Ron Paul on the Evil of the Quasi Governmental Federal Reserve in 1988

Jim Rogers says our fiat monetary policy and Keynesianism are the wrong path

"If we weren't the largest debtor in the world, we would not be in this mess."

"....A couple of guys in Washington that are ruining us...."

Montana Sound Money Bill

Part 6


I have all 10 of these parts posted at: http://libertyvoter.blogspot.com/2009/03/montana-sound-money-bill.html

Peter Schiff vs Keynsianism -3/25/09, MSNBC

Peter Schiff Says You're Better Off as a Renter

Peter Schiff was interviews by Lew Rockwell at the Ludwig Von Mises Institute, on the topic of renting vs. buying in the current real estate environment. He says you are better off as a renter, and says he himself is a renter. You can hear the interview yourself by clicking here.

He did say that if the real estate market looked like a good buy again at some time in the future, he would probably buy a home. He did not indicate that he thought we are currently anywhere close to that point in terms of price right now.

See honey, we have something in common with Peter Schiff.

S&P 500 Update 3/23/09

(remember, all charts should be expandable by simply clicking on them)

In my last S&P 500 post, we had moved stops for short positions down to 804.48 (cash market). That level has now been taken out. We are now short term neutral, intermediate term neutral to bullish, and long term very bearish. My bloging on the S&P price trends started on May 19th, 2008, with a post titled "S&P 500 in a Precarious Position". The high on May 19th was 1440.24, and has not been touched again since. On May 28th, we said that we would be short the market if prices broke below 1373. Prices did, and the downtrend was underway.

With our recent stop at 804.48, this means that our signals were worth 568 S&P points for profit. This 41% decline in prices could mean several different things depending on what vehicle you use, how you mange risk, and if you use any leverage. If using e-mini S&P futures (one of the most liquid markets around), you would take every quarter of a point (0.25) and multiply that by $12.50, and then multiply that by the number of contracts you had sold short (selling short is actually simply selling in the futures arena). Then there are trading vehicles like inverse profunds and now even inverse ETFs. Each vehicle always has its own nuances; its own benefits and its own problems. Regardless, 568 points is a big move between signals. Yes, we left some on the table at the current low, but so what.

OK, enough of the recap. What are we going to do now? We are going to sit in cash for a short while in order to let the market give us the next proper signal. This is a point where more aggressive traders & investors may have slightly different plans than more conservative traders & investors.


Note that we are still under a long-term bear signal on the monthly chart. Prices are far below thier 12 month moving average. Of course this is a lagging indicator, but so what? Do you want to participate in 60% to 80% of the significant price trends, or do you want to chase bottoms and tops? Following the price trend is a simple and repeatable process. Aggressive traders may very well find some shorter or intermediate term opportunities to the upside, but we are still under a long-term bear signal.

Remember that in a long-term chart on Feb 17th, we have previously said that we expected a significant bear market rally, but not an end to the secular bear market. That outlook has not changed.


I believe it was Richard Donchian who popularized the use of the 13 and 40 week moving averages. As you can see by the chart above, they do a good good at keeping you with the larger trend. If the 13 crosses up over the 40, we will have a trend following bullish signal, but remember this would still currently be within the larger bearish signal. Don't forget what Bob Prechter has to say about the current valuation of the market either. The 13 and 40 cross is another way to gauge the long-term price trend.


I often use the 10 day and 20 day cross to watch the intermediate term price trend. I like to filter the crossover signal by requiring the price bar of the following or later day(s) to exceed, in direction of the new crossover signal, the price bar of the day on which the crossover occurred. This has happened on the daily chart. However, if we are using the long-term trend as a filter, we would ignore this signal and remain in cash.

I may post some ideas for aggressively following an intermediate term counter trend to the upside as we move forward, but realize that we are still under secular bear market signals. If the market moves bellow, 672.88(cash), it will be reason to be short the market again.

