up to date russell report

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    December 26, 2002 -- This report is rather disjointed, but my mind has been jumping from one thought to another, and that's the way this site reads.

    Following are the amounts of oil in million of barrels that the US imports each day under "normal" conditions (of course, the Venezuelan situation is not normal).

    Canada 2.3 million barrels.

    Persian gulf nations 5.0 million barrels a day

    Mexico 1.9 million barrels a day.

    Venezuela 3.4 million barrels a day

    And all this oil is paid for in dollars. And I ask myself - how much longer will these nations continue to sell their oil to us for our fiat dollars, dollars that are created by the Fed at NO COST to the US? Just from the standpoint of logic, this cannot go on. Nations will not continue to sell products of intrinsic value for paper that has no intrinsic value. It's against logic, it's against intelligence, it's against truth.

    This "mystery," I believe, is one of the factors behind this bear market. The dollar is now in a pronounced downtrend. The US has been living beyond its means for decades How does the US handle this? We print ourselves through it. This incredible "racket" is unsustainable. The trouble is now beginning to surface. It's unwinding can be seen in the international price of the dollar.

    Remember, with no gold backing there exists today no definition for a dollar. The dollar is now simply a US "invention." The dollar's "price" can only be gauged by comparing it to the "price" of other currencies.

    So what happens if the dollar continues to decline? As some point people are going to "get it." They're going to start asking questions. They're going to begin to educate themselves about what a falling paper currency means. When that happens, I believe there will be a rising trend to own real money, and by real money I mean gold.

    On another subject, I am looking at a WSJ article that probably escaped most subscribers' gaze. The heading reads, "China Resists Calls to let Yuan Float In Strong Economy." What this means is that despite pressure from other nations, chiefly Japan, to revalue the Chinese currency upward, the Chinese authorities are perfectly happy to keep the yuan at a fixed rate of 8.28 to the dollar. And now the dollar is declining.

    Thus China is intent on keeping it's huge advantage over other nations based on its cheap labor and it's need to keep millions of Chinese employed (remember, unemployment is one of China's biggest problems).

    Let's turn to another subject, price/earnings ratio for the widely-followed S&P 500. According to the Dow Jones newswire, the P/E ratio for the S&P as of Tuesday was 36.15. I assume this is based on operating earnings, but I could be wrong. What I do know is that 36.15 is a sky-high figure. For stocks selling at such a high multiple in the face of a primary bear market is ridiculous. But what it shows, I believe, is that we're still early in this bear market.

    By the way, according to Dow Jones, the lowest P/E was recorded in the second quarter of 1949, when the P/E for the S&P was 5.9.

    Turning to the stock market, I believe that the "conventional wisdom" is that we are looking at a "trading range" market. If you listen to the "experts" on CNBC that seems to be the "word." It's TRADING RANGE.
    I think this is a reflection of what's happened over the past few years. The market's actually been declining for three years, and as usual, the experts believe that this will probably continue. But they dare not predict a fourth year of actual decline, so that word is "trading range," and therefore the word is that this is a "stock-pickers" market.

    What's the Russell guess? I'm guessing that 2003 will be a fourth year down for the stock market. I base this on the still high price/earnings ratio for both the Dow and the S&P. Remember, in a primary bear market stocks and economic conditions deteriorate through time.

    Therefore, my guess is that stocks will be doing some catching up on the downside during 2003 and the year 2003 will be a fourth of decline.

    As for fundamental, I think 2003 will see consumer cutting back on the their spending while at the same time they will try to boost their savings. I'm thinking that the poor Christmas buying that we're seeing is a preview of consumers' "pulling in their horns" during 2003.

    Finally, as I see it, housing is the one bright spot in the US economic picture. The multi-billion dollar financing that we've seen in 2000, 2001 and 2002 will simmer down in 2003. After all, rates are extremely low now and they're are not going to go substantially lower. On this basis, my guess is that refinancing will decline. But mortgages refinancing has been one of the mainstays of the recent economy.

    All the above shows why the Fed is so panic-stricken at the thought of deflation, and why they've announced that they will use any means possible to stave off deflation. This, of course, is bullish for gold.

