50 Jahre Depression vor uns! - 500 Beiträge pro Seite

[peter.wedemeier1]

50 Jahre Depression vor uns!
http://www.gold-eagle.com/editorials_99/mbutler120299a.html
http://www.gold-eagle.com/editorials_00/mbutler060500.html" target="_blank" rel="nofollow ugc noopener">http://www.gold-eagle.com/editorials_00/mbutler060500.html

Als Einleitung bitte vorab lesen!
Das Elliott Wellen Prinzip besagt, das menschliches Verhalten vorhersagbar ist, in einem mathematischen Kontext. Sie sagt, das die Geschichte sich selbst wiederholt.
Das menschliche Verhalten bewegt sich in 5 Basiszyklen. Wir befinden uns nun in der letzten Welle von einem Super Cycle, welcher 1776 startete. Jede Welle besteht aus 5 Subzyklen, die Elliott als Primary Waves beschrieben hat. Im Jahr 2000 endete die 5. Primary Wave (1987-1999) von einem GSC (Grand Super Cycle). Wir werden nun in einen Super Cycle Bear (eine Marktkorrektur) eintreten, welche 56 Jahre dauern wird.

[GrandmasterJoe]

geht in dieselbe Richtung wie http://www.clifdroke.com/e/e070402.mgi, wen´n ich mich nicht irre!? Obwohl, kommen die nicht alle aus der Goldecke?

[ORGASMATRON]

cool !!

Depression: Ja.

Aber 50 Jahre: Nein.

Würde vorher durch einen 3.WK beendet werden.

[revierparadies]

In 50 Jahren nach der grossen Depression stehen die Märkte so: Dow -27000 Nasdaq -112000 Dax -3000 Nemax - 25000.

[Popelfresser]

Jaja, die Goldfreaks kommen aus ihren Löchern, um ihre Goldfonds zu pushen,
aber die wirklich guten Analysten und Investoren wären schon vor 2 Jahren eingestiegen.
Was jetzt passiert, sind nur noch Pushversuche auf Kosten derjenigen, die wieder mal zu spät gekommen sind.

Ich habe ein paar Goldmarks und ein paar Gold-Euros, und bin damit knapp 100% im Plus. Das reicht.


Popelfresser

[Kastor]

Es bestätigt nur das man vollstoff einsteigen muß!

Kastor

[HappyVienna]

Das schöne an den vermeintlichen Pushern ist eigentlich, dass sie es so dumm machen, das man sie nichteinmal mit 5 Promille ernst nehmen kann.

Bei allen unter 2 Promille ist es kontraproduktiv.


56 Jahre ist echt OBERTITTENAFFENGEIL!!!!!!!!!!!!!
NICHT 50 oder 60 NEIN 56 JAHRE !!!!!!!!!!!!!!!!!!!



Liebe Grüße aus Wien

[Popelfresser]

Ich möchte hinzufügen:

56 Jahre und 2 Monate - denn im September haben wir die Tiefstände !!!


Popelfresser

[DeathAngel]

*gröl*

der is gut...

[Synspila]

Die Ellioten sind echt die Härtesten!

Der aus dem ersten Link fängt mit seinen Zyklen im Neolithikum an, zu deutsch Jungsteinzeit!



Zu schade, dass es noch keinen Dow-Chart aus der Zeit gibt, das wär doch was :-)) 10 Jahre Kondratieff-Winter reicht wohl noch nicht, muss doch zu toppen sein ...

Meine Empfehlung für das nächste Editorial auf Gold Eagle: Jede Übertreibung muss abgebaut werden durch Rückkehr auf den Ausgangspunkt.

Also Rücksprung auf Z1! Willkommen in Neandertal, stimmen wir uns schon mal drauf ein:

http://www.jungsteinzeit-erleben.de

[kazman]

Ist wohl die etwas einseitige Sichtweise von Großgrundbesitzern ;-)

[gholzbauer]

Hat hier jemand den Langfrist-Chart für Faustkeile und Feuersteine?

[Friseuse]

2000 sollte auch das Zeitalter des Wassermanns sein, ewiger Friede und steigende Aktien

Den Super Cycle Bear finde ich süß 87 endete doch schon einer dieser Zyklen in Übergröße 87 minus 29 macht 58 und damit nicht so richtig schön für die Freunde klarer Elliottverhältnisse. Der Stern am Börsenhimmel, ich glaube der hieß Prechter, der jedenfalls verlor sich auch in den Weiten des Universums. Dann gabs noch Herrn Bock mit seinem Hang zum Abgrund, den gibts noch. Immer wieder finden sich in dieser Gruppe von Analysten die Weltuntergangspropheten, dann nehme man noch einige abstruse Geldtheoretiker mit einem Hang zum Gold, mische das mit der Euphorie der Letzten des goldigen Glaubens und schwuppdiewupp geht die Welt unter

Quatsch mit Soße ist das.