Are We Near a Low in the Stock Decline? Two Unique Charts Reveal the Answer

March 19, 2009
Robert Prechter, New York Times best-selling author and renowned market analyst, was recently asked to present his thoughts on the real estate market and the financial crisis to the Georgia Legislature. The following article has been adapted from the transcript. Elliott Wave International has made the full presentation available free, including the full transcript and 30-minute online video.
By Robert Prechter, CMT
I'd like to try to answer a question: “Are we near a low in the stock decline?” Because in these times when stocks and real estate are declining together, they tend to bottom roughly together as well. So I want to take a minute and look at a valuation chart for the stock market.

What we have here on the “X” axis is the bond yield/stock yield ratio for the S&P 400 companies. Sounds fancy, but all it means is that the further you go out to the right, the less companies are paying in dividends compared to what they are paying on their IOUs—on their bonds. On the “Y” axis we have stock prices relative to book value. Book value is roughly equivalent to liquidation value, in other words, if you went and sold all the assets on the open market. When stocks get expensive, prices tend to rise relative to book value, and dividends tend to fall relative to the cost of borrowing. Why does that happen? At such times, people don't really care about dividends because they think they are going to get rich on capital gains. So dividend payout falls, and stocks get more expensive.The small square boxes indicate year-end figures. The large box is a general area that has contained values for the stock market for most of the years of the 20th century. We had a few outliers: 1928 and August 1987, which preceded crashes in the stock market. And of course stocks were really cheap in the early '30s and again in 1941. If you are really astute, you have noticed something about this chart, which is that I've left off some of the data. It ends in 1990. What happened in the past two decades? Now I'm going to show you same chart but with the data from the last two decades on it. The March 2000 reading we call Pluto. Real estate wasn't so bad; I think it only got to about Neptune. But the stock market reached Pluto in March of 2000 in terms of the bond yield/stock yield ratio and the price multiple of the underlying values of companies. That's going to take quite awhile to retrace.

I've also plotted the reading for November 2008. The market has made quite a trek back toward normal valuations, but if you look at these multiples in terms of book value, we are at 4 times. It has to go down to 2 times to get back into the box, and we are getting there on the bond yield/stock yield ratio which means that the dividend payout is rising somewhat to catch up with borrowing costs. And because the S&P is down 45%, of course, the dividend payout as a percentage has gone up. But there is a problem there. If you're reading the newspapers, you know that companies have been cutting dividends. In fact, they've been cutting them at the fastest rate in half a century. So it is going to be difficult for values to get back to a normal valuation range. So the stock market has quite a bit lower to go in order to catch up with normal values, and this suggests that real estate may have the same sort of trend going on.

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For more information, access Robert Prechter's full presentation to the Georgia Legislature, free from Elliott Wave International. It expands on the excerpt above with the full transcript, a 30- minute online video, and 12 additional charts and figures.

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Robert Prechter, Certified Market Technician, is the founder and CEO of Elliott Wave International author of Wall Street best-sellers Conquer the Crash and Elliott Wave Principle and editor of The Elliott Wave Theorist monthly market letter since 1979.

Prechter Legislature Video

I want to share with you a FREE 30-minute video that might just change the way you think about government’s response to the unfolding financial crisis. Please learn more below or get access to the video now.
In December 2008, our friend the famed financial analyst Robert Prechter, Jr., spoke before his state legislature. The House and Senate Economic Committee had invited him to give his unique outlook on real estate, financial markets and the economy and to share with them his ideas for what – if anything – a governing body should and shouldn’t do to make its state a more attractive place in which to live.
Since then, the video – complete with Prechter’s eye-opening charts – has been passed from friend to friend and has also reached some very influential people – perhaps even in your state government.
Prechter’s insights are anything but conventional; in truth, some could be considered downright radical. But, as Prechter says in the presentation you’re about to watch: Today’s environment is anything but typical. An atypical problem calls for atypical solutions.
If you believe the government might be trying to do too much, but you’re concerned that doing nothing at all is also a flawed approach, you should watch this insightful video right away.
If you agree with Prechter’s insights, go one step further – pass them on.
Get completely free access to Bob Prechter’s 30-minute legislature presentation here.
-Markham Gross

6 Questions You Should Be Asking About the Financial Crisis (And 6 Must-Read Answers)

Elliott Wave International, the world’s largest market forecasting firm, receives thousands of questions every year from web site visitors and subscribers on their free Message Board.
Here the company shares 6 of the recent critical questions on the financial crisis and 6 answers provided by their professional analysts.
For more free questions and answers or to submit your own question, visit Elliott Wave International’s Message Board.

