Friday, May 15, 2009

Another warning about the market and... it's BFF.

Robert Prechter is a longtime technical analyst who forecast the 1987 stock market crash and authored a book in 2002 ("Conquer the Crash") in which he warned of the dangers of a U.S. debt bubble and deflationary depression.

His take on the current stock market? He predicted this week that U.S. equities may plunge to half their lows hit in March as a deflationary depression bites.

Prechter is now the chief executive at research company Elliott Wave International in Gainesville, Georgia. In an interview this week with Reuters, Pretcher said he also believes Oil and U.S. Treasury bonds are locked in long term bear markets, while corporate bond prices will plunge precipitously by next year as broad economy, banking system and company earnings sustain more damage from a financial crisis that's akin to the Great Depression.

"It's not the start of a new bull market.Our models are (showing) right now that it is a much bigger bear market than most people realize, something along the lines of 1929-1932.It's a very rare event."

Prechter says The U.S. central bank will not be able to control the government bond market and prevent yields from rising, regardless of how much money the Fed uses to buy Treasuries. He believes that next year, U.S. corporate bond prices will probably fall below their extreme price lows of December during the market panic of 2008 when investors fled riskier assets.

Curiously, however, Prechter also painted a bleak picture for commodities like silver and is largely unenthusiastic about gold, believing the precious metal made a major peak when it rose above $1,000 last year.

Bank Failure Friday

Prime Minister Harper said two months ago that, "there won't be a recovery until the U.S. financial system is repaired." So we watch the US banking developments with keen interest. As faithful readers know, bank failures in the US always seemed to be delayed until late on Friday afternoons, prompting Friday to be renamed 'Bank Failure Friday' by many economic blogs. Currently the carnage is up to 33 failures in 2009.

Updates in red/blue at the top of this post as they come in from the FDIC (click on blue portion to see press release from FDIC).



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