[Bre-X]

Ich denke nicht, daß man 50 Jahre bis zum Wiedereinstieg in DAX-Aktien warten muß. Oktober oder November wird es wieder soweit sein.

[Sovereign]

56 Jahre...?...ne ganz schön lange Zeitspanne. Dann werd ich wohl dem Whisky und den Zigarren abschwören müssen, wenn ich noch ne Chance haben will, das Ende der Depression zu erleben.
OK, langfristig sind wir sowieso alle tot, aber irgendwann wollte ich schon noch mal bei ner Konjunktureuphorie dabei sein!

Gruß

Sovereign

[.flag]

Ist das hier wirklich noch das Goldboard?

Kann mich an Zeiten erinnern, so vor 1 - 3 Jahren - da wurde echt ernsthaft auf hohem Niveau diskutiert und versucht logisch zu argumentieren. Manchmal gings schief, doch immer war eine ernsthafte Bemühung dahinter.

Diese wochenlange pusherei von einem sogenannten peter.wedemeier (mann beachte die 1) ist ja eine Frechheit

Langsam findet hier dada und gaga Eingang.

Mal schauen, wann die ersten Außerirdischen für die Goldpreise und goldaktien verantwortlich sind.

Wahrscheinlich drückt das importierte Marsgold seit Jahren die Preise

[kazman]

@flag

kennst Du den Typen ?
Ich habe manchmal das Gefühl, da postet ein BOT ;-)

[peter.wedemeier1]

Bis auf Grandmaster Joe, Orgasmatron, revierparadies und Popelfresser haben alle anderen das Thema verfehlt!

eine denkbar mögliche gute Antwort:

Thanks a lot for the article. I too, do agree it is a shame that people in the universities do not get the "Elliott Theory" as a standard course during their studies. In actuality, Elliott might have done of the greatest social economic discoveries of our time. To the same extent as Adam Smith or Milton Keynes. It did my change my life and how I viewed the world.

What separates Elliott from someone like Nostradamus is the actual proces of quantification. Science refuses to believe anything which does comply with measurability. And mathematics, with its inperfections, is probably still the only universal language, the human kind has developed. Aliens may not understand the way we speak, write or music for that matter, but they will understand that 1 UFO plus 1 UFO are 2 UFO`S.

Having worked for over 10 years in the investment industry, I can tell that most technical trading systems are developed by mathematicians. They use the highest art of geometry to design formulas, which are the base for these systems. Systems in development are tested by putting all the historic trading data into it and see how the formulas would have behaved in historical trading. It are extensive projects which can lead to huge collapses like Long Term Capital Management, but nonetheless fascinating.

Most fund mangers and anaylsts I got to know over the years had read Elliott and Nostradamus. Most of them do pay attention to Elliott and few to Nostradamus. But Dr. Robert B. Gordon is apparently one who has the balls to come out and say it.

Good luck,

und hier ein sehr guter Kommentar zu diesem Thema:

THE GREAT DUPING OF THE AMERICAN INVESTOR
During the final years of the stock market mania in the 1990`s, any astute, objective observer could have reported the crimes being committed in Wall Street and the business executive suites. There were many eyes to see but no voices free to speak. The eyes of our media may have been open but their lips and presses were closed due to the fear of losing advertising revenue from the Street and Big Business.

Meanwhile, Congress, with their huge campaign contributions from the perpetrators of crime on Wall Street, were silently removing the legal protections enacted after the 1929 Crash! They opened the barn doors again to thieves and robbers by again freeing banks from laws preventing their commingling with brokers. Inept protection by the SEC and self policing of accounting standards by supposedly independent auditors, while Congress slept, put the last nails in the investor coffins.

Of course, while all the skullduggery was underway, the American investor was blissfully unaware of the crimes of omission and commission being perpetrated by our financial and business leaders. As usual, their predominant bullish attitude made them easy prey for the blatant criminal sales pitches from the Wall Street establishment. The story of the Roaring Twenties, Go-Go Sixties and the Japanese New Era of the Eighties was about to be repeated and on a truly grand scale.

WHY DID IT HAPPEN?

