Tuesday, August 31, 2010

Great interview with Robert Prechter

I wanted to pass along this great interview with legendary Robert Prechter of Elliot Wave International. Mr Prechter wrote an amazing book, Conquer the Crash back in 2002

and updated it in 2009,

Much of what he predicted is happening, albeit much later than even he had thought back then. I highly recommend this book. It predicted the demise of Fannie, the current deflationary depression, the meltdown in the financial system, etc...

Anyway, this interview by the Daily Crux explains the deflation camp thesis very well and also surprisingly mentions Toronto (and Canada by extension)...

Crux: Well, not everything. Gold is at all-time highs...

Prechter: And so are Toronto real estate and vintage wine. But let's put these markets in perspective.
Prechter goes on to say later:
Here in 2010, a few late bloomers are making new all-time highs. I never thought the long-term inflationary topping process would take this long, but it has.

At each of these peaks, investors have focused on one area or another. Every time it's happened, the area of focus has reversed trend, plummeting in price by 50% or more. 
This latest credit reflation is the weakest yet, so it hardly inspires confidence that today's isolated bull markets will end any differently. Each time a bull market matures, investors are sure it can't reverse. They said that about technology and Internet stocks; they said it about real estate; they said it about oil.

Now that a couple of markets are at all-time highs, we hear the same argument about them. This is natural, because investors always want to own markets that are way up. But investors in those previous booms are never going to get back to break even. Many of them were ruined.
Imagine a 50% price drop in Toronto!...Ultimately, I believe that the US real estate market is heading to a roughly 50% crash (it is at 30% right now). It sounds crazy to think that Toronto (and much of the Canadian real estate market) are going to drop 50% as well, but the history of bubbles indicates that as "today's isolated bull markets" reverse, such a drop may indeed happen.


BBC said...

Hey Adil, what is happening with the TSX.....is this the same pattern as before...Calm before the Storm?

Adil Burney said...

First of all, thanks for your readership. I really love hearing from you and all my readers.
To be honest, I don't spend too much time following the TSX for reasons I have stated in the past (too few industries/stocks) but I do remember back in the summer of 2008, when the TSX hit a new high before plunging in the fall. I put out a post back then.
While the TSX is not as overvalued as it was then, it is still way overvalued in my opinion. It is difficult to know when this market will roll over. I think a steep decline is due but hey, that's just me. If the S&P falls, I suspect that the TSX will play catchup in a big way.