I read this book back in 2003. Prechter talks about the extreme debt build up in the United States. The housing bubble and the problems with Fannie Mae are also discussed. In fact almost all the events taking place in the October 2008 Credit Crisis, are mentioned in the book. Prechter also does a good job explaining how crowd behavior and emotions, influence financial markets.
If you are a libertarian type, you will tend to agree with most of Prechter`s free market ideas. This book is a lot more timely in 2008.
on February 17, 2004
If you read the 1st paragraph of the October 23rd review, I would agree 100% with what he said about this book. I am so impressed with Bob Prechters knowledge, that I put him as an affiliate on my site:momsonlinestocks.com That said, Bobs, forecasts have not quite come true of yet and many reviewers bash him for it. However, when you see how convincing his arguements are for a worldwide financial collapse and if you just take 2 of the many arguments he presents, you will start to shiver. #1-He says that stocks traded at only 6x earnings after the 29 crash. (THEY ARE AROUND 36X THAT NOW ON THE S&P AND OFTEN 50X THAT ON THE NAZ!) #2-He offers a trememndous argument for our US dollar which "used" to be backed by gold, as now worth practically nothing, and only derivitives, leverage and pyramid type schemes by the treasury and most banks keep this secret hidden. But for how long!? Because of this book alone, I have become an absolute Elliot Wave fanatic and as a pro trader hope to polish my skills enough to offer my services to private investors and possibly institutions and mutual funds. Thank you Bob for the new hobby! I can't stop talking about Elliot Wave analysis.It is addicting. Read his other book ELLIOT WAVE PRINCIPLE to find out about the other half of this books reasonings. I would be delighted to hear from anyone here to get feedback and also to possibly form a club on elliot Wave Theory or the info in this book. My only knock on the book is that it may scare people into thinking they will need to run away from civilization and go live in the woods if his predictions finally come true. Worth a read, true or not. This book will give you more slants on the economy than any CNN reporter you listen to.
on December 2, 2003
Robert Prechter is basically a behavioral economist who believes in the inefficient market theory that irrational bubbles can, and will, form in the market place. Not merely in the stock market, but also in real estate and commodities markets. His method involves the use of Elliott Wave Theory, a forcasting tool which primarily looks at investor sentiment.
Prechter predicts a period of severe deflation. With interest rates at a historical low (not merely in the US, but also in places like Japan where the rate is zero), the Fed lacks power to inject additional liquidity into the economy in order to keep the GDP growing and the stock market propped up. Excess capacity and massive amounts of consumer and corporate debt have brought us to the brink of economic catastrophe.
But I'm not entirely convinced that deflation will be our end-game. With the orgy of government spending, the fall of the dollar, and excess liquidity, I think a sharp spike in inflation looks imminent. Nevertheless, if I look around, I see Prechter's fears manifesting themselves; people taking out home equity loans to invest in the stock market and pay off credit cards, 5 Blockbuster video stores within 3 square miles, zero percent financing on cars...
on October 21, 2003
First, I have been reading Robert Prechter since the early 90s, and he certainly makes a persuasive argument with his Elliot Wave analaysis. Problem is, he has been wrong on shorter time frame swings many times during the 90s, so it comes down to the reader to make up his own mind. To dismiss him as a "gloom-n-doomer" is ignorant and silly, yet to blindly follow him is also naive. The truth is probably somewhere in the middle. His 1995 book "At the Crest of the Tidal Wave" made a much more persuasive argument for an inevitable severe market downturn and subsequent depression. This follow-up 1992 book, "Conquer the Crash", was probably intended for the masses who ignored his earlier work. His 1995 book was SO persuasive that I missed the 1995-2000 bull market because I was convinced that Prechter could also time the market. He can't. And yet I still am convinced that most of his conclusions are correct. (The jury is still out on the severity of it.) Look around, after you take your blinders off: Good-paying jobs are leaving the U.S. for India, China etc. The US government has to adjust the unemployment figures by removing from it those who have given up looking for work. And many of those who do find work are taking 30-50% pay cuts. Consumer debt (mortgages, home equity, credit cards) are rising and rising. State, local and federal government debt is still rising. Corporate debt continues to rise. The dollar is dropping in value. Corporations' liabilities (health care and pensions) are rising and rising. Government liabilities (social security and Medicare) are still rising. How will this all play out? Who and how will debt be paid? Even Harry Dent, in his popular 1992 book "The Great Boom Ahead", and his follow-up "The Roaring 2000s" predicts the "Mother of all Depressions" to arrive around 2010, when the baby boomer's spending spree winds down, and they begin retiring. So think about it, the eternal pessimist Robert Prechter and the eternal optimist Harry Dent BOTH AGREE on the inevitable arrival of an economic depression. They only disagree on the timing. So somewhere between now (2003-2004) and 2010 the U.S. and the world will fall into the consequences of their multi-decade debt build-up and the demographics of an aging population and a blind government. The long-awaited depression will arrive. Argument settled.