Of course there are many reasons for any disaster on a huge national scale, but we want to concentrate our blame on the gullibility of investors, individually and very especially in masses. From the Dutch Tulip Bulb mania in the 1630`s, the South Sea Bubble in 1720 to the current time, investors have consistently demonstrated their weakness and blind willingness to be swept up again and again in the mad euphoria of crowds.

Those who do not learn the lessons of history are doomed to repeat them. How many times have words like these been spoken and written? Unfortunately, they have been recognized and obeyed by only a tiny group of investors who have read and understood their somber message. Quite a few hundreds of my internet readers are in this group of believers and are trying hard to convince their family and friends of big problems ahead.

I am not optimistic about preventing future manias and have written and will write again on this problem. I am afraid that educating the masses is a goal out of reach in the foreseeable future. In a day when the 60 year old Elliott Wave Principle, with 300 years of stock market history behind it, is not known or taught in our universities, our nation`s educational process has a very long way to go.

Should not our colleges and universities be at the forefront of learning and teaching of ways to improve our society? Why have they missed a golden opportunity to understand and use the Elliott Wave Theories and educate America so that manias and crashes might some day be avoided or greatly minimized? That question deserves an answer and, at the end of this essay, I am asking readers to join me in an attempt to wake our university presidents and professors from their deep slumber!

THE FAILURE OF HIGHER EDUCATION

My life as an educator had an early beginning in the late 1930`s when I was seeking a Doctor of Science degree at a large eastern university. As a Teaching Fellow I had the unusual privilege of teaching my specialty to students who were, in some cases, either older or smarter than I. During my three years of teaching, my classes included a junior Physics major, who later won a Nobel prize, and top Annapolis graduates who had just finished 5 years of sea duty and were slated to become the Admirals of our future Navy.

Prior to that experience, I had the privilege of spending 4 years at a small private university with very high standards. During the first semester of my freshman year in 1931, at the depth of the Great Depression, I was taught how to write the old fashioned way - by writing. During that full semester, I got up at 5:30 AM, 5 days a week, and wrote a required daily theme on a subject of my choosing. I then drove 14 miles to the campus in a dilapidated Ford and turned it in. Every next day it was returned, edited and red penciled. Little did I know then, that those valuable classes would come in handy, 70 years later, when, in August 2001, I wrote and submitted my first of two dozen essays for publication in the Gold-Eagle web pages. My extensive reader e-mails now come from six continents!

Since those golden days of the past, our higher education system has gone straight down the road to oblivion. From an era when a college was primarily a teaching institution, many have now become a business of promoting sports, gaining research grants, enhancing professors salaries and soliciting donations. What ever happened to the idea of educating students to understand and cope with life in a real world? We now have so-called ivory towers where Ph.D.`s in Economics are granted primarily for talent in esoteric mathematics theories, not for relevance to major, real world problems like stock market booms and crashes!

How could the once great field of Economics have totally ignored the brilliant work of a retired CPA, Ralph N. Elliott, who developed his break-through analyses of stock market cycles 60 and 70 years ago, and whose fundamental value and accuracy have now been proven valid by analysis of stock market waves over the past 300 years? Today, our economics professors become famous for writing popular but misleading books about the benefits of long term investing in stocks - a mockery of a once proud profession! Let`s hope that this essay and action from my readers will start a revolution in Education!

BREAK-THRU ESSAY BY CHILEAN ECONOMICS PROFESSOR

There is some real hope for the future of our economics profession. At least one member of academia has broken ranks and has become a strong advocate of the Elliott Wave Principle. Chilean economics professor, Hernan Cortes Douglas and author of a Gold-Eagle article, dated 1/24/02, has grasped the great importance and significance of the Elliot Wave Principle to our modern society. He is a true hero in my view and his trail-blazing paper is a strong indictment of the sad intellectual decay of his profession. This precedent setting article for an economist, titled Forecasting Crashes and Recessions, can be found in the GOLD-EAGLE archives.

Crashes and Recessions summarizes the failures of all earlier attempts to understand stock market crashes which always come out of a very bullish economy. The author then makes a point by point comparison of the old ideas with those that came from Ralph Elliott`s brilliant studies in the 1930`s and 1940`s. This scholarly paper is completely annotated with pertinent reference to the prior literature. It deserves to be read by our academic community as a start to understanding the real world we live in.

WHAT ABOUT WALL STREET?

