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Cracking the Prechter Code

Posted on September 16, 2006
Filed Under Uncategorized |

by the stranger

The interviews I’ve read lately with Prechter seemed ambiguous, evasive, or both. Is he on the spot or under the gun? It’s hard to figure. But Prechter and Elliott Wave International charts are excellent none the less.

Opening one of his books again, Conquer the Crash, I’m reminded how great it is; this is a must-have book. That book is near the trail head for me. It introduced me to the Grand Super Cycle and led me to Kondratieff, Long Wave Cycles. Prechter’s opus is refining Elliott’s work and Wave Theory’s most important contribution, I think, is the big picture going forward.

The more I read, of various authors, the more convinced I am that deflation is inevitable. I’m also convinced hyperinflation is probable too; much debate concerns either, or. History provides us with America’s Great Depression, Germany’s Weimar Republic, John Law, Tulip Mania plus every other delusion and madness of crowds. But they’re just fractured rear-view insights with no clear view ahead. Throw in wave theory and at least we can plot a course.

Often quoted by Prechter and others is, cash is king in a depression. Numerous precedents support the adage, but situations vary so caution is critical. In the 1930s the Federal Reserve Note was in its infancy, it may now be near its death. Less notes - greater value; perhaps, but not when repudiated. Quantity of money is just one of the puzzle pieces this time around. No matter what though, a FRN should be useful paying down FRN debt.

Now maybe its just semantics, but a question I often have is the context or definition of cash. Historically in America, albeit off-and-on, cash has been hard-cash or backed by same.

In Conquer the Crash Chapter-33, gold and silver are listed separate from cash. But, in chapter-18 “Should you Invest in Cash” - under “The Safest Cash Equivalents Inside the US” Prechter states, “…Treasury bills or money market funds that hold only short-term US Treasury debt appear to be the best financial haven available next to bullion-type gold and silver coins.” And a few paragraphs later, “A federal government default is not impossible.”

The only significant problem I have with Prechter is his refusal to acknowledge that government intervention affects markets. He disregards the manipulation of gold and this is important. The manipulation of gold is not only well documented; it directly affects the final crash Prechter himself forecasts. Controlling the price of gold, combined with the globalization of Federal Reserve currency, may have postponed the crash by decades; and Prechter’s been early by decades.

In Prechter’s defense though, regarding gold, Conquer the Crash Chapter-22 begins with

“Precious metals are likely one day to become the most important asset class to own.” He further states… “You might be surprised to find that I advocate holding a healthy amount of gold and silver anyway. There are several reasons for this stance:
  • First
  • , it could be different this time, for some reason I can’t foresee. In a world of fiat currencies, prudence demands hedging against a rush to tangible money.

  • Second
  • , these metals should perform well on a relative basis compared to most other investments…

  • Third
  • , …it may not be prudent to try and finesse the final months.

  • Fourth
  • , the metals should soar once the period of deflation is over…

  • Fifth
  • and foremost, if you buy gold and silver now you’ll have it. If investors worldwide begin to panic into hard assets…”

Conquer the Crash is loaded with practical information on how to protect your money; and it gets smarter every time I read it. Note that, “What Makes Deflation Likely Today” is Chapter-11. And the chapter “Should You Invest in Precious Metals?” - that’s twenty-two, if you catch my drift. Overall, Prechter’s forecast is an ominous message and worth deciphering; just a matter of cracking the Prechter Code.

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Comments

37 Comments so far
  1. Agric September 17, 2006 4:39 pm

    What has value? That is totally dependent on context.

    Perhaps, in a minor adjustment, cash or precious metals are wise things to hold. Stocks and anything promissary would be unwise. But that future is not far from current.

    Sink deeper and the need is food: seed and the ability to grow, practical skills.

    Sink very deep and knowledge is the critical resource, so many die (>90% of current population) that much of current knowledge may be lost. Just having the satellite maps and data when humans will not be able to launch a new satellite for hundreds of years is immense. Now make good steel, the critical resource for modern building.