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Q: Can increased government spending help stop the crisis?
What do you think about the new mortgage bailout plan – or bailouts and proposals for additional government spending in general? The opinions on whether or not this will ultimately work seem so divided...
Answer:
In Ch. 13 of his Conquer the Crash, “Can the Fed Stop Deflation?”, Bob Prechter writes; quote: "Can the government spend our way out of deflation and depression? Governments sometimes employ aspects of' 'fiscal policy,' i.e., altering spending or taxing policies, to 'pump up' demand for goods and services. Raising taxes for any reason would be harmful. Increasing government spending (with or without raising taxes) simply transfers wealth from savers to spenders, substituting a short-run stimulus for long-run financial deterioration. Japan has used this approach for twelve years, and it hasn’t worked. Slashing taxes absent government spending cuts would be useless because the government would have to borrow the difference. Cutting government spending is a good thing, but politics will prevent its happening prior to a crisis. ... Prior excesses have resulted in a lack of solutions to the deflation problem. Like the discomfort of drug addiction withdrawal, the discomfort of credit addiction withdrawal cannot be avoided. The time to have thought about avoiding a system-wide deflation was years ago. Now it’s too late. It does not matter how it happens; in the right psychological environment, deflation will win, at least initially."
Q: In deflation, what's best: to have no debts or preserve capital?
During a deflationary period, if you had to choose one or the other – debt reduction or preservation of capital – which one is MOST important?
Answer:
In Ch. 29 of Conquer the Crash, "Calling in Loans and Paying off Debts," Elliott Wave International’s founder and president Bob Prechter writes; quote: "Being debt-free means that you are freer, period. You don’t have to sweat credit card payments. You don’t have to sweat home or auto repossession or loss of your business. You don’t have to work 6 percent more, or 10 percent more, or 18 percent more just to stay even. ...the best mortgage is none at all. If you own your home outright and lose your job, you will still have a residence." Of course, one could pay off some debts AND keep some capital – it all depends on an individual's risk appetite and tolerance.
Q: Which news and events can move the market and which can't?
I've noticed that a lot of times, the stock market does the opposite of what the news suggests it should do – or does nothing at all. Can you make a distinction, if there is one, between news that does not move the market and the news that does? I'm talking specifically about the news and anticipation of another bailout plan plus stimulus package that is supposedly rallying U.S. stocks right now.
Answer:
The subject of the news is almost irrelevant. What IS relevant is the state of investors' collective mood at the time of the news release. If they feel bullish (or bearish), they will interpret just about any news story as bullish (or bearish) too. (Or "dismiss the news," as financial commentators often put it.) If you need a good example, just compare the February 6 horrific U.S. jobs report with that day's rally in the DJIA. Or, contrast the February 10 passage of the "$838 Billion Economic Stimulus Package" with a 300+ drop on the Dow. The important thing to keep in mind is that while the news can cause short-term price spikes, it has no effect on the longer-term trend; only social mood does.
Q: If this deflation deepens, will the US dollar crash?
Bob Prechter’s Conquer the Crash and your monthly publications like Bob’s Elliott Wave Theorist, you've been saying that in deflation, "cash is king" as the value of the dollar rises. But won't the U.S. government's spending spree cause the dollar to crash instead against the euro and other currencies?
Answer:
It's very important to make a distinction between the dollar's domestic and international values. In a deflation, the value of any currency – the U.S. dollar, in this case – rises domestically: As asset prices fall, each unit of currency buys more domestically-available goods and services. "Cash is the only asset that assuredly rises in value during deflation." – Bob Prechter, Conquer the Crash, Ch. 18. However, the USD's international value (as represented by the U.S. Dollar Index) in a deflation can rise OR fall relative to other currencies. If, for instance, the euro is deflating faster than the dollar, then the dollar's value relative to the euro will rise, and vice versa.
Q: Won't government bailouts turn deflation into inflation?
Trillions of dollars in bailouts "injected" into the economy – won't they reverse deflation and turn it into inflation instead?
Answer:
Here is a quote from Bob Prechter’s October 2008 Elliott Wave Theorist: "Believers in perpetual inflation think that the government can keep assuming others’ bad debts infinitely. But it can’t. The only reason that Congress has gotten away with issuing this latest blizzard of new IOUs is that society is still near the top of a Grand Supercycle, so optimism and confidence still have the upper hand. But as pessimism and skepticism continue to wax and the economy contracts, the bond market will figure out that the Treasury will be unable to fund all these obligations with tax collections. Then Treasury bond prices will begin falling as if they were sub-prime mortgages. A collapsing bond market is deflation; it is a contraction of the outstanding credit supply. Recent bailout schemes will not reverse the deflationary freight train. They will serve only to confuse the marketplace and hinder the efficient retirement of bad debts, thus exacerbating the crisis and aggravating investors’ uncertainties and thereby falling right in line with the declining trend of social mood."
Q: When will recession end – and DEPRESSION begin?
When do you think the economic DEPRESSION will officially begin?
Answer:
It took mainstream economists over a year to recognize the "official" start of the recession! Because a depression is a much bigger and rarer event, the delay with its "official" recognition will likely be even greater. Not to mention the fact that, interestingly, there is no "official" definition of a depression; even if there were one, ours here at Elliott Wave International would probably differ. Rest assured, though: We intend to update subscribers on any "progress" in that direction.

