Additional References
August 2006, EWFF
In May, as the small cap averages approached their all-time highs, EWFF took a firmer stand saying that the speculative fury that has driven investors into so many risky financial vehicles was on the “verge of a flame-out.” One convincing piece of evidence was a chart of the gold/silver price ratio (see June issue for latest version), headlined “Risk Overtakes Reward.” In recent days, the ratio has retraced a portion of the rise from the May low. As the stock market rolls over, the preference for the perceived safety of gold relative to higher-beta silver should quickly push the gold/silver ratio to our initial target of 62:1 and probably higher.
August 2006, EWFF
The Fed’s entrance into a whole new world of financial fraud is signaled by the establishment of a presidential task force that is now “looking into hedge-fund fraud.” “Amid Rising Fraud,” the chairman of the Securities and Exchange Commission said Tuesday that he will “push for new emergency regulations of the high-risk investment pools.” Fraud in the $1.2 trillion hedge-fund industry poses an ``emerging threat’’ to investors, says U.S. Deputy Attorney General Paul McNulty.
July 2006, EWFF
Here’s the media now, catching sight of the “new mentality”:
With Global Markets Jittery, Investors Decide to Rein in Risk
—The New York Times, June 12, 2006
“There’s really been no place to hide,” said an analyst at Morningstar Inc.
—Bloomberg, June 30, 2006
There’s “little doubt” says the Times, “that investors were dumping risk from their portfolios.” It’s the big new thing, and it’s visible everywhere, from virtually every global stock market to a reversal in real estate to a jump in junk bond yields to a stilted performance by IPOs in the U.S., Hong Kong and Europe to a 36.4% six-week rise in the cost of insurance against bond defaults, as seen in the chart below. The gold/silver ratio pushed to 58:1 last week, making significant progress toward the initial target of 62:1 that we established in May (see chart page 6, June issue). This ratio should continue its upward path until stocks bottom and a risk-timidity not seen since the Great Depression wrenches the economy into a severe contraction.
July 2006, The Elliott Wave Theorist
Some have asked whether they should buy puts for wave (3) of 3 down. Well, it might work, but what if the sellers can’t pay? This bear market will be a quagmire of risk. Just ask owners of the Rogers International Raw Materials Fund, who lost money not because they were wrong but because someone couldn’t pay. In this case the problem was fraud, so there are guilty parties. In the case of a system-wide default, no one will accept blame, and the government will probably try to get its banker and broker friends off the hook. The individual investor, as always, will be the biggest loser.
June 2006, EWFF
The tout that commodities provide “diversification and inflation protection” is another indication of how perfectly positioned psychology is for our projected synchronized descent. One of the fatal misconceptions of the post-2000 drive into riskier and riskier financial assets is that they somehow offer shelter against market declines. “Diversification is gospel today because investment assets of so many kinds have gone up for so long,” CTC explains, “but the future is another matter. Owning an array of investments is financial suicide during deflation.”
May 2006, EWFF
BOTTOM LINE
The across-the-board rally in financial and commodity markets is on the cusp of a turn into an across-the-board decline. A key element in the process is signaled by a reversal in the gold/silver ratio, which indicates that a new risk averse mentality is about to emerge among investors.
January 2006, The Elliott Wave Theorist
The Dow was down slightly (0.6%) on the year. In 2005 investors holding Treasury bills and notes beat the Dow; they also matched the S&P and even the vaunted Russell 2000 Small-Cap index, which edged up 3 percent and paid measly dividends of 1-2 percent. What’s more, we did it with no risk, while the masses who are still invested in the stock market are taking risk of historic proportion.
March 2006, EWFF
A major financial peak occurs when the delusionary antics of a large-degree fifth wave collide with the reality of a new bear market. It seems to follow that in the shift from up to down, some of the more absurd bull market ideas about risk and financial management are finally exposed as false dogmas through the less-threatening instrument of humor. We first alerted subscribers to this transitional phenomenon back in December 1999, when EWFF cited a rise in stock market send-ups and stated, “The desire for comic relief will expand rapidly in the weeks ahead.” Two months later, EWFF noted the presence of How to Get Filthy, Stinking Rich and Still Have Time for Great Sex and The Trillionaire Next Door: The Greedy Investor’s Guide to Day Trading on Business Week’s business book list; we called them signs of a peak. It turned out to be more than a trivial aside, as the NASDAQ started a 78% decline a few days later. Now comes the biggest financial farce yet, a tome in which “Barry lances many preconceptions about finances.” Barry’s publicity tour offers confirmation that the trance-like, magnetism of the bull market advisor is holding fast. During radio appearances, he says many listeners call to “ask him serious financial questions.” A turn must be near because, at this point, investors are so credulous “that even completely idiotic advice sounds reasonable.”
January 2006, EWFF
The wave patterns in all the major averages along with sky-high investor optimism and waning upside breadth and volume suggest that the risk to stockholders has seldom been higher. The decline should accompany a broader liquidity crisis that pushes the downturn into global stocks and most other financial markets.
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