist of sub waves 1, 3, and 5 up, separated by waves 4 and 5 down. In the Grand SuperCycle, Wave 1 in London ended in the great South Sea Bubble of 1720-22 that involved all branches of business and government in the very same way as the current scandals. Wave 2 was the ensuing bear market that lasted 62 years to 1784. Wave 3 lasted for 216 years to year 2000 and we are now in downward wave 4 which experts predict will last through this century.
The market peak in 1929 represented the top of SUPERCYCLE wave 3, one level below the current GRAND SuperCycle. This is the very sound basis for expecting the present crash and depression to dwarf the one that occurred in 1929. Everything described above is clearly presented in text and charts in the new book Conquer the Crash I have recommended that you buy. This book is very readable and understandable and is guaranteed (by me) to change your life forever".
WHY SO MUCH IGNORANCE?
In the 1930's and 1940's, a brilliant retired CPA, Ralph Elliott, labored alone with crude tools to discover what is now known as the Elliott Wave Principle. It is a complete and comprehensive understanding of stock market waves at every time interval from minutes to centuries. He discovered and published the rules that govern their formation and action. Then, he went far beyond this great discovery and postulated that the stock market waves are the result of the unthinking mass action of herds of investors and, further, that their actions in the stock market are the cause of, and precede (and predict), subsequent actions in the economy. In other words, all conventional thinking that external events rule the stock market is totally wrong. From added work since Elliott, we now know that his conclusions have been independently confirmed by a new branch of mathematics known as Fractal Geometry. Further, many similarities to Elliott's waves have been found to occur in Nature. . But the sad truth is that these exciting confirmations are known only to the relatively few believers and followers of Elliott's work.
To the great shame of our university faculties and prominent think tanks, there is still no general recognition today of the existence and validity of the Elliott Wave Principle. To my personal knowledge, only one Ph.D. economist, Chilean Hernan Cortes Douglas has written about and supports this great revolutionary theory in the field of Macroeconomics. Several generations of Ph.D. economists have been writing books on the stock market and winning Noble prized for arcane theories while totally ignorant of the greatest discovery in their field during this entire past century!
So, sad as it is, this great new tool is unknown to our academic scholars and our corporate and government leaders. The direct, unfortunate result today is that George W. Bush speaks and uses words exactly like those that President Hoover did in the 1930's. Our Wall Street economists are as clueless about what is now transpiring as were their counterparts seventy years ago. Will this same degree of ignorance still be prevalent when the next market boom arrives several generations into the future? Based on all current evidence, I am not optimistic.
SOME HELPFUL SOURCES OF INFORMATION
Since the truth about the market and economy is not to be found in our ivory towers or in skillful propaganda emanating from Wall Street and Washington, where can a troubled investor go for help in the form of unbiased expert information. Here are some places that I use to keep abreast of events:
www.prudentbear.com - David Tice and his associates provide essays daily
www.financialsense.com - Jim Puplava, a brilliant analyst and writer
www.elliottwave.com - Robert Prechter and his experts on the Elliott Wave
www.cross-currents.net - Alan Newman, a veteran Wall Street broke/analyst
www.comstockfunds.com - daily comments from bear market fund managers
www.dailyreckoning.com - daily essays from a variety of prominent authors
Ultimate Safe Money Guide, Martin Weiss Ph.D., John Wiley & Sons, 2002
Conquer the Crash, Robert Prechter, John Wiley & Sons - just published
CONCLUSIONS
Individual investors are being subjected to the worst possible kinds of misinformation on what is currently happening to our economy and stock market. In addition, the flood of selling propaganda from brokers and mutual funds is continuing unabated. Unless unwary investors seek and find objective sources of expert opinion, they are doomed to repeat the experience of American investors in 1929 and the years of the Great Depression that followed. It took 25 years for the stock market to regain its 1929 level.
Since all comparable data shows that the 1990-1995 bubble was much greater than in 1929, the bear market effects this time are expected to be deeper and longer. If anyone questions the current likelihood of such a drastic event, all they have to do is look at Japan which is now mired in a severe depression 12 years after its 1989 market top. It's Nikkei stock average is now down about 75% from its peak. Their largest banks are near failure and the economy is in the doldrums.
The information sources listed above will lead readers to many other expert sites. They will provide valuable information to substitute for the flagrant misinformation and hidden sales propaganda of the daily newspapers. The author welcomes e-mails from his far-flung reader family and will be happy to respond to requests for further expert information sources. Not being a registered investment advisor, he is unable to answer specific questions on selection and timing of investments.
Robert B. Gordon Sc. D.
Sun City West AZ
July 19, 2002
rgordon145@aol.com |
