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Shahla
Money Managing Guru
Joined: 13 Nov 2004
Posts: 3324
Cash Points ££ 126163.28
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 Posted: Thu Feb 01, 2007 6:27 am Post subject: Elliott Wave Analysis of the 1929 Crash Compared with China |
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When assets are priced with record levels of optimism, reality will disappoint. As Dr. Marc Faber said recently "the art dealers are bullish on art, the commodity traders bullish on commodities, the real estate guys bullish on real estate, the stock traders bullish on stocks, everybody has something to buy." Therefore the wise contrarian strategy is interest-bearing cash. Over the next few years, most assets will fall in value as risk returns to the market and leverage is unwound. In the future, credit will be extended with greater caution.
"A bank is a place where they lend you an umbrella in fair weather and ask for it back when it begins to rain." - Robert Frost
Debt
As billionaire currency trader George Soros said about financial cycles: "the only surprise is that we are always surprised." For instance, after Reconstruction, signs of railroad stock speculation appeared in the U.S. The popular focus of the day was on easy money, betting, speculation, and credit. In 1873, the speculative bubbles burst and the economy fell into a depression. The print below is from that time period:
The way to grow poor. The way to grow rich.
Lithograph by Currier & Ives, 1875.
from Pictorial Americana
Cash Rich and Debt Free China
An economy reliant on debt and speculation is not sustainable. This is as true now, as it was back then. It does not bode well for the United States. Parts of Asia however, especially China, are cash rich and debt free. Their middle class is just beginning to emerge. Just as the crash of 1929 marked the transition of the U.S. economy from the 'factory' to the 'finance' phase, so this year's crash will mark China's economic progression.
Looking at the chart above provided by Elliot Wave International, the 'idealized' long term wave pattern suggests a major sell-off for the United States. In our last article , we discussed many reasons why investors should be selling most assets at this time. The U.S. stock market will struggle sideways for many years under the burden of debt, the deleveraging of its economy, and the weakening of the U.S. dollar. China and other Asian countries, currently in the 'factory' phase (similar to the U.S. in the 1920's), will also undergo a significant correction over the next few years. However, as the Chinese begin to develop consumerism, especially when fueled with debt ('finance' phase), their markets will significantly outperform the U.S.
Full article - http://www.marketoracle.co.uk/Article290.html |
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