As in all past manias and crashes, the sad story of crimes of omission and commission perpetrated on Wall Street are now making daily headlines in all types of media. The investigations and witch hunts are now underway, just as they were after the South Sea Bubble in London in 1722 and our Great Crash of 1929. The hearings will go on in New York City, Washington DC and in state capitals for many years. Ninety years from now some historian will collect the details and publish a book about the crimes and results of the subsequent investigations. Only the dates and names will change from the books written during and after the 1930`s.

Astute, knowledgeable investors have long known and recognized the sordid stories that occasionally hit the media when some minor broker or trader is accused of crime. They also may know that bigger, more skillful dodges are being constantly used to separate investors from their available assets. Every new broker, spends much more time on learning "cold call" and "sale closing" techniques than on learning about the history of past bull and bear markets. Since I first walked into a brokerage office to buy stocks 62 years ago, I have encountered little real market wisdom along with the sales hype.

I see many drastic changes in Wall Street when this bear market and its associated depression finally come to a close. I expect to see a desolate place with perhaps 10% of its present employment. The stock exchanges will be quiet with very low volume. CNBC and its cast of characters will be relegated to the history books. It may be decades before another sales promotion organization arises to take its place. For history teaches that, at major market bottoms, there are very few buyers and they will be very loath to part with their hard earned money.

I will not discuss the major shenanigans coming to light in the investment banking industry since I never worked or lived in that rarefied atmosphere with its astronomical salaries and bonuses But I do have some thoughts on mutual funds as a result of my owning hundreds of them in all categories over the past 50 years. I admire only one giant firm, featuring low fees and responsible advertising, and have no good words for the other firms that have grown to huge size by leeching on the minds and wealth of tens of millions of trusting American investors of all ages.

It is entirely possible that the future mutual fund industry, or whatever pieces are left after our bear market and depression have run their course, will be drastically different from the current giant. When, at the next market bottom, investors have redeemed their remaining few invested dollars, it may take decades for them to regain the urge to invest. It is likely that a new generation of young eager investors will be required to regenerate the industry. The future fund industry may well be very different from the current familiar structure. One can only guess some of the changes needed to eliminate the greedy fee structure and blatant sales gimmicks that grew the industry to its colossal multi-trillion dollar peak size.

WHAT ABOUT BIG BUSINESS?

Right now our media, especially on the internet, are in a veritable fury to publicize the stories coming out of executive suites, with special attention to the those with mass appeal. The more serious incidents involving gross excesses in executive options and bonuses are being given less attention now in the press but will be the subject of numerous shareholder lawsuits in the future.

Our modern capitalist system requires profits to be successful, but they must be the profits of a business managed to produce real profits, not the pro-forma profits that were the false basis for the new-era boom of the late 1990`s. It will require years of litigation and legislation to unravel and solve the problems now being disclosed almost daily.

We can be sure of one thing, based on the lessons of the last Great Depression, the surviving companies in this generation will be "lean and mean" and ready to compete in a difficult new environment.

WHAT ABOUT THE MEDIA?

In other periods and under other conditions, our Fourth Estate might have served our society as a safeguard and watch dog over major businesses and financial markets. Unfortunately, they were led astray by their greed for advertising revenue and failed almost totally in their public trust. Whether they can ever again be counted on to fill this vital role remains an open question.

During the great boom of the late 1990`s, the media`s business pages and TV screens offered a direct conduit for the sales and promotions of American business with no apparent filtering mechanism to protect readers from their excesses. Our system of capitalism needs profits and the means to reach its customers. There is nothing wrong with our media serving as the Voice of Business, but there needs to be some meaningful control of the blatant excess in advertising hype disguised as news.

The advent of the Internet news media may offer some hope for the future. But the big question remains. How can the media remain objective while requiring major revenue and income from businesses and Wall Street? I, for one, have no answer to this question.

THE FAILURE OF GOVERNMENT PROTECTION

As in the 1920`s, again in the late 1990`s mania, our elected government representatives, were wasting their time and energy on other essentials like campaigning, or raising money for the next election or in endless political in-fighting. Not one leader in Washington foresaw trouble ahead in the 1990`s or tried to prevent it. At the beginning of the final stock surge, Federal Reserve chairman, Alan Greenspan, saw some "irrational exuberance" but later stated he could not recognize a Bubble until it was over. His misguided actions of throwing fuel (credit) on a blazing stock market assures that his name will live in ignominy along with poor old Herbert Hoover.

IS THERE A SOLUTION?

We have recently seen horrible, reprehensible actions, many criminal in nature, by leaders of major companies. Can more laws and regulations help? Only time will tell.

