The Dow

Dear Mr. Berko: Back in June, you said the Dow could fall to 8,500. Please explain this. What do you think of Robert Prechter, who says the Dow will crash to 1,000? Can you explain his Elliott Wave Theory? Do you agree with him with his bearish analysis? M.M., Waukegan, Ill. Dear M.M.: Jumpin' Jehoshaphat! Great Scott, holy moly and just plain old yikes! There are a countable number of big bears, quite a few momma bears and lots of little bears. And quite a few little bears are turning into momma bears, and some momma bears are turning into big bears. But there "ain't no" big bears turning into apocalyptic bears, except for Prechter, whom the Chippewa Indians call "Crazy Eyes." Crazy Eyes' reasoning is based on his version of the Elliott Wave Theory, which he embraces with the fervor of a big-tent evangelist. The EWT is the musing of Ralph Nelson Elliott (1871-1948), who was an accountant with several railroads in Mexico and Central America. Elliott published his musings in 1930 suggesting (and I agree) that crowd psychology, like a pendulum, moves from optimism to pessimism and back again in a natural sequence. He explains that market prices alternate between 5 waves and 3 waves. The dominant trend waves 1, 3, and 5 are called "motive" waves, and each "motive" wave subdivides into five waves, and each of these subdivided waves subdivides again into three waves. Then waves 2 and 4 are corrective waves, and each is subdivided into three waves. This is too much waving going around for me. Now, these waves have fractal patterns that appear in every degree of the wave line, which he interprets by the application and mathematical analysis of the Fibonacci sequence from which derives the golden ratio (1.618). I kid you not! Anyhow, all this hocus-pocus, throwing of the bones, looking at tea leaves, plus data from the Fed and the World Monetary Fund tells Crazy Eyes what the stock market will do. And now Prechter is posilutely certain that the Dow, within the coming 18 months, will crash to the 1,000 level and is absotively convinced that the world economy will suffer a deflationary spiral of biblical proportions. And to survive this asset holocaust, all you gotta do is buy the second edition of his new book, "Conquer the Crash," for $29.95. Do I agree? Certainly not. But I do agree that most of us are living 20 to 25 years ahead of ourselves, and we are being forced to lower our standard of living. Wages will decline, taxes will increase, personal consumption will decline, housing prices will continue to drop, the national debt will worsen, the health care bill will crater federal and state budgets and unemployment will grow. And across the pond, Europeans are reducing their budgets, lowering their pension payouts, raising taxes and locking their treasuries. Their imports will decline and our exports will decline, causing the loss of more U.S. jobs. Europe's standard of living will fall, unemployment will increase and their wages will fall. Oh, it won't happen today or next week ... but it's happening now, sort of like a death of a thousand cuts. This is why I think the Dow could fall to the 8,500 level but certainly not to 1,000, as Crazy Eyes insists it will. —————————— Please address your financial questions to Malcolm Berko, P.O. Box 8303, Largo, FL 33775 or e-mail him at mjberko@yahoo.com. Visit Creators Syndicate Web site at www.creators.com. © 2010 Creators Syndicate Inc. Published: Fri, Sep 10, 2010

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