Robert Prechter’s Scary Forecast

By on July 4, 2010

Jeff Sommer of the N. Y. Times has written an article on the prognostications of Robert Prechter, who sees a prolonged bear market in the offing.

His advice: individual investors should move completely out of the market and hold cash and cash equivalents, like Treasury bills, for years to come. (For traders with a fair amount of skill and willingness to embrace risk, he suggests other alternatives, like shorting the market or making bets on volatility.) But ultimately, “the decline will lead to one of the best investment opportunities ever,” he said.

Buy-and-hold stock investors will be devastated in a crash much worse than the declines of 2008 and early 2009 or the worst years of the Great Depression or the Panic of 1873, he predicted.

For a rough parallel, he said, go all the way back to England and the collapse of the South Sea Bubble in 1720, a crash that deterred people “from buying stocks for 100 years,” he said. This time, he said, “If I’m right, it will be such a shock that people will be telling their grandkids many years from now, ‘Don’t touch stocks.’ ”

The Dow, which now stands at 9,686.48, is likely to fall well below 1,000 over perhaps five or six years as a grand market cycle comes to an end, he said. That unraveling, combined with a depression and deflation, will make anyone holding cash “extremely grateful for their prudence.”

Sommer also comments on the recent advice of Ralph Acampora, another bearish forecaster, before penning a brief biography of Prechter, head of Elliott Wave International, a forecasting and publishing firm.

SMA Comment: It would be more convenient for Prechter and Acampora if they had proven themselves over the long term by beating the market, but alas they are all too human in that regard. Their forecasts are therefore subject to radical revision.

Source: N. Y. Times
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