    As for gold, it's now climbing in direct proportion to the fall of the dollar. The Gold/Dollar Index ratio which I post every day shows the relationship and as I write the ratio is at a new high of 338.70.

    Subscribers have been buying gold and gold shares as insurance against the decline of the dollar (forget gold production figures, the trend of buying in gold coins, etc.). In reality, we really shouldn't rejoice as gold moves higher. As gold advances, it's really saying that trust in what's left of the "almighty dollar" is fading, and that everything you and I own, almost all of it denominated in dollars, is worth less in the eyes of the rest of the world.

    Have you noticed that the gold share have been climbing almost "reluctantly," forced higher by the rising price of gold. I believe that buyers of gold are more sophisticated, more safety-minded and probably more powerful than buyers of gold shares. For instance, central banks of Asia could be buying gold, but they are not going to be buying gold shares.

    No, gold-bugs are the current buyers of gold shares, those of us who understand gold or those of us who went through the 1970's and remember that "There's no fever like gold fever." I don't think the general retail public is buying gold shares and I don't think the funds are buying gold shares -- YET. This is why the gold shares are rising so carefully, really so reluctantly. This will change once the true picture is seen, and I will try to describe one aspect of the true picture (as I see it) below.

    I've been thinking in terms of the US and Rome. Rome was undisputed master of the ancient world. It's armies ruled everywhere. The Roman legions were unbeatable. The Roman military was feared far and wide. But Rome became degenerate, sinking in decades of wild orgies and spectacles held in the Colosseum. In the meantime, the barbarians increased their attacks on Rome, until finally the empire fell -- over-extended, over-taxed and weakened by years of dissipation and inflation.

    The US is now beset by angry enemy forces from the outside world. We're now engaged in a gathering religious war. There are 1.3 billion Muslims in the world, and I'm not sure how many dislike us and I'm not sure how many actively hate us and I'm not sure how many are willing to take up arms against us. But what I do believe is that there's no conclusion to this war. I don't, for the life of me, see how this religious war can or will end.

    I fought in World War II, but in that War the outcome was clear. We would either defeat Germany and Japan or Germany and Japan would defeat us. We won the War and the end was obvious. The US emerged as the world's most powerful nation -- the undisputed leader of the world.

    I don't see how we can win the current "religious" war. I can see how the war can come to some kind of stalemate. I can see how with our superior technical and military strength we can hold off our enemies. That's going to be expensive. And to do that we will have to sacrifice. We will have to become Spartan-strong. We will have to forego many of our current pleasures. The US is fast becoming a nation under siege.

    That situation is not conducive to prosperity. It's conducive to a siege mentality, which is what I believe we are heading for. This should go a long way towards explaining one aspect of what this great bear market is all about.

    I believe the Fed's current frantic efforts to ensure prosperity and the Fed's current efforts to keep consumers buying and leveraging their debts are counter-productive, even dangerous. I believe we should take the pain of a contracting economy instead of making it worse. Ultimately, we'll have to take the pain, and I'd prefer to take it now.

    I read in today's USA Today that 79% of economists believe that Greenspan will say on past 2003. I read that 79% of economists believe that Greenspan's performance since joining the Fed in 1987 was good. I see that only 40% of economists think Greenspan's performance since 1998 was good.

    My own feeling is that Greenspan has been a menace to the economic health and future of the US. He's been the greatest inflationist in US history. He's succeeded in running the bull market far beyond where it should have gone. Greenspan has succeeded in burying the US in debt. Greenspan, in my opinion, is a little ego-maniac who believes he can manipulate the forces of nature, and I'm talking about human nature.

    In short, the US is now Rome, and the "barbarians" are pounding at our gates. Our job now is to be as strong as possible. Greenspan has chosen the path of inflation as our defense. As I see it, this is a ticket to disaster. The path of this bear market will be my witness.

    TODAY'S MARKET ACTION -- No clear direction today, but no rally either, and only three more sessions with Dec. 31 being a half-day. My PTI was unchanged at 5242 with the moving average at 5244. PTI just 2 points to the bear side.

    The Dow was down 15.50 to 8432.61. The 200-day MA of the Dow is at a new bear market low of 9030. The 50-day MA of the Dow is at 8542 and close to rolling over to the downside. If the 50-day MA is declining and the Dow is below its 50-day MA the Dow will be on a "sell." We're not quite there yet.