One thing is very clear, unless we can somehow completely overhaul our educational system from the top down, our ivory towers will continue as the weak link in our overall system today. Our nation must find a way, starting with the Ph.D. educators in Economics and Sociology in our universities, to teach current leading-edge knowledge such as the Elliott Wave Principle of stock market cycles and its new applications in the field of Socio-Economics.

It is a matter of criminal neglect or stupidity that leaves our nation`s leaders in Wall Street and Washington DC uninformed on theories now proven and documented back over 300 years of stock market action in the New York and London markets. For several decades a small group of professional traders and individual investors have profited from use of the Elliott Wave theory. I personally discovered this great tool in 1995, have profited from its signals on major and minor market turns and now stress it`s use and importance in all of my educational writings.

Why do the nation`s business and government not have this vital information to guide our nation`s policies? Because our university faculties are so busy protecting their domains, they have failed to read the impressive literature that has been available in published form for over 25 years. A leader in application of the Elliott Wave Principle publicly announced in 1978 that a great new bull market would come from the depths of the long bear market that started in 1966. Then in 1995, this expert announced that, at the bull market`s end, a Crash and Depression greater than that of 1929 would ensue. Today, these predictions have either occurred or are underway at this writing.

SPECIAL REQUEST TO OUR READERS

Below, we have included a reading list of significant books about the Elliott Wave Principle and its close relationship to many of our society`s problems ranging from manias and crashes to war and peace. These powerful new ideas need to be studied and taught by our university professors. Readers, please e-mail or mail this list alone, or with a copy of this essay, to the President of your alma mater or to major department heads.

If several hundred college presidents, or the heads of their Economics and Sociology Departments were to even see the impressive list below, it might possibly open some sleepy eyes and minds. I plan to do so. Why not join me?

READING LIST ON THE ELLIOTT WAVE PRINCIPLE AND SOCIONOMICS

# The Wave Principle of Human Social Behavior and the New Science of Socionomics (Prechter 1999)
# Elliott Wave Principle - Key to Market Behavior (Frost and Prechter, 1978/1998)
# Pioneering Studies in Socionomics (Prechter & Kendall, to be published 2002
# R. N. Elliott`s Masterworks (Ed. Prechter)
# At the Crest of the Tidal Wave (Prechter, 1995)
# Conquer the Crash (Prechter, 2002)
# Forecasting Crashes and Recessions (Hernan Cortes Douglas 2002)


Robert B. Gordon Sc.D.
Sun City West AZ 85375

[peter.wedemeier1]

Forecasting Crashes and Recessions
What Macroeconomists Don`t Know
by Hernán Cortés Douglas
History does not repeat itself...but it rhymes —Mark Twain

"This expansion will run forever." Not two years, or three, or ten. Forever. That was how an MIT Professor of Economics summarized his vision of the U.S. economic expansion in the July 30th, 1998 issue of the Wall Street Journal.

Nowadays his assertion appears extreme. It did not then. This exuberance was rationalized by the obvious fact this was a New Economy with no room for recessions. Dornbusch himself said the American economy would "not see a recession for years to come"? Mmmm, why? Because, Dornbusch again, "We don`t want one, we don`t need one, and, as we have the tools to keep the current expansion going, we won`t have one." "We", apparently, are the macroeconomists.

More Dornbusch: "Only natural causes, and not the Fed, can bring the economy to a standstill. Fortunately, we have the monetary and fiscal resources to keep that from happening, as well as a policy team that won`t hesitate to use them for continued expansion."

In the latter part of the 1990s, euphoria was rampant and not only in the States. "It is hard to imagine any article with worse timing than, say, `Asia`s Bright Future,` by Harvard Professors Steven Radelet & Jeffrey Sachs, writing in the November/December 1997 issue of Foreign Affairs". So J. Orlin Grabbe told us. Their article was published at the precise moment East Asian financial markets and economies were deepening their collapses. As Grabbe put it: "Of course Asia probably does have a bright future, much as Europe could have been said to have had a bright future during the Black Death years of the 14th Century."[1]

It is one thing to say crises are undesirable, but another to say macroeconomists are, firstly, so skilled at forecasting they can predict trend breaks to the downside; and secondly, they have the tools and the policy teams to avoid economic and financial crises. If this were so, why do they utterly fail over and over again at forecasting economic downturns? Why do they have to adjust their projections over and over in times of trend change? Why has Japan stagnated for 11 years and had three recessions during that time?

