The Deflation Times Twitter Updates for 2009-08-31

Posted by Filed in Deflation Twitter Tweets Created: August 31st, 2009
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The Deflation Times Twitter Updates for 2009-08-30

Posted by Filed in Deflation Twitter Tweets Created: August 30th, 2009
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Name It and Shame It

Head In The Sand

As we approach the end of the current bear market rally, we see a reluctance in the media to call this bear what it is. We see it repeatedly called a 'recession', and even hear current calls that we are coming out of it. We still see the softer, more unrealistic term 'credit crunch' in the US and overseas in countries such as Germany.

Name it! The continued bear market is going into a depression, to rival the Great Depression of the 1930's, and at the end of the day to eclipse it. For those who don't name it and shame it, they'll be putting their heads in the sand and miss the opportunity to prepare themselves for the biggest financial shock of their lifetimes. To be unprepared for what's about to move from a slow grind into overdrive would be financial suicide.

Posted by The Deflation Times Filed in The Economy Created: August 30th, 2009
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Efficient Market Hypothesis: True “Villain” of the Financial Crisis?

August 26, 2009

By Robert Folsom

Editor's Note: The following article discusses Robert Prechter's view of the Efficient Market Hypothesis. For more information, download this free 10-page issue of Prechter's Elliott Wave Theorist.

When a maverick idea becomes vindicated, there's a good story to tell. It usually involves a person (or small group of people) who courageously challenge the orthodoxy of the day -- and, over time, the unorthodox yet better idea prevails.

A "good story" of this sort has surfaced during the current financial crisis. A chapter of the story appeared in a recent New York Times article, "Poking Holes in a Theory on Markets." The theory in question is the efficient market hypothesis (EMH), which the article suggested is so hazardous that it "is more or less responsible for the financial crisis." This quote tells you most of what you need to know:

"In the last decade, the efficient market hypothesis, which had been near dogma since the early 1970s, has taken some serious body blows. First came the rise of the behavioral economists, like Richard H. Thaler at the University of Chicago and Robert J. Shiller at Yale, who convincingly showed that mass psychology, herd behavior and the like can have an enormous effect on stock prices — meaning that perhaps the market isn't quite so efficient after all. Then came a bit more tangible proof: the dot-com bubble, quickly followed by the housing bubble. Quod erat demonstrandum."

In case your Latin is rusty, Quod erat demonstrandum means "which was to be demonstrated." Its abbreviation (QED) appears at the conclusion of a mathematical proof. In this case, the massive financial bubbles of recent years are the proof that refutes the efficient market hypothesis, which argues that markets move in a "random walk" and are not patterned.

Similar articles in the financial press have reported the demise of the EMH. Just this week an Economist magazine blog included this bold declaration:

"No one has yet produced a version of the EMH which can be tested and fits the evidence. Thus, the EMH must logically be discarded, as a valid hypothesis must be testable."

QED, indeed -- I agreed years ago that the random walk was implausible. But I didn't come to this view because of behavioral economists, although their work over the past decade has certainly been valuable. Instead, I was persuaded by the work of someone who first challenged the financial orthodoxy more than three decades ago, specifically April 1977. As a young technical analyst at Merrill Lynch in New York, his research circulated among several of Merrill's clients. His name for these studies was the Elliott Wave Theorist: the April '77 study was a detailed analysis of the 1975-76 stock market, which offered this comment on the random walk model:

"If market moves are arbitrary (as the random walk proponents suggest), then internal components would rarely 'make sense' mathematically, and then only by statistically insignificant fluke occurrences. However, there seems to be enough evidence that mass psychology, as recorded in the Dow Jones Industrials, form patterns that are uncannily interrelated....At least this much can be fairly reliably stated as a result of this work: This idea that the market is a 'random walk' is probably false."

Robert Prechter left Merrill soon after; he has published the Elliott Wave Theorist in every month since. Every issue has, in one way or another, "convincingly showed that mass psychology, herd behavior and the like can have an enormous effect on stock prices."

So while there may be a good story to tell about behavioral economists, I trust you see why I believe there is a vastly better one to tell.

The "enormous effect" of "mass psychology" and "herd behavior" is exactly what explains the financial downturn that began in late 2007. Prechter's Elliott Wave Theorist anticipated the crisis and warned subscribers beforehand. Likewise, he alerted them to the bear market rally that began last March.

For more information from Robert Prechter, download a FREE 10-page issue of The Elliott Wave Theorist. It challenges current recovery hype with hard facts, independent analysis, and insightful charts. You'll find out why the worst is NOT over and what you can do to safeguard your financial future.
Robert Folsom is a financial writer and editor for Elliott Wave International. He has covered politics, popular culture, economics and the financial markets for two decades, via print, radio and the Internet. Robert earned his degree in political science from Columbia University in 1985.

Posted by The Deflation Times Filed in EWI Articles Created: August 30th, 2009
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The Deflation Times Twitter Updates for 2009-08-29

Posted by Filed in Deflation Twitter Tweets Created: August 29th, 2009
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The Deflation Times Twitter Updates for 2009-08-28

Posted by Filed in Deflation Twitter Tweets Created: August 28th, 2009
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Fiscal Conservatism to Increase

A changing social-mood is what this deflation is about: the change from prolific spending (via credit) to fiscal conservatism, on a global scale.

New data from the Bureau of Labor Statistics shows imports are starting to drop again... watch out.

Import prices turn down in July 2009

Last time this happened was less than a year ago. The last few months have been a break in the downturn but now the brakes are failing. Here comes the second wave of deflation.

Posted by The Deflation Times Filed in Cultural Trends, Social Change Created: August 28th, 2009
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The Deflation Times Twitter Updates for 2009-08-27

Posted by The Deflation Times Filed in Deflation Twitter Tweets Created: August 27th, 2009
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The Deflation Times Twitter Updates for 2009-08-26

Posted by Filed in Deflation Twitter Tweets Created: August 26th, 2009
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Home Values? Perception vs Reality

A quick look at the real estate crash numbers and it is hard to believe that home values can go lower.

If over the past year "83% of U.S. homes declined in value" then there is only 17 more points left to go to reach the mark of '100% of U.S. homes declined in value.' A chart from Zillow’s Q2 Real Estate Market Reports paints the current picture:

zillow.com Home Value Misperception Index

Can home values continue to fall?

The perception is that in the next six months home values will not continue to decline, as shown in Zillow's Home Value Misconception Index chart:

zillow.com Home Value Misperception Index chart

The reality is that home values will continue their decent down the deflation path as fiscal conservatism continues to penetrate all aspects of American society. And with more bad news coming down the pipeline, such as the next scandal, that of Fannie Mae's "$5.4 trillion in taxpayer liabilities" that remain off-balance-sheet, just like Enron and Citigroup had done before, the perception that the decline of home values will stop will be shattered.

Posted by The Deflation Times Filed in The Economy Created: August 26th, 2009
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