JIM: In your book you forecast a major crash for the stock market. It was surprising to me in looking at the business publications and investment publications in December. The consensus seems to be that we have had three years of negative returns. We have only had one time in our history when we have had four negative returns and that was in 1929-1932. So therefore, it can’t happen again this year. I take it that you would differ or take a different view on that.
BOB: This type of analysis is, to be charitable, quite thin to say the least. I think there are three crucial elements to market analysis. One is valuation. Another is psychology. Third is the Wave Principle, which is a price model of how the stock market behaves. Those are the three things that are most important in deciding where the market is going to go next.
In terms of valuation, I would say that there are three main bases on which you can value stocks: the dividend payout, the price/earnings ratio and stock price to book value. All three of those indicators -- we can talk about the specific numbers if you like -- still show the market as historically overvalued. There is still such a long way to go to get those numbers back into a normal range, much less into the area where you would want to buy stocks at a major bear market bottom valuation, that it is ridiculous not to pay attention to them. Three down years means absolutely nothing in the face of historical overvaluation.
Now you have the psychology problem, which you alluded to in your question. If you read the newspapers and magazines throughout late December and into January, you find that the people who are being interviewed are virtually unanimous in calling for an up year. For example, there were two or three magazines that interviewed as many as 15-30 people, major professional money managers, expert stock brokers, firm analysts and so forth, and we found that between 80 to 95% of those interviewed in those magazines were bullish. We just got the latest figures from Investor’s Intelligence, which reports twice as many bullish advisors as bearish. None of these indicators would be in this position had we actually made a major bottom in October. It is literally impossible that we made a major bottom because psychology did not reflect it and still doesn’t.
The third thing is the Elliott wave pattern. To me this is the most interesting, because we are actually approaching the point of recognition, which for Elliott wave enthusiasts means the third wave of the third wave, the center point of the decline. I think we are likely to hit it this quarter, and I think the rally attempt that we had in January was the last gasp for the bulls and we are already heading down into what could turn out the crash part of this bear market.
"The point at which a competitor is pursuing the best possible strategy, given the strategies of the other participants" - John F. Nash
O Clubeinvest.com informa que nenhuma da informação
aqui facultada deverá ser entendida como conselho ou recomendação
de qualquer tipo de transacção ou investimento.