    Feb. crude up .52 to 32.49. Gasoline heading higher.

    Transports up 8.45 to 2316.44.

    Utilities were up 2.81 to 215.69 (they like those dividends).

    There were 1824 advances and 1386 declines. Upside volume was 337 million and downside volume was 318 million. slightly more up volume than down.

    There were 62 new highs and 17 new lows. My High/Low Index was up 45 to minus 8076.

    Lowest volume of the year for a full-day session today -- volume only 682 million.

    S&P was down 2.81 to 889.66

    Nasdaq down 4.59 to 1367.88 on 799 million shares.

    This is the clincher -- my Big Money Breadth Index was down 8 to a new bear market low of 690. I take this as very bearish, since this is Big Money leaving the market.

    March Dollar Index was down .40 to a new low of 103.28. March euro up .59 to a new high of 103.29. March yen up .15 to 83.58 and that's not going to help their exports.

    March Nikkie was up 130 to 8620.

    Bonds slightly higher; the March 30 year T-bond up 5 ticks to 111.23 to yield 4.86%. March 10 year T-note up 4 ticks to 114.07 to yield 3.91%.

    Feb. gold creeping up to another new high -- up 2.10 to 349.40. March silver up 4 to 470. Jan. platinum up 2.70 to 587.70. Mach palladium down 1.00 to 234.00.

    Gold/Dollar Index ratio up 3.80 to a new high of 338.60.

    HUI up a big 7.13 to 149.49. XAU up 3.22 to 79.22.

    Gold advance-decline line up 21 to a new high of 1169.

    AEM up .74, AU up 1.34, CBJ up .08, CDE up .13, GFI up .63, GG up .76, GLG up .56, GSS up .22, HL up .35, KGC up .21, MDG up 1.09, NEM up 1.12, PDG up .55, RGLD up 1.20 to 25.40, SIL up .63. Quite a day!

    STOCKS -- My Most Active Stock Index was down 7 to 189 and looking very toppy.

    The 15 most active stocks on the NYSE were -- PFE down 1.22, GE down .05, C down .55, AOL down .25, HD down .10, WMT down .01, XOM down .06, TYC down .22, MOT up .09, EMC up .10, AWE down .17, HPQ down .19, MCD up .04, JPM up .23, IBM down 1.29.

    Few more -- GM up .30, FNM up .11, AIG down 1.03, MER up .11, AEP up .67, TE up .19, KSE up .43, ED down .05, HD up .07, EK up .28, JNJ down 1.04, KSS Up .35, COST up .42, WMT up .01, KBH up .32, LEN up .15, MSFT down .42, CSCO down .25, INTC down .12.

    VIX rose 1.07 to 31.08. Option-writers still quite nervous, and you can see why.

    McClellan Oscillator still negative with a minus 7 today.

    CONCLUSION -- Not much of a showing for late in December. We can now start thinking about January. If January turns out to be a down months, I think it will be saying something about the whole year. But why jump the gun, let's wait and see what Mr. Market brings us.

    You know, part (some say most) of the art of reading the market is knowing what indices to trust at any given time and what indices to throw out. I've been fastened on to my Big Money Breadth Index, and this Index has been sinking to new bear market lows. It's hard for me to conceive of the breadth of the ten biggest-cap stocks in the S&P sinking to new lows and this being anything but bearish for the market. But I guess bulls can retort that "The market can do anything."

    By the same token, I guess that the gold stocks can do anything, but I keep buying 'em, and so far they've been doing well. Remember, the gold stocks are very leveraged when gold rises in price, because as gold rises it doesn't cost the mines any more to produce the gold. Thus the prices the mines receive for their gold increases but at no increased cost in production for the mines.

    I don't think the retail public or the mutual funds understand gold yet, and therefore they are not "into" the gold shares yet. And remember, the capitalization of a Johnson & Johnson could buy all the gold mines in the world and still have money left over.

    I'll end this site now, but bank on it, I'll be back tomorrow.

    Your faithful servant,

    Russell


    Interesting e-mail received this morning.

    Dear Mr. Russell,

    The following short piece is culled from Yale Hirsch's 2003 Stock Traders
    Almanac and is based on 52 years of stats.