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To read 30+ additional questions and answers on the financial crisis, investing, capital safety and more, visit Elliott Wave International’s free Message Board.

Elliott Wave International (EWI) is the world’s largest market forecasting firm. EWI’s 20-plus analysts provide around-the-clock forecasts of every major market in the world via the internet and proprietary web systems like Reuters and Bloomberg. EWI’s educational services include conferences, workshops, webinars, video tapes, special reports, books and one of the internet’s richest free content programs, Club EWI.

How To Tell a Good Forecast from a Bad One

March 5, 2009

Here's a forecast for you. Clear and direct. As quoted by a Reuters reporter in his January 15, 2009, article, entitled, "Global Lending Thaw May Yet Return to Deep Freeze."

"'This is a temporary respite and when it's over, the stock market will make new lows...,' says Robert Prechter, chief executive officer at research company Elliott Wave International in Gainesville, Georgia." [Reuters, 1/15/09]

But there are lots of forecasts out there – for the economy, for the Dow, for the price of oil, for the chances of the Boston Celtics repeating as NBA champions – so the question arises, how can you tell a good forecast from a bad one?
Bob Prechter addressed that very question with another reporter in a Q&A originally published in the book, Prechter's Perspective.
Editor’s Note: For more market insights from Bob Prechter, visit Elliott Wave International to download Prechter’s FREE 60-page Deflation Survival eBook, part of Prechter’s NEW Deflation Survival Guide.
The following text was originally published in Robert Prechter’s 2004 bestselling book, Prechter’s Perspective.
By Robert Prechter, CMT
Q: In general, is there any way for a person to tell a good forecast from a bad one?

Bob Prechter: There is a subtle way to tell a potentially useful forecast from a useless one. Most published forecasts are at best descriptions of what already has happened. I never give any forecast a second thought unless it addresses the question of the point at which a change in trend may occur.

As an example outside the financial markets: a sportswriter for the Atlanta Journal-Constitution published his ratings (scale 1-5) for each of the players on the Atlanta Braves baseball team as a forecast of how they would perform in 1984. At the start of the season, he rated 1983's Most Valuable Player a "5," Atlanta's slugger a "4," and the right fielder a lowly "2" due to bad performance in 1983 following two excellent years. Later in 1984, the MVP was batting only .215, and the slugger was batting a dismal .179, while the lowest-rated player, the right fielder, had hit 8 home runs and led the team in batting average and RBIs.

The point is not that the sportswriter was wrong in his predictions. The point is that he didn't make any predictions, even though he thought he did and said he did. He was merely rating the 1983 Braves in retrospect. He ignored possible bases upon which to forecast the 1984 season, things like motivation, new developments or events in a player's life, cyclic changes in playing success, etc. As with most forecasts, these things weren't even considered.

