A reader wrote:
Hello Richard:
I have no educational training in economics, my 401 and personal
funds are largely in the market. What sort of crash are you referring to? Are you talking about a complete economic break down worldwide or just in the U.S? Also we cannot predict a future, but when do you think this event will take place? Looking foward to hearing from you.
Thanks for reading
Mark
Hi Mark,
I am afraid this is not going to be a short answer as I need to make sure there's enough information here for you to understand the specific portions that answer your question. Please don't let the following intimidate you. If you have other questions, feel free to write again.
There are multiple long-range cycles, some running back over 100
years, that effect our markets and several have crested. For example, there is a 60 year crash & depression cycle and the last one was 1929. Add 60 years to that and you get 1989, we are over due.
Elliott wave (EW) theory is a strong body of knowledge concerning
market behavior. EW, though complex, has a very good track record for predicting market behavior. Robert Prechter is the current primary EW practitioner and he publishes a graph going back 100 years that shows our current market cresting.
I have heard of two other groups that claim a 500 year cycle would crest at the end of the 1900s. The one I am the most familiar with comes from the book "The Great Reckoning" by James Dale Davidson and Lord William Rees-Mogg (ISBN 0-671-86994-9) In this book they trace their 500 year cycle back over 2,000 years explaining what societal change triggered each new cycle. It's quite credible.
The following may seem to be off point, but, it's not. Inflation is being spun by our media as an increase in prices, but, that is wrong, it's an increase in the supply of money (by the Fed). We have had an ENORMOUS increase in the supply of money (thus inflation) over the last several years. There are two reasons why we have not seen the resultant price increases (1) some of this money went offshore and (2) some of this money was soaked up by skyrocketing stock market share prices. The result has been the largest market bubble in the history of mankind. This includes the LOWEST savings rate in history and the HIGHEST debt bubble in history. All bubbles in history have ended in an enormous crash without exception. This one will be no different. You might think the Fed could just print more money, but, what you would be missing is that as a market rises it takes ever larger amounts of money to push the market upward. Eventually, it becomes impossible to print enough to move the market at all. Recent interest rate cuts by the Fed, though NOT
done to save the markets, have the effect of creating even more
money. And, if you have noticed, the markets have NOT rocketed
meaning that the markets have already reached the point where
the injection of more money can't push the market upward.
Now, enough background, let's get to what's coming. Our country
has been one of the top 2-3 in the world which counted us as a
world leader and made our currency a world reserve currency.
Our current status as a world record debtor coupled with the
market crash and depression that's coming will convert us into
a 3rd world country. As our market crashes big-time, foreign
investors will start selling ALL US stocks and bonds and asking
to convert their US dollars into their own currency. The result
will be that no-one will be willing to finance our government
bonds, so interest rates will skyrocket. Until now, foreign
investors have been a major player in our stock markets. When
they begin to panic and remove their money it will worsen an
already bad decline turning it into a bad crash. When foreign
investors begin to remove their money it will cause inflation in
a big way as the inflation of past years (which we didn't see at the time) will come home to roost. At the same time our country
will lose its "world reserve currency" status.
You ask "what sort of crash I am referring to", I expect a 3+ year decline similar to the 1929-1932 89% crash. The current Bear market started in the Jan-April 2000, so that says this Bear
decline should last through 2002 before it bottoms.
You asked "am I talking about a complete break down worldwide".
From the foregoing you should already know the answer, but, just
in case "yes, most certainly a worldwide break down"! We are a
part of the world economically. When our economy crashes you
can bet there will be an impact on our international trading
partners.
You asked "when do I think this event will take place". It has
already started, as stated above. The investors are currently in
the first phase of the Bear market and are still in denial. When
they begin to wake up (soon) we will start phase 2 and all US
market indices will be down by over 20% and there will be NO
doubt that a Bear market is in control and has been since early
2000.
All the above might seem like scare tactics, but, it's not my
purpose to lead you to invest in any specific asset. My intent is to wake you up to the risks and some of the reasons behind
what is coming. It is also my intent that you should do your own
home work in order to verify my assertions to your own satisfaction.
When you have done that, you should have no trouble deciding on
the proper place for your money. You should find plenty of info
sources through the various links on my web page.
Richard McClendon
(Houston, Texas)