    On average December is the strongest month of the litter of 12 (+1.8%)
    followed by November (+1.6%) which is followed by January (+1.5%). In brief
    we are in the midst of the strongest 3 months of the year. So far this year
    we are up 0.6% since October 31st. December's probability of being up is 75%
    or 3 out of 4. There is little correlation between what December does vs.
    what the next year does. That is the correlation is just .15. There is a
    strong correlation between what January does and the year as a whole .62.

    The best December was 1991 with a gain of 9.5%. The worst December was 1968
    @ - 4.2% And I thought you'd never ask "Where are we now in the current
    December?" As of the December 24th we are - 5.2%, even worse than 1968.

    Oh Santa, where are you when we need you?

    Since I get one free guess here goes: The Dow will trade between a low of
    6,151 (1/2 of the '74 to '00 bull market) and a high of 9000 and close @
    6,760.

    Happy Boxing Cay!


    E. T. (Milw.)


    Just in case you missed it, below is a story about my old friend, Bob Prechter, who is the recognized expert on Elliott and the practice of Elliott Wave analysis.


    > Market Seer Prechter Called 1987 Crash, Says Dow to Fall to 800
    > 2002-12-24 00:01 (New York)
    >
    > Market Seer Prechter Called 1987 Crash, Says Dow to Fall to 800
    >
    > (Published in Bloomberg Markets magazine.)
    >
    > Gainesville, Georgia, Dec. 24 (Bloomberg) -- Forget about the
    > Dow Jones Industrial Average returning to 11,000. Try Depression-
    > era levels below 1,000.
    > And don't flock to bonds for safety: Municipalities will
    > default and corporate bonds will be wracked by downgrades. Even
    > the U.S. government's credit status may sink low enough to make
    > Treasury bills shaky.
    > If you believe in such gloomy prophecies, you probably know
    > about Robert Prechter Jr. He's a former rock-and-roll drummer
    > turned stock market technical analyst who first gained fame in the
    > 1980s.
    > Prechter is now undergoing a renaissance. His book ``Conquer
    > the Crash: You Can Survive and Prosper in a Deflationary
    > Depression'' (John Wiley & Sons, 2002), which warns of a looming
    > economic cataclysm, reached the top of Amazon.com's financial
    > bestseller list in 2002. His two main monthly newsletters have
    > increased their subscriber base by more than 50 percent.
    > Even some investors who don't buy into Prechter's apocalyptic
    > views say his analysis of the markets makes sense.
    > ``I like his macro view, and his short-term ideas give me
    > trading opportunities that are making me money,'' says Peter
    > Hegel, a private investor and longtime Prechter client who ran Van
    > Kampen American Capital Inc.'s $20 billion fixed-income investment
    > business until retiring in May 2000.
    > Prechter, now 53, peaked in popularity in the fall of 1987.
    > On Oct. 5 of that year, he cautioned investors that stocks would
    > crash.
    > Exactly two weeks later, Black Monday, the Dow plummeted 22.6
    > percent -- and Prechter's reputation was solidified.
    >
    > `Everyone Stopped'
    >
    > ``Like those old E.F. Hutton commercials: Everyone stopped
    > when he spoke,'' says David Gannon, an environmental consultant
    > who traded municipal bonds in the 1980s for what was then Shearson
    > Lehman Brothers. ``Bob Prechter could and did move markets.''
    > Prechter's standing suffered in the 1990s because he missed
    > the almost decade-long bull market. He spent much of that decade
    > building up his firm, Elliott Wave International, outside the
    > spotlight.
    > Today, Prechter's company employs 70 people -- mostly market
    > analysts and technicians who provide about 700 investors and firms
    > with frequent, sometimes hourly, commentary on worldwide stock and
    > bond markets, currencies, commodities and energy futures.
    > The cost of all of this information: up to $19,200 a year.
    > Two main newsletters, Elliott Wave Theorist and Elliott Wave
    > Financial Forecast, each have 6,000 subscribers. That's up from
    > 4,000 subscribers each during the lean 1990s.
    > Prechter is an advocate of the wave principle, a
    > mathematically complex theory developed by accountant Ralph Nelson
    > Elliott during the Great Depression.
    >
    > Pernicious Anemia
    >
    > A specialist in corporate financial rescue, Elliott was
    > bedridden for years in the 1930s with pernicious anemia. He spent
    > his time studying stock market charts and gradually became