    The context is dependent on the level of collapse:
    http://theslide.blogspot.com/2006/01/levels-of-collapse-warning-may-be.html

  2. nestor September 17, 2006 6:23 pm

    Precher is an idiot. He’s got no clue about markets and how to make money in them. He quit trading years ago. He’s simply a guy that writes a bearish newletter, for people that are bears.

  3. Marc Authier September 17, 2006 8:12 pm

    Well he is not an idiot, but he wants too much to be right. It just proves that the Elliott Wave Theory is just mumbo jumbo, like most things in finance or in economic science. And people take seriously all this economic and finance theory crap? Pure crap like all economic science, accounting theory, or the banking system. Pure crap and bull.

  4. dumbo September 17, 2006 8:14 pm

    Note that, “What Makes Deflation Likely Today” is Chapter-11. And the chapter “Should You Invest in Precious Metals?” - that’s twenty-two, if you catch my drift.

    What is the meaning of “22, if you catch my drift.”?

  5. Peter September 18, 2006 1:31 am

    I bought the book, it came out years ago. The timing was TOTALLY 100% WRONG!! I have been a subscriber to his letter, how many times did I read, this month will go in history for an incredible decline in the stock market….. I lost so much money, terrible, terrible. It forced me too think for myself at least but this guy is a fraudster although his beliefs are good but his timing is totally wrong, ironic for someone who gives trading advice…. He should be sued this guy with his lies.

  6. PB45 September 18, 2006 3:48 am

    Mr. Prechter is an ecnomist that adheres to a particular theme. The Kondratiev Wave is a valid wave theory (so valid it cost the theorist his life),: however, the timing of such a massively cycle canno0t be timed other then by episodic changes in the economy.
    EWT is not an exact or even precise tool and is highly subjective in it’s wave counts. I agree Mr. Prechter has not been accurate from a trader’s point of view, but he has nailed the sequence of current events enough to allow any reader enough knowledge to protect his assets.
    If I may make a comparison to current media economists or wire house paid economists I feel EWT far, far outweighs any trading advice those groups offer./Peter

  7. efficiency September 18, 2006 5:13 am

    YOU should always do YOUR own thinking. Prechther is not an idiot or conceptually wrong. Just early. That’s easy to do with all the intervention. A prime expample are interest rates. IF you were to look at a 50 year chart of Fed Funds, you’d see a pronounced “valley”. THAT…….has played a larged role in keeping things aloft. Ditto for a printing press and dependency on foreign capital (who have thus far obliged).

    All in all, techincal analysis is more like a wind sock than a crystal ball.

  8. sparrowlink September 18, 2006 8:14 am

    Early? The answer to all of this is really not in a Wave or any other theory. What we will need to do, is keep our eye on what the Government will do. Think Trade practices, Look to Washington. Laws that keeps Money of any kind in the Country or out. Gold has been outLawed in the past. Will we have tariffs on any or all products? The people in power will do anything to stay in power. Even if it means that the people of America will have suffer.

  9. Joel Dee September 18, 2006 9:51 am

    Not once have I made money using this man’s or his minion’s advice! His foresight of the movements of waves seem to continue on into infinity with the greatest amount hindsight used to correct mistakes or quote the past! Prechter has been predicting a deflationary recession for ten years. Early, I’ve been predicting a recession since last December, 2005, but I am not PAID to formulate my theories for others to follow. I believe I will turn out to be closer to being correct long before he is.

    Let me look out the window for his latest economic prognostication. Are skirts up or down, black or white, or being worn backwards?

  10. nestor September 18, 2006 11:34 am

    I will repeat. PRECHTER IS AN IDIOT. He’s NOT an economist, he’s a sociologist. He has done more to discredit wave theory than anyone else could possibly hope. He couldn’t figure out a wave count if his life depended on it.

    My case is point, is his current count on the DJIN, from the 2000 peak to the 2002 low, is labeled as an impulsive 5 wave drop. That count, would make Elliott turn in his grave. He also considers this massive rally in gold as.. counter trend.

