Bearish views of the stock market

Robert Prechter is known for developing a theory of social causality called socionomics, for developing a new theory of finance and for his long career applying and enhancing Ralph Nelson Elliott’s model of financial pricing called the Wave Principle.

(source: http://www.robertprechter.com/)

 

Using technical analysis or chart-reading and the study of social behaviour of stock market investors, Prechter believes that the bull market of the past eight months (since March 2009) will inevitably give way to a crash that will drag prices well below the low level seen in early March 2009. (quoted from Time, 30 November 2009 issue)

 

Weekend Today 21-22 November carried a story written by Loh Chee Kong titled “It’s not over”. The Financial Times associate editor and chief economics commentator Martin Wolf was asked for his assessment of the state of the global economy. He warned that the global economy “could be set for a big ugly fall if the cards are not played right”. If the fiscal policy and currency stability (especially the US dollar) were managed wrongly by nations, there will be another recession.

 

Essentially, the areas of concern centre on the following:

 

1. The de-leveraging of debt accumulation in the households and financial sector has still to run its course. It is a long process. This will reduce demand for goods and services.

 

2. Public debts of sovereign nations (especially the US) have to be reduced over time and this may cause slow economic growth for a stretch of time.

 

3. The currency rates between different countries if not managed properly may cause investors to take flight from one currency in favour for another. This can potentially be destabilising and cause some economies to collapse.

 

4. US will not be able to consume goods and services at level before this economic crisis. Exporting nations will not be able to sell more to US and adjusting of economic growth model for countries like China must take place first in order for economic growth to set in again.

 

5. Unemployment rates of nations must be tackled. Without employment, consumer demand for goods and services will languish for a longer period.

 

Written on 11/23/2009 10:28 AM

 

Copyright © 2009, the author known as LKT in Singapore.

 

The material presented is intended to be general and written in layman’s language as much as it is possible. The author shall not be liable for any direct or consequential loss arising from any use of material written. Please seek professional advice from your financial advisor or financial institutions on material written covering financial matters.

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