on June 28, 2003
I read this book last night and found it to be an interesting but possibly extremist view of what could unfold in the years to come. Yes, it could happen, but given the structural changes that have occurred in our financial system since the Great Depression, I do not believe that what he describes would come with any shiftness, but rather could amount to a long, gradual deterioration, as happened in Japan. My personal opinion is that if you subscribe to his theories, rather than betting the farm on them (as investors did with the "New Economy" for example), your best bet may be to hedge your portfolio by allocating a percentage of your holdings to Prechter's recommendations, for example, 1% for each year of your life (eg, 30% for a 30 year old, 40% for a 40 year old, etc.). This way, at least you will be partially protected if Prechter is right, but if he is wrong (or early), you can still participate in any upside appreciation by investing the remainder of your portfolio as you normally would. This is just prudent money management anyhow. Point being, he makes an interesting case, but he is also running a business, and so I think you have to take what he says with grain of salt - nearly every page on the man's website is trying to sell you some book, newsletter, video, etc. Given the recent market drop and fear that presently permiates the market, it is very tempting to believe that he is an "I told you so" guru, just as it was tempting to believe that the "New Economy" was going to change the world. Bottom line, use your head when reading this book and take it for what it is. If you read between the lines, basically what he's telling you is to act sensibly anyhow: don't get a mortgage that you can't afford, don't buy an overly priced house, don't bet it all on stocks, etc.
on March 25, 2003
While Robert Prechter is best known for his work on the Elliot Wave Theory, his argument that the economy will get much worse before it gets better depends very little on the wave theory. The book uses several different arguments backed up with lots of graphs to explain where we are and how we got here. I have a BS in Economics and I like to think a built-in "BS" detector as well. Indeed, I came to this book very skeptical that it was just another book playing on the public's stock-market jitters.
Well, it's been a year since the book came out. The S&P YTD is flat, even with its recent war rally; and it's down 20%+ for the past 52 weeks. We have a war on our hands, the public is hotly divided politically, and protestors are in the streets (I'm writing this from San Francisco's financial district). The Federal Reserve is just about out of options (despite Alan's claims to the contrary). So, if Prechter's not quite batting 1.000, he's still knocking an awful lot of pitches out of the park. Everyday it seems, the Wall Street Journal and New York Times carry economic and business news that confirm many of his forecasts. Things may not become as bad as Prechter forecasts, but it's always prudent to prepare for the worst.
The book seems to address two separate audiences: the working stiff whose job is iffy, his mortgage behind and who's buried in debt; and the well-heeled who have the means to plunk down $100k on platinum bars or invest in funds which have a $250k initial investment.
There is something here for everyone, whatever your situation may be.
on December 29, 2002
The negative reviews of this book are quite puzzling. History always repeats itself, and while Prechters timing may have been off in calling the bear market, the points he makes in this book are still valid. While the depression he talks about may not materialize, one thing seems reasonable, unless you are an active trader or follow some of the suggestions outlined in this book, this market will eat you alive for the next few years.
The [people]of Wall Street, Ned Riley, Hillary Cramer, Abby "Just-A-Colon", Joe Battapaglia etc will continue to run peoples money into the ground. Who ever said that you always have to be invested? Go back to 1965-82, unless you traded that market, it was dead money.
Prechters main point is that the "system" is wrought with excess, he simply suggests standing aside until such time that an equlibrium is restored.
The reviews on the jacket are penned by some of the brightest individuals in the business, Marc Faber, Martin Weiss, naturally they are anonymous to 99% of the morons who watch CNBC because they are not cheerleaders.
The bottom line, the book is excellent food for thought, as the author repeadetedly states, "I may be wrong and miss out, but I won't be wrong and get my head handed to me." The so-called investment gurus both professional and the armchair variety may want to think about that as they wrap up another year where their performance (total return) is measured on a relative basis to the major indices (that is how overpaid, clueless portfolio managers justify their jobs) versus an absolute total return.