    I REPEAT, He’s AN IDIOT. use him as a contrary indicator at best. Use his newsletter as toilet paper after.

  11. the stranger September 18, 2006 3:22 pm

    Aside from using Prechter to rebut Prechter, I may have been forcing my warped sense of humor. If you read or have read the book, Conquer the Crash, you’ll know Prechter made the deflation (bankruptcy) chapter number eleven for levity. Chapter22, as the chapter on gold ownership, was no doubt random. As for seeing a catch-22, maybe I see it just because I want too.

    Using gold and silver as a hedge against a deteriorating monetary system is unquestionably logical; it’s simply one sane option.

    Will the government make gold ownership illegal? Will it be liquid? Will the manipulation outlast the hedge? Will you die in a plane crash? Relevant questions, I guess; but if these possible obstructions block you from making a sane decision, or if they actually materialize and nullify a sane decision, it’s seems a bit of a catch-22.

    Likewise, the damned if you do, and damned if you don’t connotation may be fitting; in as much as the obstacles are credible. Still, it’s a forward looking statement; you never really know. Now that I think about it, the pilot that made it out - everyone thought he was crazy.

  12. Administrator September 19, 2006 7:47 am

    Interesting comments.

    I would hardly say that Prechter is an idiot. He is the head of the world’s largest market forecasting firm, a company he founded himself. Is that the work of an idiot? And he doesn’t just talk the talk, he has walked the walk:

    In 1984, Prechter won the US Trading Championship, setting a new all time profit record of 444.4% over a period of four months trading options. The second place finisher had a gain of 84%. Most of the contestants in the contest (over 83%)lost money. And he achieved these profits using - guess what - Elliott Wave Theory.

    Idiot? I don’t think so.

    Prechter does not have a crystal ball. You cannot blindly follow his advice and make money. Sorry, life just isn’t that easy, as much as we all wish it were. No one is going to hand you a holy grail, certainly not for $19 per month! If anyone mistakely believed in such a fantasy, then I’m sorry - I would go back and do a little more thinking about just who the idiot is.

    If you are going to trade succesfully, you need your mind as open as possible and have access to as much information as possible. And in my opinon, that is true for living a successful life as well. The thing about Prechter that I like is that he is a rare breed in our modern world - a true independent thinker and contrarian when necessary. That doesn’t mean he is always right, but who is? He is not afraid to be wrong, but when he is, he comes straight out and says it - “I was wrong.” Refreshing, and I look forward to his Elliott Wave Theorist every month.

    Read his stuff and I guarantee that you’ll be exposed to ideas that you will not hear anywhere else. Speaking of which, there is a great, free, article on trading - “What a Trader Needs to be Succesful” in his “Club EWI” After you register and log in, it is way down on the right hand side of the page, under “Classic Elliott Wave Articles” - I wish I could link to it directly, but it is protected, so you have to log in first.

    If you’re a trader, look at #4, and especially #5, the last point on what it takes to be a successful trader: “The Mental Fortitude to Accept Huge Gains.” He starts off by saying, “This comment usually gets a hearty laugh, which merely goes to show how little most people have determined it actually to be a problem…”

    Read it and think about it and tell me if you still think he is an idiot. It is brilliant, true, and has more applications than just trading.

    Michael

  13. Peter September 19, 2006 10:03 am

    Michael do you work with these people? The point is, they give advice that people pay for, a lot, and then you can expect something. Furthermore, they give EXACT entrypoints, if the Dow touches this and this high then you short. The market will have a historical decline, starting monday so short now, etc. etc. etc. And they have been wrong for more then 5 years now!!!!!!!!!! It’s not about everybody being wrong sometimes, these guys are almost always wrong and they lie a lot with their looking back. If you followed our advice you would have been on the right side of the market they say a lot, if you look in to these claims very precisely you can tell it is not true. Their attitude is like they are the best of the best traders but it is not true. Where do they get this attitude? You are the first one I hear so positive about Prechter, everybody else is very negative, probably because they lost money with his advice, like I also did. And for the last time, before you react, his service gives very PRECISE advice, now do this, now do that and it’s almost always wrong and if you kept a database you could check it.