    > convinced that there are identifiable, repetitive patterns within
    > market indexes.
    > Recognizing that it's not enough to point out that markets
    > move in cycles, Elliott set out to describe the swings of ups and
    > downs. He called them waves and concluded that they follow a
    > predictable, five-stage structure of three steps forward, two
    > steps back.
    > In addition, the waves share a variety of features: Wave two
    > never falls below the starting level of wave one; wave three is
    > never the shortest; waves one and five tend to be of equal length;
    > and wave sizes are often related by a series of numbers known as
    > the Fibonacci sequence, wherein each number is based on the sum of
    > the two previous ones.
    >
    > Gigantic Stock Moves
    >
    > Four decades later, as a stock market technician at Merrill
    > Lynch & Co., Prechter applied those principles to gigantic stock
    > moves that spanned generations.
    > Prechter was equipped with tools that Elliott had lacked,
    > such as computers, and he dug up historical stock data dating back
    > to the South Sea Bubble of 1720. That's when stock prices
    > collapsed in Britain, throwing the world into a 64-year bear
    > market.
    > Historians say the events were brought on by investors' mania
    > over the riches promised by Spain's colonies in South America.
    > Prechter, like Elliott, says the cycles within financial
    > markets are driven by swings in human emotion: If the majority of
    > investors are optimistic, prices rise; if not, they fall.
    > In an age when many technical analysts and investors use
    > elaborate computer models of economics and applied mathematics to
    > forecast the market, Prechter uses other gauges -- like watching
    > television and listening to popular music -- that he says reflect
    > the mass psychology of our time and provide evidence of when a
    > wave will change direction.
    >
    > Led Zeppelin
    >
    > Prechter believes that reports of the reuniting of Led
    > Zeppelin, the British rock band that was popular during the bear
    > market of the 1970s, are as important an indicator of looming
    > financial doom as the fact that today's 2.25 percent stock market
    > dividend yields are near historic lows.
    > Prechter says his interpretation of current societal trends
    > and sentiment forces him to conclude that we are approaching
    > something just short of Armageddon.
    > ``We've entered a bear market that's so big, we haven't had
    > anything like it since the 1700s, and that was a 64-year
    > corrective process,'' says Prechter, who has wavy hair parted in
    > the middle and kneels on an ergonomic, backless chair. ``This is a
    > great opportunity to get out. By the time this whole thing is
    > over, you'll be able to buy your favorite neighborhood mansion
    > from the bank at 10 cents on the dollar.''
    > Prechter also says a major world war may be looming.
    >
    > `Warlike Activity'
    >
    > ``It's disturbing that we have already been the victim of and
    > are now posing to be involved in warlike activity,'' he says.
    > ``It's pretty rare that it happens this early in a trend, and I
    > suggest that we will probably have a substantial war.''
    > Prechter says he realizes his views are extreme. ``I'm once
    > again calling for events that few expect,'' he says.
    > Still, the wave principle has successfully forecast some big
    > market shifts. Elliott announced in the middle of World War II
    > that a multidecade bull market was about to begin. And it did: the
    > Dow rose more than eightfold from 1942 to 1966.
    > In September 1982, Prechter used his principles to announce
    > that a superbull market had begun. The Dow more than tripled to
    > 2,736 from 893 during the next five years.
    > Prechter's recent U.S. stock market forecasts have been on
    > the mark: He recognized a buying opportunity immediately after
    > Sept. 11, 2001, and he urged investors to sell as the Dow reached
    > its 2002 peak last March.
    >
    > $7 Trillion in Value
    >
    > The wave principle isn't foolproof. Prechter's 1995 book ``At
    > the Crest of the Tidal Wave: A Forecast for the Great Bear
    > Market'' (New Classics Library, 1995) predicted a slump early --
    > way early. Published in 1995, the book was off by six years and $7
    > trillion in stock market value.
    > Michael Thorson, a former trader at the Soros Fund, calls
    > Prechter a ``quack.''
    > ``His advice tidily sums to the oh-so-helpful, `Be nimble
    > enough to see major trends coming, and make changes
