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Market Oracle FREE Newsletter

Nadeem Walayat Financial Markets Analysiis and Trend Forecasts

How to Prepare for the Coming Crash and Preserve Your Wealth

Stock-Markets / Financial Crash Oct 14, 2009 - 01:43 PM GMT

By: EWI

Stock-Markets Best Financial Markets Analysis ArticleNew Edition of Conquer the Crash to Be Released in Late October

Bob Prechter first released Conquer the Crash: You Can Survive and Prosper in a Deflationary Depression during a stock-market high in 2002, and it quickly became a New York Times–bestseller. Now he has updated the book with 188 new pages for a second edition, and it looks like it, too, will be published near a stock-market high. John Wiley & Sons plans to publish the new edition in late October. Visit Elliott Wave International for information on how to pre-order the new edition from major online retailers. 


As was widely reported in the dark days of late February and early March 2009, Prechter called for the start of the biggest stock market rally since the 2007 high. Since then, the S&P has soared more than 60 percent in just six months to reach his target zone of 1000-1100. This is one reason why he decided to release his second edition now. The first edition, which was published in early 2002, was "on the mark" with regard to our current economic environment -- so much so that it's uncanny. Prechter’s message has been good for investors who kept their money safe and for speculators who profited from declines. And he still expects a great buying opportunity ahead for those who can keep their money safe until it arrives. Here is a short list of some of the accurate predictions he made in 2002 that have come to fruition:

Credit Deflation

"Usually the culprit behind [simultaneous stock and real estate] declines is a credit deflation. If there were ever a time we were poised for such a decline, it is now." Chapter 16

Bailout Schemes

“If [governments] leap unwisely into bailout schemes, they will risk damaging the integrity of their own debt, triggering a fall in its price. Either way … deflation will put the brakes on their actions.” Chapter 32

Banking and Insurance Stocks

“We will see stocks going down 90 percent and more … [and] bank and insurance company failures….” Chapter 14

Collateralized Securities

"Banks and mortgage companies … have issued $6 trillion worth of [securitized loans]….  In a major economic downturn, this credit structure will implode." Chapter 19

Derivatives

“Leveraged derivatives pose one of the greatest risks to banks….” Chapter 19

Mortgage-Backed Securities

"Major financial institutions actually invest in huge packages of … mortgages, an investment that they and their clients (which may include you) will surely regret…. Chapter 16

Fannie Mae and Freddie Mac

“Investors in these companies’ stocks and bonds will be just as surprised when [Fannie and Freddie's] stock prices and bond ratings collapse.” Chapter 25

Banks

“Banks are not just lent to the hilt, they’re past it. In a fearful market, liquidity even on these so called ‘securities’ [corporate, municipal, and mortgage-backed bonds] will dry up.”… One expert advises, ‘The larger, more diversified banks at this point are the safer place to be.' That assertion will surely be severely tested….” Chapter 19

Insurance Companies “The values of insurance company holdings, from stocks to bonds to real estate (and probably including junk bonds as well), will be falling precipitously…. As the values of most investments fall, the value of insurance companies’ portfolios will fall…. When insurance companies implode, they file for bankruptcy…." Chapters 15, 24

Real Estate

"What screams 'bubble' – giant, historic bubble – in real estate today is the system-wide extension of massive amounts of credit to finance property purchases…. [People] have been taking out home equity loans so they can buy stocks and TVs and cars…. This widespread practice is brewing a terrible disaster.” Chapter 16

Rating Services

“Most rating services will not see it coming.” Chapter 25

Political Leaders “A leader does not control his country’s economy, but the economy mightily controls his image.” Chapter 27

Short-Selling Ban

“In a bear market, bullish investors always come to believe that short sellers are 'driving the market down'…. Sometimes authorities outlaw short selling. In doing so, they remove the one class of investors that must buy.” Chapter 20

Psychological Change “When the social mood trend changes from optimism to pessimism, creditors, debtors, producers and consumers change their primary orientation from expansion to conservation....” Chapter 9

Confidence

“Confidence has probably reached its limit. A multi-decade deceleration in the U.S. economy … will soon stress debtors’ ability to pay…. Total credit will contract, so bank deposits will contract, so the supply of money will contract….” Chapter 11

Falling Tax Receipts

"Governments … spend and borrow throughout the good times and find themselves strapped in bad times, when tax receipts fall." Chapter 32

"Retirement programs such as Social Security in the U.S. are wealth-transfer schemes, not funded insurance, so they rely upon the government’s tax receipts. Likewise, Medicaid is a federally subsidized state-funded health insurance program, and as such, it relies upon transfers of states’ tax receipts. When people’s earnings collapse in a depression, so does the amount of taxes paid, which forces the value of wealth transfers downward." Chapter 32

"The tax receipts that pay for roads, police and jails, fire departments, trash pickup, emergency (911) monitoring, water systems and so on will fall to such low levels that services will be restricted." Chapter 32

For more information on the new second edition of Conquer the Crash, visit Elliott Wave International. Bob Prechter has added 188 new pages of critical information to his New York Times bestseller.


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