Read forecasts carefully. If they are mild-mannered extrapolations of a recent trend, it's probably the best policy to toss them aside and go search for something potentially useful.
Q: Obviously, the same holds true in finance.

Bob Prechter: All the time. When economists say, as they so often do, that they see "no reason to expect anything different" from the recent past, they mean it from the bottom of their knowledge. The linear projections they typically employ result in logic such as that expressed by an economist in a national newspaper, who said, "This rising consumer confidence is good news for the economy. Rising confidence spurs the economy, and the pickup in the economy then serves to heighten confidence." By this line of reasoning, no change of direction could ever occur. That's why, absent other knowledge, the only forecasts even worth your time considering are those that predict a change. Not because the forecaster is certain to be right, but because it shows that he is thinking and perhaps employing a tool that can anticipate trends.

Q: So the word "prediction" doesn't necessarily apply to the future!

Bob Prechter: Right. And it's those predictions about the future that are the tough ones. That's why economists stick to predicting the past, which is a crafty solution. It leads to misery among the people who follow them, but it doesn't seem to affect economists' jobs, so it certainly keeps them happy!

Q: Do you think that predicting the economy is possible?

Bob Prechter: It is not only possible, it is downright easy compared with predicting the stock market. One economist has gotten a lot of chuckles by saying that the stock market has predicted something like 19 of the last 13 recessions. However, that is only a reasonable statement if you believe that a certain rigid definition of a recession is the only one that is viable. In fact, if you look at the ebb and flow of economic activity and generally realize that it lags stock market activity of between 0 and 12 months, you will find that there is no better single indicator of what the economy is going to do than the stock market. Not only that, but even 19 out of 13 is infinitely better than any economist has ever done.
……….
For more on deflation, download Prechter’s FREE 60-page Deflation Survival eBook or browse various deflation topics like those below at www.elliottwave.com/deflation.

• What happens during deflation?
• Deflation survival
• Why is deflation bad?
• Deflation personal debt
• And much more in Prechter’s FREE Deflation Survival Guide.

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Robert Prechter, Chartered Market Technician, is the world's foremost expert on and proponent of the deflationary scenario. Prechter is the founder and CEO of Elliott Wave International, author of Wall Street best-sellers Conquer the Crash and Elliott Wave Principle and editor of The Elliott Wave Theorist monthly market letter since 1979.

Stock Market Update: Moving stops for S&P 500 short position down to 804.

I wanted to update our stance on the S&P 500. On 2/17/09, we moved stops for our long held short positions down to 875. We also updated our long term view of the market in that post, and recommend you check the bull trap we see on the horizon. For now, lets just manage the trade we are in though.

CHART FROM 2/17/09:


CHART FROM TODAY, 3/03/09
For some time now, we have maintained mostly loose stop orders. This allowed the trend room to breath and form. Because we expect, based on Elliott Wave analysis, the intermediate term trend to be nearing an end, we are now getting more assertive with our stop (exit) orders.

We are moving stops down to 804.48 (cash market basis). This is represented with a blue dashed line on the chart above. If stopped out at that level, we will simply stand aside in cash until we determine the next clear opportunity, which may be to the long side of the market on an intermediate term basis. If not stopped out at that level, we will try to exit our position as close to the low in the Elliott pattern as possible.

A more simplistic, and still successful way to deal with this same challenge would be to simply use a dual moving average cross over the price series for a signal to close. This and a couple of other trend following techniques have been covered in the series of posts under the "Trader and Investor Education" tag.

These comments have been based on the idea that you are using a vehicle that can close at intraday prices. If you are using a vehicle such as leveraged bearish mutual funds, then I definitely do not suggest trying to pick the bottom. With those instruments, it would be better to close your bearish positions into a strong downside day before the actual low.

Jim Rogers sounds off in Australian TV interview

Some quotes from the interview:

"...we are going to have another depression, because the politicians keep bungling it. That's what caused the Great Depression in the 1930s...."

"If you want to have one central cause, its the central bank [Federal Reserve] in the United States...."