    > accordingly,''' Thorson says. ``This is the kind of advice my
    > mother used to tell me before I ventured into the haunted house.''
    > Robert Shiller, the Yale University economist whose book
    > ``Irrational Exuberance'' (Princeton University Press, 2000)
    > warned that U.S. stocks were overvalued, says that Prechter is
    > making an extremist case.
    > ``I'm making a much more modest prediction about overpricing
    > in the market,'' says Shiller. ``I anticipate declines, perhaps
    > steep declines, but I don't see a long deflationary period ahead
    > of us -- and certainly not a depression.''
    >
    > Followers
    >
    > At the same time, Prechter has his fans. ``His work is as
    > relevant now as it ever was,'' says Henry Van der Eb, who runs the
    > Gabelli Mathers Fund. ``I follow a variety of disciplines, and I
    > believe just like there are patterns that repeat themselves in
    > nature -- like the nautilus shell -- that there are distinct
    > patterns of waves that influence behavior and markets. Elliott
    > wave has validity, and Prechter is its preeminent practitioner.''
    > Van der Eb's $82 million fund has been all in cash for years.
    > Hegel, the retired Van Kampen fixed-income chief, has
    > subscribed to various Prechter services since the 1980s and says
    > he's still profiting from the advice.
    > ``Prechter's folks have been very good for me of late,''
    > Hegel says. ``His analysts are disciplined and provide good
    > trading opportunities.''
    > Hegel, who spends $400 a month for Elliott Wave's stock
    > market outlook, points to a series of calls by Prechter disciple
    > Robert Kelley, 36, a former technical analyst at J.P. Morgan Chase
    > & Co. Kelley monitors U.S. markets and precious metals for Elliott
    > Wave from his Miami Beach home office.
    >
    > Wave Analysis
    >
    > Bearish for most of September, Kelley reversed course on Oct.
    > 10 after completing a wave analysis of 15 years' worth of charts
    > on the volatility index of the Chicago Board Options Exchange, the
    > largest U.S. market for trading put and call options.
    > ``He switched gears as the market was changing,'' Hegel says
    > of Kelley. ``Most analysts stick with opinions when things are
    > going well. This guy changed on a dime. It made for a very
    > tradable perspective on the market in real time.''
    > Kelley says there are lots of Wall Street technicians who use
    > the wave principle: ``It's the single best tool for technical
    > analysis because it provides a framework of expectations and tells
    > you when you're wrong.''
    > Prechter didn't seem destined for a career as a renowned
    > financial forecaster. Born in New York and raised in Atlanta, he
    > majored in psychology at Yale University.
    >
    > Playing Drums
    >
    > After college, he spent four years playing drums in a rock
    > band called the News, a name later taken by Huey Lewis. ``He can
    > have it,'' Prechter says. ``It's not a good name for a band.''
    > While touring with the band, Prechter read stock market
    > newsletters his father mailed to him. He says the one he liked
    > best was Richard Russell's Dow Theory Letter because it had
    > occasional input from stock market commentator A.J. Frost, who
    > admired Elliott's wave theory.
    > ``I used to carry stock charts and newsletters around with me
    > when we played,'' Prechter says.
    > In 1975, Prechter applied for a job as a technical market
    > specialist at Merrill Lynch. Seated before the head of research,
    > he rattled off three reasons why he, a rock drummer, should be
    > chosen from among 30 other candidates for the job: ``I have no
    > experience, so I can learn things your way; I'm a fast learner;
    > and I fronted in a rock band for three years, so I'm not afraid of
    > crowds if you need me to go on the road to speak.''
    > Prechter says he's still not sure why he got the job. He went
    > on to do a 3 1/2-year stint at Merrill.
    >
    > Elliott's Theories
    >
    > Once he became interested in Elliott's theories, he located
    > in the New York Public Library stacks the only available copies of
    > his idol's original works and began publishing wave studies on the
    > stock market.
    > In 1978, with Frost, Prechter co-wrote ``The Elliott Wave
    > Principle: Key to Market Behavior'' (New Classics Library). Over
    > the next two years, he quit Merrill and started Elliott Wave
    > Theorist, a monthly newsletter devoted to analysis of U.S.
    > financial markets.