  14. nestor September 19, 2006 11:26 am

    Michael, i don’t discredit the wave theory. I discredit PRECHTER. Prechter is an incompetent Elliottician. In 1984, Frost was sitting behind his desk, telling Prechter what to do for those 444% gains.

    Once poor Frost left the business, Prechter showed his true colours, and became a joke in the trading world. In 1987, he claims to have called the crash, … .that was FROST, not Prechter.

    From 1987, until 1998, Prechter was a BEAR, relentlessly calling for a massive depression, a collapse in civilization, and a return of the Dow to 500. In 1998, he turned into a BULL, telling his subscribers to go long.

    The man is a joke. If he was any good, he would trade for a living, not write a news letter. He writes a news letter, ‘casue he can’t make a living trading.

    ask him why he doens’t trade… and holds t-bills only. i’ll tell you why… he got massicred going short after ‘87, and relaized he’s got no clue what to do as a trader… and he’d rather write books and newsletters.

  15. James K September 19, 2006 11:50 am

    Wow, there is a lot of vitriol here. You people must have lost a lot of money! I’m a subscriber to the Elliott Wave Theorist and there are no specific entry or exit points, so I don’t know what you guys are talking about. It is all much more sociological and I find it quite fascinating. I agree with Michael - People should take in information from as many sources as possible, and use their best judgement to make up their own mind.

  16. nestor September 19, 2006 12:29 pm

    no. no vitriol here. just pointing out that prechter is an idiot. he is simply a bear, writing a bearish newsletter, who will one day be right. yes. the market one day will drop. and prechter will claim he predicted it. might be from Dow 15000.. or Dow 35000.

    for michael.. in the “Imminent Decline Dead Ahead” article, he makes the claim that the SP500 is a rising diagonal. i make the point that the waves do not overlap (on the other thread), and thus, is NOT a rising diagonal. it’s quite obvious, that michael doesn’t know his wave theory.

    same as prechter.

  17. Peter September 19, 2006 12:53 pm

    James I don´t know what of the subscriptions you have, there are a lot, but when I was a subscriber there where pdf´s with graphs of the Dow and whith advice what to do at what point. I trade and if I advice a stock or options I buy them myself too, that´s the only way you know my advice will be at least well thought over, that is true for anybody´s advice of course.

  18. Michael Nystrom September 19, 2006 2:12 pm

    Well all I can say is that I encourage everyone to believe what they want to believe and be happy about it.

    I subscribe to the Theorist & Financial Forecast and I like them. They come each month as .pdfs but I have never seen a specific “buy here” or “sell here” recommendation. They are much more general than that, much more philosophical, I would say, and they get me to think and see a different perspective.

    Maybe it has changed over the years, or maybe other people are looking at other publications, I don’t know. All anyone can do is speak from their own experience. I think we are all clear that nestor thinks Prechter is an idiot.

    As far as the ending diagonal goes - yes, I did learn my Elliott from Prechter’s book, published way back in the 70’s, so if you claim that he is wrong, by extension, then I would be wrong, too.

    This is what I learned an ending diagonal to be:

    Ending Diagonal

    You can compare that to the rise in the SPX from mid July:
    SPX Daily Chart

    I would call that an ending diagonal, complete with overlapping waves.

  19. nestor September 19, 2006 5:48 pm

    in a diagonal triangle, waves 1 & 4 overlap. your ‘diagoanl triangle’ does not.

    it’s that simple.

    ELLIOTT is correct on diagonal triangles. this just isn’t one.

  20. the stranger September 19, 2006 5:54 pm

    Holy crap, I may be the real idiot; I’m sure I know less about wave theory than anyone on this string. I’ve been observing waves from a distance, you guys are surfing the damn things.

    What I meant by the title was separating the good stuff from the BS. Well that’s getting a work-out. I was just trying to answer the question, what irritates you about Prechter? I had no ready reply. No problem I thought, I’ll just grab his book from the rack. But I rediscovered some really useful information. My answer became this topic.