All individuals who have anything of value to say are always viewed as nut cases. Only after their prediction comes true do the lemmings realize how dead on that person was.
I for one subscribe to Prechters Short-Term Financial Forecast which is published for active traders 3 days a week (I am a former floor trader who now trades in front of screens) the analysis is raw and incredibly helpful. So to those reviewers who call this guy a quack, so be it.
on December 14, 2002
Although I have not yet completed the book, I began with an interview Prechter did on the subject of this book. My rating is based on the combination of (1) the points made in his summary during that interview, (2) another related conclusion made (convincingly) by a different 'theorist' that first caught my attention 15 years ago, and, most importantly, (3) a THIRD, similar conclusion made based upon cyclic projections from a newsletter author (who has saved me many thousands by accurately projecting, in 1999 no less, the end of the equity bull market in 2000, resulting in my avoiding practically all the carnage since early 2001).
For reasons that are somewhat obvious here (the slander from many reviewers), I will not name the additional sources that I use. One in particular actually prefers a low profile, for as some have accurately pointed out, there is a danger in self fulfilling prophecies. Consequently, this same source maintains a direct mail presence only (no books, web sites, mass advertisements, etc. - his mission is profitable trade recommendations to his client list - we won't be sending announcements to the CBOT floor traders announcing our intentions ahead of time).
The correlation of these separate conclusions of these disparate sources is quite convincing in itself. In navigation, this is called triangulation. Even though there is some disagreement ( deflationary depression, raging inflation) about the exact direction that will unfold, the pattern emerges all the same. The trend is changing rapidly, we are about to take part, and, once again, in a once in this lifetime scenario, habits learned in the past won't work in the future. Finally, there will be no bell rung when it's time for you to rotate your positions. So, with $$$$ in hand from one of my sources, I plan to follow to a great degree his instructions further. He has referred repeatedly to the relationship between equity and commodity prices historically as an indicator to major shifts in market direction. Do some of you know something different that's happening this time? (Oh, yes...there is one review reference to the New Economy!)
What amazes me with the reviews here are the self-professing, titled, accomplished, amateur (most certainly working alone in small enterprises or still working for others waiting on the next raise or promotion, i.e., dependent, working stiffs) who would suggest to us that they are more qualified to decide what you or I should do as opposed to those recommendations in this book. I don't think a sheepskin on the wall or a title assigned by a corporation absolutely qualifies anyone to decide what will or won't occur in the future(see the quotes below). Is there anyone besides me with some 'credential' or the other that hasn't actually learned, with time/experience, something ELSE that wasn't taught in school or on the job? (SILENCE). Your title or your experience, however long or broad, just might not be what you believe it is in terms of what was, is and might be. As an excercise in proof, I have personally scribbled notes in a log for a couple of years now, of comments from analysts, vice presidents, chief this, chief that, etc. from the major networks. (Are you like some of these people?) Here are some examples:
"The Bear Market is Over....4% upside for the remainder of the year...increase your allocation in equities.." Hugh Johnson, Chmn/President, First Albany Asset Management, June 6, 2001 on CNBC
"....lows in the market occurred in late March, early April..."
Robert Dill - Merrill Lynch, Chief Investment Officer, August 21, 2001 on CNBC
"...bottom is in.....bull market is upon us...."
Ned Riley, State Street Global Advisors, November 20, 2001 on CNBC
Isn't if strange....there's always someone telling you to buy...magically, the time to sell is always 'up the curve' and within your 'personal' time frame for retirement, college expenses, etc. Duh!
This is certainly not to say that every expert is wrong all the time. I'm sure that there have been some accurate projections made in public by some people like those above that have been so horribly wrong. At this particular point in time accuracy is a little harder to find, and, more importantly, there are some very good reasons for some to spread disinformation to the public. Distribution, from strong hands to weak, is still underway in a large number of issues.
Many of the reviewers here who pan the book and the author, then pose their own projections for the upcoming period are certainly daring. It's interesting that many of them show little knowledge of history (the naive faith in fiscal and/or monetary stimulus, which DO work at proper moments in time and WON'T work in improper moments in time), as they fail to notice that similar efforts have fallen limp in our most recent similar event - Japan! Do you think that their policy wonks didn't also have an answer, now many times over. Ponder this. If Japan can't recover with the help of a healthy U.S., what does their continued illness, coupled with that of a weak Europe, portend for a newly anemic U.S? Or, maybe it's OK to believe that it was simply, appropriate economic policy in the 80's that caused the bull market. Could underlying conditions have possibly contributed anything?