    > Prechter's business prospered in the 1980s with his prescient
    > calls. It then faltered when he stayed bearish during the 1990s.
    > ``I would have loved to have caught the rally, but I'd rather
    > not run with the lemmings because it means taking a risk,'' he
    > says. ``There's virtually no risk right now to be short. If I err
    > anywhere, it's on the side of caution because most people aren't
    > suited for speculation.''
    >
    > Antidote to Analysts
    >
    > Prechter says he wants to be an antidote to securities
    > analysts, whose work he dismisses as worthless.
    > ``It's difficult to impossible to talk to people in companies
    > and look at balance sheets and make decisions about where a stock
    > is going,'' Prechter says. ``A company and its stock are very
    > different things.''
    > Most money managers, he says, are either oblivious and always
    > bullish or immoral, merely giving the public what it wants. ``To
    > most investment advisers, it's only a question of, `Is it this
    > group of stocks or that group, this sector or that sector,
    > European or U.S. stocks?''' he says.
    > Prechter works in Gainesville, Georgia, a mountain town about
    > an hour's drive north of Atlanta. His company occupies the third
    > and fourth floors of the Hunt Building, which at six stories is
    > the tallest building in town.
    > Most employees spend their days in their small offices,
    > blinds drawn, watching TV for the latest market news and charting
    > trends on their computers. Memos are banned, and there are no
    > staff meetings.
    >
    > `Total Autonomy'
    >
    > ``I pretty much have total autonomy,'' says Kelley. ``I
    > rarely speak with Bob.''
    > In early 2002, after U.S. stocks had rebounded sharply from
    > their post-Sept. 11, 2001, lows, Prechter says he believed the
    > market was at a critical juncture and was poised to tumble. He
    > hunkered down and wrote ``Conquer the Crash.''
    > ``I couldn't resist the opportunity,'' Prechter says.
    > ``During the post-Sept. 11 rally, I said `Man, this is a real
    > chance to get a book out that can help people.'''
    > With the book out of the way, Prechter and a small group of
    > analysts are gathering data on social and cultural trends in an
    > attempt to show that the wave principle, which he applies for
    > market forecasting, can also help explain various social actions.
    > People like to believe in cause and effect, he says, because
    > they know it: Kick a stone, and it moves.
    >
    > `Social Moods'
    >
    > ``As a result, most people think that economics, politics and
    > war and peace affect people's moods, but it's the other way
    > around,'' Prechter says. ``Social moods shape events.''
    > For example, he says, the prevailing wisdom is that the Sept.
    > 11 terrorist strikes triggered a stock market decline. That's
    > wrong, he says: The market's decline set the stage for the
    > attacks.
    > ``The market was going down for a year and a half, and the
    > anger and fear culminated into sloppiness on the part of
    > authorities who were supposed to identify these threats,'' he
    > says.
    > Similarly, Prechter says, Enron Corp. didn't collapse because
    > reports of scandals unsettled investors. Rather, the psychological
    > climate of the bull market encouraged companies to mislead
    > investors. In other words, it was the investors who brought on the
    > Enron scandal -- not the other way around.
    > Prechter also charts the popularity of a certain financial
    > guru: himself. In late 1987, when the number of his newsletter
    > subscribers exceeded 20,000, Prechter says, his own personal chart
    > clearly showed him at the end of the fifth wave -- a sure sign
    > that his popularity would crest.
    >
    > `My Fall in Fame'
    >
    > ``It was predictable, my fall in fame,'' he says. ``In fact,
    > I did predict it. Popularity waxes and wanes, like everything in
    > nature.''
    > Prechter says that though he probably won't regain the
    > popularity he once had, he's positioned his company to succeed in
    > the upcoming market crash.
    > ``I wouldn't be surprised if we are the only prosperous firm
    > during the bear market,'' he says. ``Brokerages won't be. Money
    > managers won't be. Maybe some really good bearish hedge funds, but
    > I bet we're tops.''
    > Prechter may be wrong about that -- like he was during the
    > 1990s, when he forecast that stocks would tumble. Then again,
    > maybe he's right. H


 
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