    That particular book had more what to do with protecting your money and why, than it was about wave theory. It was great for me because it grabbed me and shook me up. I found better books since. As far as the big call, Prechter isn’t wrong on his timing; he’s famously wrong and repeatedly so. This is common knowledge, but that’s not what bugged me (but I’m not a trader). I figured if he accurately predicts a crash so large it destroys centuries of progress, he can be off a decade or two.

    No, his most recent and vacillating stances just didn’t stand on there own. I did find it amusing to rediscover sober comments on gold after recently reading that he keeps a “gold acquiring mechanism ready to deploy.” What is that anyway, a Goldman Sachs Robot?

    I subscribe to a few different services that feed me information. But I rarely bought or sold on their timing, if they offered it. And out of the large selection of stock some follow, I only have a few. I guess I just want access to their charts and perspective. When I win I credit my great sources, but it’s my responsibility when I lose.

    Michael, Prechter has some undeniably impressive accomplishments. And Nestor, you have some persuasive rebuttal – you don’t back down either, that’s for sure. Thanks to all, I got a lot out of this.

  21. AS September 20, 2006 10:20 am

    nestor, it seems to me that Waves 1 and 4 in Michael’s diagonal triangle do overlap: 1 topped at 1293.5-ish some time on 8/4 and 4 bottomed at 1290.8-ish some time on 9/11.

  22. nestor September 20, 2006 11:40 am

    yes. i understand. it’s a rising diagonal. that’s why the DOW is 100 points from new high territory, and the sp500 is blowing to the upside today. yes. i understand.

    gentlemen. if prechter tells you to go long, short the hell out of the market. if he tells you to go short.. mortgage your house and go long. he’s a moron. it’s as simple as that.

    new highs in the DOW ahead. SP and Nasdaq to continue higher. best of luck. the 4 year low has already occured in the US stock markets. it happened in June/July. the pattern from the early 2004 peak, until the low a few months ago, is a CONSOLIDATION.

  23. nestor September 20, 2006 1:08 pm

    in addition. what’s the moron going to say, when the DOW makes a new all time high? Since he’s counted the drop from Jan 2000 to Oct 2002 as an impulsive (I).. and the rally from the lows in 2002 until now, is a counter-trend (II)…

    What’s Prechter going to say, when wave 2 makes new all time highs??

    i’ll tell you what. nothing.

  24. Steve H September 20, 2006 1:35 pm

    I have made a bundle using the wave to identify true directional movement instead of noise.
    Thanks Mr. Prechter

  25. nestor September 20, 2006 2:08 pm

    i have no problems with the wave theory. prechter is an idiot.

  26. the stranger September 20, 2006 6:06 pm

    The individual measurements or points (day, week, etc) on a chart make the final wave. The increments utilized for each measure/point are (in this case) dollars. If I’m looking at a chart denominated in dollars, that have lost or gained value at an undetermined rate, doesn’t that corrupt the accuracy of my chart? And particularly at a time when a massive pumping of liquidity is taking place in a particular sector, wouldn’t that further degrade the accuracy of the resulting wave?

  27. Brian September 21, 2006 6:43 am

    Could we try this word picture: Prechter is like an engineer tending a boiler without a safety valve. He sees the pressure build to the danger zone and issues warnings, even as the pressure increases beyond the boiler’s theoretical limits.

    Or if you would prefer structual engineering to mechanical, think of the economy as a concrete beam reinforced with too much re-bar. When it finally breaks, it will be a catastrophic brittle failure rather than a more manageable ductile failure.

    The longer the economy holds together, the greater the fall will be, and the more relevant Prechter’s warnings will have been.

    As for me, I prefer to think of the economy as a banana creme pie.

  28. Peter September 21, 2006 7:34 am

    Some people miss the point totally. I also thought the Dow would crash for the last 5 years but I didn´t recommend people shorting it and taking $50 per month for this totally wrong advice or whatever he charges now.

