More Robert Prechter / "it's going to zero" stuff.
October 20, 2002
Prechter Sees Bear Market Deepening
By REUTERS
Filed at 4:23 p.m. ET
NEW YORK (Reuters) - Losing sleep worrying about your
battered stock portfolio? Read market guru Robert Prechter
Jr.'s recently published book ``Conquer the Crash,'' and
you'll instantly feel better. Well, sort of.
The technical analyst once dubbed ``guru of the decade''
for calling the bull run of the 1980s, is back with a
vengeance.
Prechter, 53, now paints an almost apocalyptic future for
Wall Street. His vision makes a cub of the three-year bear
market that so far consumed $8 trillion in investor wealth.
The good news? It's not too late to get out, says the Ivy
League-grad technical analyst, who heads Elliott Wave
International, a Georgia-based forecasting firm that covers
global financial markets.
He has previously gone out on a limb with bold and incisive
calls, such as warning of the 1987 market crash. But he
missed out big by turning bearish in 1995, while the bulls
staged their big stampede.
Now, in no uncertain terms, Prechter proclaims the demise
of equities, not the rebound Wall Street is looking for.
``Over five years we get the biggest bear market, soaring
unemployment, a big depression ... but then it's over,'' he
told Reuters in a interview. ``Then we go up for 20
years.''
ROCK N' ROLL
Prechter's ``rebel'' streak has roots in his days as a rock
n' roll drummer and guitarist. From the late 1960s to the
late '90s, he provided the beat on Top 40 hard rock and
classic rock songs.
``A lot of technicians, it turns out, are musicians,'' says
Prechter, who played drums on one 1970s version of ``Some
Guys Have All The Luck,'' which was a Rod Stewart hit in
the '80s.
``The ones that are musicians tend to be more
independent,'' adds Prechter, who uses the Elliott Waves
method of technical analysis, or making market calls by
analyzing price charts.
The basic tenet of the Elliott Wave, developed by R.N.
Elliott in the late 1930s, is that major market trends are
divided into five waves: an up wave followed by a down
wave, then a major up wave followed by another decliner,
with the cycle then typically completed by a smaller fifth
wave.
Prechter first heard of Elliott's analyzes as a student at
Yale in the late 1960s before adapting it into his own
methodology. He says the bull market top in 2000 completes
a major up fifth wave. That's why stocks will be in an
extended bear market that could last for another four
years, he says.
DOW NEAR 4,000
While many on Wall Street see a market rebound, Prechter
warns of a coming deflationary depression deeper than the
1930s Great Depression that followed the market crash of
1929.
The blue chip Dow Jones industrial average (.DJI), Prechter
thinks, will sink to about 4,000 within the next six
months, and ultimately to below 1,000 before the bear
market is over. The first plunge would require halving the
index from its Tuesday levels above 8,000, vs. an all-time
high at 11,722 reached in January 2000.
``There will not be any value (at Dow 5,000),'' Prechter
told Reuters. ``Even if earnings don't deteriorate, stocks
will not be cheap in dividend terms, earnings terms, in
bookterms.''
Prechter's views are in the minority. Still, investors
burned by the nasty bear market grinding on since early
2000 seem to have taken note: As the Dow sank, sales rose
for Prechter's book, which hit the No. 1 spot on
Amazon.com.
Now that stocks made new five-year lows, the economic
reports will show a weaker economy because the economy lags
the stock market, Prechter says, arguing the bear case.
Also, just as bull runs overshoot on the upside, bears go
to extremes on the downside, he concluded after studying
bubbles from the Dutch Tulip Mania of 1634-37 to 1980s
Japan.
The crushing corporate and individual debt levels are also
to blame. In the 1929-32 bear market, the Dow plunged 89
percent and debt levels were very high. Now credit has been
built through 20 years to record levels, so it's within the
realm of possibility to have a decline of such proportions.
Because of the looming deflation, now in its early stages,
he urges avoiding most asset classes -- stocks, bonds, gold
-- in favor of cash as the price of goods will be falling.
But he recommends a move into safe Swiss bonds for those
who afford it, and putting money in ``safe banks'' listed
in his book.
YALE TO MERRILL
Teenaged Prechter got interested in stocks while watching
his father read technical market newsletters. He got a
scholarship from Yale and in 1971, graduated with a degree
in psychology. He began work as a technician for brokerage
giant Merrill Lynch, where he trained under the legendary
Bob Farrell.
In 1979, Prechter started Elliott Wave International. From
a home business publishing a newsletter run with his wife,
the firm now employs analysts that cover global stocks,
foreign exchange and commodity markets 24 hours a day. The
subscriber base of 40 grew to 6,000 retail investors and
600 institutions.
Those who heeded Prechter last year were rewarded. The day
the market closed on Sept. 11 after the terror attacks on
New York and Washington, D.C., investors fretted over the
possibility of a market crash. Prechter predicted that
stocks would quickly bottom, then rally strongly.
His calls over the years won him many fans.
The Elliott
Wave ``is the only theory that I am aware of that has
correctly projected the move down in stocks from the March
2000 top,'' said Henry van der Eb, president of the
$82-million Gabelli Mathers Fund.
Another well-known bear David Tice, president of Prudent
Bear fund, who has endorsed Prechter's book, agrees.
``He is a brilliant guy, he understands both technical
analysis as well as fundamentals and how important moods
are to the markets,'' Tice told Reuters. ``I don't think he
is predisposed bearishly; he was bullish early in the
1980s.''
Prechter, born near Albany, New York, grew up in Atlanta.
He has two children, a boy and a girl, both about college
age.
``My wife made me swear not to introduce either kid to the
stock market,'' Prechter says, laughing. So far, so good.
Copyright 2002 The New York Times Company. |
