Tags: Prechter | US | Depression | Rally

Prechter: US Poised for Depression-Era Rally

Thursday, 15 Dec 2011 08:06 AM

The U.S. economy is stuck in a 1930s-style depression, which means investors should debunk popular investment advice and put their money into what has been rallying defiantly, bonds, says Robert Prechter of Elliott Wave International.

Too much attention has been paid to healthy corporate earnings, which tend to peak after their stock prices do.

"People point to earnings but they fudge earnings so much. They were the worst indicator to look at anyway and now you can barely compare the data to old data," Prechter tells CNBC.
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"Back in 2000 and 2007 guess what we had? Record earnings both times. Now were those good times to sell stocks or buy them? They were great times to sell stocks," Prechter says.

BobPrechter200elliottwave.jpg
Robert Prechter
(Elliottwave.com file photo)
Record earnings occurred in the third quarter of 2000 after stock prices peaked in the first quarter of that year, Prechter says.

The same thing happened again in early 2008, just after stock prices peaked in late 2007.

History may be repeating itself right now.

"We've got record earnings again going into the second and third quarters of this year after stocks topped in April."

So investors now should have their money in assets like cash and bonds.

"Look at what's happened this year. Most have recommended foreign stocks: they're down between 10 percent and 30 percent. They've recommended commodities: the CRB Index is down 10 percent-plus this year," he told CNBC.

"The thing that almost everybody hated, the bond market, the bulls didn't like it because we we're going to have recovery, the bears didn't like it because they feared hyperinflation, that market is up 20 percent, the best total return of any sector," Prechter says.

"We are in safety, we're in cash, and we've got a ways to go — several more years before we're going to buying, but I think it's going to be the greatest buying opportunity ever."

Fears the U.S. may officially avoid a recession in 2012 are abating for others, although the economy is not out of the woods, another economist says.

The U.S. is growing but at a slow pace, which means it won't take much to offset that growth, such as further shocks stemming from Europe or failure in the U.S. to extend payroll tax cuts and unemployment benefits, which would sap money out of consumers' pockets and erode otherwise weak but positive growth rates.

Congress is currently debating the latter.

"Our global growth baseline now includes a sharp slowdown in China, a recession in Europe and the risk of a mild downturn in the U.S. We forecast global growth of just 2.8 percent in 2012, moderating further to 2.7 percent in 2013," according to the research firm, headed by New York University economist Nouriel Roubini.

Compared with the eurozone, "the U.S. looks more resilient (even the U.S. of 2008-09 would look more resilient…), but there are extensive downside risks to our baseline of 1.4-1.5 percent growth in 2012-13; thus we still see a 50 percent chance of an outright recession in the next year."

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The U.S. economy is stuck in a 1930s-style depression, which means investors should debunk popular investment advice and put their money into what has been rallying defiantly, bonds, says Robert Prechter of Elliott Wave International. Too much attention has been paid to...
Prechter,US,Depression,Rally
1958
2011-06-15
Thursday, 15 Dec 2011 08:06 AM
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