- Aging Storm on the Horizon http://bit.ly/pv4Ga
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- Is the Worst Over Yet? http://bit.ly/apr3m
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- The Deflation times http://www.thedeflationtimes.com http://ff.im/7pcIr #
- Bubble of Optimism to Pop http://bit.ly/lJCPE
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- A ‘Little Judge’ Who Rejects Foreclosures, Brooklyn Style http://url4.eu/LBv4 #
- Homeless in San Francisco http://post.ly/3TDd #
- Efficient Market Hypothesis: True "Villain" of the Financial Crisis? http://post.ly/3TFf #
- Fiscal Conservatism to Increase http://post.ly/3TGz #
- Name It and Shame It http://post.ly/3TVl #
- UAE economy to grow in Q4, says minister - AME Info http://url4.eu/LEve #
- End the Fed... Coming Soon! http://post.ly/3Tgr #
- Is the Worst Over Yet? http://post.ly/3Tiz #
- Mom Lost 50 lbs Following 1 Rule - Cut Down 50 lbs of Stomach Fat In A Month By Obeying This 1 Old Rule http://p.gs/19k91 #
- The Bounce Is Aging, But The Depression Is Young http://post.ly/3Tmt #
- Be a The Deflation Times Facebook Page Fan! http://post.ly/3TrJ #
- Indian economy grows 6.1 pct in April-June quarter - Forbes http://url4.eu/LGFW #
- Health Care Mob and Sob http://post.ly/3U3X #
- Untitled http://post.ly/3UC7 #
- The Last Bastion Against Deflation: The Federal Government http://post.ly/3UVn #
- Japan's New Leaders Rush to Act on Economy - CBS News http://url4.eu/LJhD #
- Japan opposition takes on economy after landslide - Forbes http://url4.eu/LKPN #
- Canada's economy shrinks 3.4 percent - Seattle Times http://url4.eu/LNYD #
- Economist Rupkey Sees U.S. Home Prices Stabilizing: Audio http://url4.eu/LOxf #
- S&P's Sam Stovall Says U.S. Recession Is Over: Audio http://url4.eu/LPlW #
- Roach Says U.S. Economic `Relapse' Is Possible in 2010: Audio http://url4.eu/LRQU #
- Do NOT Pay For Teeth Whitening!!! Learn the trick discovered by a mom to turn yellow teeth white for $5 http://p.gs/2zgcn #
- Rasmussen Says NATO Must Train More Afghan Soldiers: Audio http://url4.eu/LW5W #
- Dollar mixed on renewed worries about economy - MSN Money http://url4.eu/LX7h #
- Logsdon Says Marvel Acquisition Is Big Plus for Disney: Audio http://url4.eu/LXeU #
- Why rates are on the way back up - The Age http://url4.eu/KleG #
- Five ways you and I help the black economy grow - Economic Times http://url4.eu/Kt6N #
- The new first class is an economy upgrade - Honolulu Advertiser http://url4.eu/L3mv #
- Investors hunting for signs of economic growth - Charleston Daily Mail http://url4.eu/L5kg #
- Fill the Boot "feels" the economy - WLFI.com http://url4.eu/L7iA #
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.
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.
- British economy shrinks 0.7% in second quarter - The Age http://url4.eu/KP5Q #
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- An I.C.U. for the Financially Ill http://url4.eu/KT5L #
- Socialist market economy helps China's economic development: Japanese ... - Xinhua News Agency http://url4.eu/KVI6 #
- Despite economy, people still care - Indianapolis Star http://url4.eu/Kayc #
- Economy leaves some workers stuck in bad jobs - Stuff http://url4.eu/Khge #
- Japan's Ruling LDP Enters Elections as Underdog - ABC News http://url4.eu/KkzL #
- How Money Finds its Way Into the Economy: President Obama's stimulus bill is a reminder of how creative our gove.. http://bit.ly/3aewG6 #
- GDP revision confirms economy shrank at annual rate of 1% in 2nd ... - Chicago Tribune http://url4.eu/K0Gq #
- Another Way to Lose the House http://url4.eu/K1qN #
- FOCUS: Australia's Defiant Economy Could Pare Bond Sale Plans - Wall Street Journal http://url4.eu/K2tH #
- Evidence mounts recession's grip on economy easing - AOL http://url4.eu/K4nl #
- Rare economy cheer for economy - MSN UK News http://url4.eu/K8OX #
- FACTBOX-Facts about Iceland and its economy - Forbes http://url4.eu/KC41 #
- Zloty gains as Poland's economy grows 1.1% in Q2 - Marketwatch http://url4.eu/KDXS #
- Wheeldon Sees U.S. Stocks Falling in September, October: Audio http://url4.eu/KE2W #
- Creditsights' Ballard Says U.S. to Outperform Europe: Audio http://url4.eu/KEnF #
- Efficient Market Hypothesis: True "Villain" of the Financial Crisis? - Safe Haven http://url4.eu/KF2x #
- Boockvar `More Optimistic’ on Stocks Outside U.S.: Audio http://url4.eu/KFYt #
- Biggs Says Emerging Markets Will Be Next Bubble: Audio http://url4.eu/KGHe #
- Wittmann Says Hotel Revenue Down 18% in 2009: Audio http://url4.eu/KH0R #
- Lost in Japan’s Election Season: the Economy - New York Times http://url4.eu/KI3n #
- 3 Dangers of Conventional Budgeting: If you really want to save more than you earn, the conventional wisdom says.. http://bit.ly/hHZux #
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.