    And then having an attitude like you cured cancer, it´s really disgusting.

    He´s not a politician, he has to perform, like we all have to in the private sector and especially in the stock market game, you win or loose, it’s very clear. He always blames CEO´s for being thieves and he´s correct but what is the man himself?????

  29. creativemind September 21, 2006 9:17 am

    prechter is very much like the “Oracle at Delphi” every comment is a hedge against another comment. in the end some form of his predictions will most likely be correct but as Keynes said (paraphrasing) in the long run we are all dead.

  30. the stranger September 21, 2006 7:12 pm

    Brian, the boiler analogy is excellent; dead-on. And I sure didn’t have that perspective before discovering these long wave economic cycles and then the current state of corruption. Credit where credit is due.

    Oddly enough, I know where Peter is coming from. I found some of my past comments.

    Continuing on the subject of Elliott Waves… I know Prechter and EWI have a complete line of products; what else is out there? What do you think is best? Books, DVDs… (Nestor?)

    Also, having my head inside charts for the last couple years, I’d like to make some charts of my own; any suggestions? Are inexpensive, nonprofessional software programs available? Where do you get the data to input? This seemed like a good place to ask the question.

  31. surfdude September 21, 2006 7:40 pm

    Prechter is an idiot? The only idiots that I know of are those who are up to their eyeballs in debt, and somehow think that they are wealthy. Just about everyone I know has taken out massive amounts of credit to buy a bigger or add on to their house, buy a BMY, a shore house, a boat, anything. They think things will just go up in price forever.
    I read conquer the crash. I recently sold my house for 4 times what I paid for it five years ago - renting and paying the rent and my bills with the interest that my T-Bills throw off. If Pretcher is an idiot, then I guess I am one too. But I have no debt, and plenty of cash. nestor keeps focusing on the manipulated, PPT upheld stock market. If you are so confident that everything Prechter predicts is a joke, go out on margin long the Dow. Buy a second home. Just take on as much debt as you can. Then lets talk a year from now. We will see who the idiot is.

  32. dan desoto September 23, 2006 8:14 pm

    The trouble with writing a letter on a regular basis is having to write it on a regular basis. I think there is a subtle, but enormous, psychological preassure to “find’ something. This might strongly contribute to the “are we there yet?” state of mind.

  33. Peter September 24, 2006 12:54 am

    Surfdude, I am very rational, I think the Dow will also crash or go nowhere and in terms of inflation will crash. This is not the point, the point is about the weekly recommendations to people who pay money to do certain things and these recommendations are extremely bad advice, costing a lot of people a lot of money.

    Timing is everything in trading and their timing is 100% wrong. They are full of themselves and want a place in history……

  34. nestor September 25, 2006 11:09 am

    “I know Prechter and EWI have a complete line of products; what else is out there? What do you think is best? Books, DVDs… (Nestor?)”

    Prechter is just a pathetic elliottician. Get a hold of Elliott’s original writings, and Frost’s work in the Bank Credit Analyst 1967? & 1970. Then apply the stuff for yourself. There’s also a good book by a British fellow, Beckman.

    Prechter purposely warps elliott wave theory to get himself a bearish count, since he thinks the world is going to end. I suggest, using prechter to week out all the stupid idiotic wave counts he comes up with as impossible, then figure out proper counts… for example, if prechter says that there is a rising diagonal in the DOW this past summer, then… it’s NOT a rising diagonal.. it’s something else.

  35. nestor September 25, 2006 11:16 am

    PS… so much for the great crash this month… markets keep going up and up. Man. Prechter is such a moron.

  36. the stranger September 25, 2006 6:43 pm

    Nestor, thanks for the tip, I found a couple used Beckman books I want to check out.

  37. Administrator October 1, 2006 7:04 am

    Thank you all for participating - I’m going to have to button up this thread to keep the spamming vandalizers at bay. Please check the Blog Home Page to see the current threads.

    Thank you!
    Michael Nystrom
    Editor
    http://www.bullnotbull.com

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