The dismal record of forecasting crashes and recessions we economists have is not new. The crash of 1929 and the Great Depression came as an unexpected avalanche to economists, particularly those in the hall of fame.

Fourteen days before Wall Street crashed on Black Tuesday, October 29, 1929, Irving Fisher, America`s most famous economist, Professor of Economics at Yale University, said: "In a few months I expect to see the stock market much higher than today".

Days after the crash, the Harvard Economic Society informed its subscribers: "A severe depression such as 1920-21 is outside the range of probability. We are not facing a protracted liquidation." After continuously issuing erroneously optimistic forecasts, the Society closed its doors in 1932. The two most renowned economic forecasting institutes in America at the time failed to understand that a crash and depression were forthcoming, and continued their optimism even as the Great Depression swept over America.

Irving Fisher lost 140 million U.S. dollars[2] in the stock market crash. Fisher was a man of many talents, a great economist, excellent theoretician, one of the founders of econometrics and pioneer in index number analysis. He was also the inventor of the c-kardex file system which he sold to Remington Rand for millions, which he subsequently lost in the crash.

John Maynard Keynes, the most famous British economist and the father of macroeconomics, who made fortunes in the financial markets for himself and Cambridge University, lost one million English pounds[3] in the crash.

With two exceptions, no academic economists forecasted the crash of 1929 and the following depression.

Seven decades have gone by. Surely we must know more today? In 1988, sixty years after the crash and the depression, Kathryn Domínguez, Ray Fair and Matthew Shapiro concluded in the American Economic Review, the leading journal of the American Economic Association, that employing sophisticated econometric techniques of the late nineteen-eighties and even using data unavailable in 1929, the Great Depression could not have been forecasted.

In October 2000, sixty economists gathered at the Minneapolis Fed to present papers and discuss the Great Depression of the 1930s. The cream of the macroeconomic profession was present: Nobel prize-winner Robert Lucas, Ed Prescott, Tom Sargent, Ben Bernanke, Finn Kydland, Nancy Stokey, Kevin Murphy and many others. The gist of the conclusions may be found in the headline that the Minneapolis Fed`s review The Region used for the conference`s article: "Something Unanticipated Happened". "In his summary remarks at the close of the conference, Robert Lucas made a pitch for the continuing investigation of macro fundamentals. . . . `We should continue to seek common factors,` he said, and offered monetary instability as one area for further exploration. Big deflations are related to depressions, he said, and everywhere in the 1930s there was deflation."[4]

The concluding paragraph of the article states: "In the end, if the Great Depression is, indeed, a story, it has all the trappings of a mystery that is loaded with suspects and difficult to solve, even when we know the ending; the kind we read again and again, and each time come up with another explanation. At least for now."[5]

Economists, especially since 1936, and as Bob Lucas` quote reveals, look at macroeconomic fundamentals. Yet history teaches us no financial collapse has ever happened when things look bad. On the contrary, macroeconomic flows look good before crashes. Before every collapse, economists find the economy in excellent shape. In a major boom, the economy is a "New Economy". As President Hoover tells us in his Memoirs about the period preceding the Great Depression: "With increasing optimism, they gave birth to a silly idea called the New Economic Era. This notion spread all over the country. We were assured we were in a new era where the old laws of economics no longer applied."[6] Too familiar, perhaps.

In these new eras, everything looks rosy, stock markets go up and up, and macroeconomic flows (output, employment, etc.) appear to be improving. Macroeconomic fundamentals, however, tell us about the past, and the good times are invariably extrapolated linearly into the future.

Friedrich von Hayek, 1974 Nobel Laureate, was the only academic economist who wrote prior to the Great Depression that a crisis and downturn in America were imminent. Interest rates in the world would not fall, he wrote, until the American boom collapsed. And "the boom will collapse within the next few months". This prediction, printed in the Austrian Institute of Economic Research Report, February, 1929, generated interest in Austrian economics and Hayek was offered a Professorship at the London School of Economics in the early 1930s.

Ludwig von Mises, also an Austrian, anticipated a worldwide depression in the 1930s, as reported by Fritz Machlup, Mises` assistant at the time. Mises` wife Margit wrote, in her husband`s biography, that in the summer of 1929 he had rejected a high position in Kredit Anstalt, one of the largest banks in Europe at the time. His explanation was "a great crash is coming and I do not want my name in any way connected with it". Less than two years later, Kredit Anstalt was bankrupt.