The points here are:
(1) no one person will have always have right answers
(2) there will be accurate and inaccurate projections from just about anyone
(3) you should find out who your good and bad sources are for your goals and purposes and act accordingly
(4) your judgements on a particular view, however important or pursuasive to you, could still be way off the mark.
(5) the best advice is and always be correlating views from various sources over various frames of time, not one view, each and every time, from one person.
Mr. Prechter has the right to be right AND wrong. If he is wrong this time, ask yourself what you will lose (opportunity?). If he is right this time and you ignore him, ask your self the same question; but, do so before it's too late.
on October 5, 2002
The analysis of Prechter's book Conquer the Wave forget that
according to theKondratieff theory the secondary depression started in 1980-2002 and his book is 20 years to late! The
problem with book is that it describes the absolute bottom
of the 20 year cycle and not the beginning of a cycle, therefore
invalidating his comparison with 1929-1932 which was the start
of a 20 year cycle. The false analogy leads to mass hysteria
and delusion due to inaccurate mathematical computation of
the theory. The second problem is that Michael Mandel, The
Internet Depression, argues quite logically and cogently that
the New Economy is very real and that the problem that is being
experienced is that the wealth effect has over-inflated the
stock market. The New Economy is real and the proof is that
everyone is using computers and internet. The third problem
is that this is the beginning of a 20 year inflationary cycle
which means all of his investment choices will be negated and
turned into financial ashes. The reverse popular delusion of
deflation will be reinforced by the fact the market will
probably hit a bottom in October and November 2002 but the
recovery will come in 2003 not 2002. The creation of secondary
realities leads to a financial ideological prison which will
cause numerous individuals to make incorrect and false financial moves that will ruin them. The key is to concentrate
on empirical financial data that will lead to evidence which
will correspond to an accurate interpretation of cyclical
theory. Prechter's previous books confirm the end of the cycle
and one mustview the current book as a view into the end of the
deflationary cycle and the beginning of Greenspan call.
on October 4, 2002
I don't think he's right but....it's worth a spin. If you put 3 economists in a room, you'll get 6 different answers. They can tell us why things are happening at the moment, and why things happened in the past--but they never have and never will predict the future accuratley. Human nature, behavior, and psychology, influence the cold, hard numbers. What will happen tomorrow? Nobody, not anyone knows.
There are a lot of talking heads out there today--perhaps too many. But Prechter is worthy of a listen. The author predicts a "deflationary depression" similar to that of 1929, based on historical data and statistics. Yet, this is not a "gloom and doom" book, just a series of observations. The end of the world is not coming. But there may be a "contraction of the economy" based on many similarities of the past, (although global interdependence, technology and industries are radically different today, perhaps skewing such numerical predictors--for sure they will.) His basic message is: at this time reduce your debts and go into or stay in cash. Whether he's right, partially right, partially wrong, or completely wrong (the future will tell), someone can't get hurt by following this advice at this time. I've read disaster-never-to-be-realized books by the likes of Ravi Batra, and always taken them with a grain of salt. Chicken little says "the sky is falling," and the only people who benefit are the authors who write the book. Recent and historical examples: Y2k, the next depression, world war III, or the return of a guy named Jesus.
But I wouldn't put Prechter in the same league.
At this time he's still massively bearish, citing stats, historical patterns and the present conditions in the market. According to Prechter, there are a few things required for a major bottom to indicate it is time to buy. Number one is a reasonable valuation for stock prices. He measures those three ways: dividend yields, PE ratio (share price per earnings) and price-to-book ratio.
As for patterns he believes one needs a completed price pattern according to the Elliott model of price behavior, which was developed by R. N. Elliott through close observation of the market. He cataloged the forms the market takes as investors move from extreme optimism to extreme pessimism. As of October '02, according to Bob, we are in the middle of that and not are not at the end, or bottom.
No. 1 is an extreme buildup in extent of credit-and debt, the 20 trillion dollar bubble, which exists throughout the economy. Currently the amount of dollar-denominated debt is three times the value of annual GDP (gross domestic product)-the highest it's ever been.
He makes an interesting read for an often dry topic. Especially when folks are out of the game. Check it out, before you decide on whether to get in or out. The sky is not falling.