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.
- Stimulus Checks Not Boosting Economy — in Prison - NewsMax.com http://url4.eu/JW1N #
- The House of Your Dreams http://url4.eu/JWx9 #
- A future of poverty and upheaval - Northwest Explorer http://url4.eu/JaAO #
- Economy tackles youth sport - WTHI http://url4.eu/JaQ7 #
- Philippine economy grows 1.5 per cent in second quarter of 2009 - Earthtimes http://url4.eu/Jbdr #
- Philippine economy escapes recession in Q2 - Xinhua News Agency http://url4.eu/Jcq8 #
- Philippine economy expands after 1Q contraction - Forbes http://url4.eu/Je7u #
- Economy Leaves Some Workers Stuck in Bad Jobs - CNBC http://url4.eu/Jgqf #
- Will an Opposition Victory Rescue Japan's Economy? - Time http://url4.eu/JkIE #
- Garrity Says Dell Shares May Rise as High as $17: Audio http://url4.eu/JmKX #
- Chandler Sees Euro Falling to Mid-$1.30s by End of Year: Audio http://url4.eu/Jn3X #
- Mayer, Calomiris Say Mortgage Money Still Hard to Get: Audio http://url4.eu/Jnng #
- Despite Tough Economy, Most Americans Happy on the Job, National ... - Earthtimes http://url4.eu/Jo2e #
- Economy's small drop in 2Q hints recession ending - AOL http://url4.eu/JpZN #
- Economy shows stabilization: GDP down 1% - CNN Money http://url4.eu/JqNB #
- Hubbard Sees Vigorous Economic Rebound Starting Slowly: Audio http://url4.eu/Jqo0 #
- Difficult Economy Presents Challenges for Some Pet Owners - KYW News radio http://url4.eu/JtLq #
- ECONOMY: Small drop in 2Q hints recession ending - North County Times http://url4.eu/Jwuu #
- Plan-B the morning-after-pill, only $7.90, discrete shipping, no prescription - check it out! http://tinyurl.com/ny9snn #
- Colonial BancGroup Files for Bankruptcy Protection http://url4.eu/J7zK #
- New Vehicles Leave MPG Standard Behind - Wall Street Journal http://url4.eu/J8M9 #
- U.S. housing, confidence data point to recovery - Reuters India http://url4.eu/J8xm #
- Recovery signs still guiding economy - Pittsburgh Tribune Review http://url4.eu/J9qw #
- Economy brings rare drop in junk-mail volume - Arizona Daily Star http://url4.eu/JCyx #
- China's success in economic reform draws praise - Xinhua News Agency http://url4.eu/JEHz #
- IFO data shows German economy is on the mend, but officials remain ... - FXStreet.com http://url4.eu/JGJY #
- Daiwa's Moran Sees U.S. Recession `Very Close' to Ending: Audio http://url4.eu/JJYV #
- Hart Sees Oil Trading in $65 to $75 a Barrel Range: Audio http://url4.eu/JKGv #
- Fork it Over: Embed the above image on your site Budgeting help from Mint.com Americans have made their voices h.. http://bit.ly/1bmu6C #
- Executive CAs more optimistic about the Canadian economy - CNW Group http://url4.eu/JKZz #
- Shiller Says U.S. Housing Market May Be Turning Around: Audio http://url4.eu/JNLY #
- Someone Special gone Overseas? Send Flowers or Gifts Abroad and surprise them by Showing you care >> http://tinyurl.com/n3ptrx #
- Drossos Says British Pound Recovery Slow Behind Euro: Audio http://url4.eu/JRe9 #
- Bernanke: The right choice at a tough time - Midwest Voices http://url4.eu/JTzO #
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:
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:
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.