Did rational economists adopt the economics of Hayek and Mises? Alas no, they adopted the economics of Keynes.[7]

But Hayek and Mises were exceptions. Not only did economists fail to forecast the Great Depression of the 1930s, but they have also failed to forecast economic contractions in general. The present contraction (in 2001) is only the latest example. "Economists have a dismal record in predicting recession" is the subtitle of an article in the November 29th, 2001, issue of The Economist.

Why is this so? What is it that economists do not know? Or what truths did they once know—ones since forgotten or neglected?

First, the facts.

Three centuries of financial crises and economic contractions yield four sets of empirical observations.

1. Money and Debt, Financial Markets and Business Cycles.

This first set is consistent with postulates of Business Cycles Theories well-known to economists but neglected nowadays. Sizable and sustained increases in money and private sector debt accompany financial and economic booms. Important contractions in money and private sector debt accompany financial and economic contractions. This observation is consistent with Monetary (Milton Friedman) and Austrian (Ludwig von Mises and Friedrich von Hayek) theories of the business cycle. Bob Lucas` remarks indicate a renewed interest in these theories may be forthcoming.

Debt accumulation speeds up during booms. Changes in the level of private debt correlate with changes in stock markets indices and economic activity, especially at higher degrees.[8] Debt increases heavily and rapidly in times of financial and economic booms, and it decreases importantly in times of major financial and economic contractions. This observation on debt accumulation and deflation was highlighted by Irving Fisher in his 1933 Econometrica article, "Debt-Deflation Theory of Depressions", but it has received little attention since. In a lifetime of work neglected by mainstream economics, Hyman Minsky emphasized the financial instability created by mounting indebtedness building up through time.

In the high degree bull market which has just ended with the 20th Century, debt accumulation in the private sector proceeded at a very fast pace and reached very high levels, especially in the latter years of the boom. However, little if any attention was paid by most economists to this phenomena.

The next two sets of observations, not considered by economists, are of course the key to understanding economic contractions of all degrees. Their not considering them is the explanation for economists` dismal forecasting failures.

2. Stock markets indices are patterned.

Stock markets trend and reverse in recognizable patterns.[9] Structures are clear and definite in form [not in time or amplitude]. Patterns of smaller degree link together to form similar patterns at a larger degree. These insights date to the careful inductive analysis published in the 1930s by Ralph N. Elliott[10], and to the important and breathtaking work Robert R. Prechter, Jr. has pursued over the last three decades, applying and extending these principles to a wide variety of phenomena.[11]

Markets, in other words, are hierarchical. These insights have been rediscovered by physicists studying financial markets. Markets` movements, like earthquakes, have different degrees.[12][13] More importantly, markets are fractals (robust fractals or quasi-fractals).[14] Markets proceed relentlessly according to form. Elliott and Prechter are in good company: Pythagoras stood for inquiry into pattern rather than inquiry into substance.[15]

"The mysterious changes in market psychology"[16] proceed according to pattern. Stock markets are not random walks, as is still taught in many top graduate business schools. Rather, their changes exhibit fractal behavior.[17] Stock markets as complex systems show discrete levels or scales in a global hierarchy.

Viewing markets as dynamic, complex systems, Sornette and Johnson conclude markets proceed unabatedly toward a crash, "the market anticipating the crash in a subtle self-organized and cooperative fashion, releasing precursory fingertips observable in stock market prices."[18]

There is, therefore, an element of predictability in markets not despite, but because of, their complexity.[19]

3. Financial market changes precede changes in economic variables.

High degree bull markets in stock indices precede economic booms of high degree. Bull markets of lower degree precede economic expansions of lower degree.

High degree bear markets in stocks precede economic contractions of high degree. Bear markets of lower degree precede economic contractions of lower degree.

Changes in stock market indices thus precede, not follow, changes in economic fundamentals or news about them. Changes in stock market indices are a leading indicator of changes in economic activity. This was, of course, recognized by Wesley Mitchell and the National Bureau of Economic Research eight decades ago. But failure in identifying markets` different degrees has made Mitchell`s insight less useful. Witness Nobel Prizewinner Paul Samuelson` s famous (and wrong) quip[20], a result of completely missing the hierarchical nature of stock markets.

Finally,

4. Booms are followed by Contractions.

High degree bull markets in stocks are followed by high degree bear markets in stocks. Correspondingly, high degree booms in economic activity are followed by high degree contractions in economic activity.

Milton Friedman`s "Plucking Model", where contractions are related to succeeding expansions and unrelated to previous expansions, is not consistent with this observation. The Austrian Theory of the Business Cycle (Mises and Hayek), where the excesses of the prior booms are the sources of the following bust, is consistent with this observation.

After the facts, a story.

"Economic reasoning will be of no value in cases of uncertainty". These are Robert Lucas` words.[21] Mises, Knight and Hayek have taught us, however, uncertainty is normal and pervasive in society.[22] Markets deal with uncertainty, coordinating information and knowledge. In a world of uncertainty expectations are a critical variable in most decisions, particularly for investment decisions, financing (increasing debt levels) and other financial and economic decisions.

Nobel Laureate Robert Solow has recently said, "it is acutely uncomfortable to have so much in macroeconomics depend on how one deals with a concept like expectations, for which there is (inevitably?) so little empirical understanding and so much room for invention".[23] To have a better grasp of a relevant concept of expectations and confidence is therefore crucial. As Bob Prechter says, however, although expectations may imply rationality they are usually the product of rationalization.[24]

An alternative assumption to the macroeconomists` "representative agent" with rational expectations can be fruitfully substituted to obtain a more coherent explanation of observed patterns. In a world of uncertainty, changes in expectations (in confidence, rather, in moods) are reflected more rapidly in changes in stock market prices. The latter can thus be used as a proxy for changes in confidence. Changes in the trend of stock market prices become useful as a barometer of optimism and pessimism. As changes in optimistic or pessimistic expectations lead most changes in financial and economic decisions, it is no surprise that changes in stock market prices are useful as leading indicators of changes in the state of the economy.

Changes in stock market indices do not respond to, nor are they caused by, exogenous changes in economic fundamentals or news about them; they are not random walks. Changes in stock market prices reflect changes in confidence, moves from optimism to pessimism and from pessimism to optimism. They precede (rather than follow) changes in economic fundamentals.

The preceding sentences provide an explanation for why negative changes in stock market indices — of a very high degree — anticipate economic depressions. Negative changes of lesser degree, in turn, anticipate economic recessions and milder downturns. Stock markets are thus led by waves of optimism and pessimism.[25]

Optimism during the boom leads to higher indebtedness. Increasing private sector debt is an important manifestation of optimism and euphoria in the latter part of the boom. Excessive debt leads to financial fragility in banks, business enterprises, and individual households. As the boom ends and pessimism replaces optimism, lenders recall loans, banks contract credit, bankruptcies are stepped up and a major economic contraction ensues. Fragility turns into insolvency.[26]

The final leg of a stock market boom — as seen in the NASDAQ in the years prior to 2000, or in the Dow prior to late 1929 — is correlated with a high degree of indebtedness, and is correlated in turn with the severity of the subsequent economic contraction.

If this is correct, an ex-post explanation of a major economic contraction, for example, would start with a dramatic and sustained fall in stock price indices, a proxy for a major breakdown in confidence, a change from extreme optimism to pessimism. The high levels of debt, accumulated during the boom at a very fast pace in the later years, would be responsible for generalized financial fragility all over the economy. This is what we have now.

The change to pessimism, announced by the trend change in the stock markets, will trigger loan recalling, bankruptcies, unemployment and generalized economic contraction. This is what is beginning now. Only when debt reaches very low levels, as a consequence of bankruptcies or of inflation, is the economy ready for recovery. This will be some years into the future.

Economic Science?

Now, is this economics?

I use here the two tests posed by Nobel Laureate James Buchanan in his "Economics and its Scientific Neighbors" to answer that question[27]:

1. Does this theory provide the economist with an additional set of tools? By understanding the nature and the hierarchy of stock market changes, patterns of stock market price changes can be predicted in form and sometimes in time. Also, the elucidation of the degree of change in stock market prices allows a prediction to be made on the degree of the subsequent economic contraction. Thus, not only can economic contractions be anticipated, but also their degree. More clearly, a trend break in stock markets can be predicted in form, and that in turn precedes a trend break in economic activity. Timing on the other hand can only sometimes be pinned down with precision.

The linear extrapolation so commonly used by macroeconomists ("the crudest form of technical analysis")[28] is substituted by a non-linear framework — the Wave Principle — which allows prediction of trend breaks of different degrees.

I believe it provides the economist with an additional set of tools.

2. Does this extend the application of the central principles of the discipline?

There is clearly no contradiction with the statement: "More of any good will be chosen, the lower its price relative to other goods", a central tenet of economics.

Under uncertainty, however, dealing with future prices involves not actual but expected prices, and expected prices are highly dependent on whether confidence is high or low. As stock markets are patterned, their changes are — to a first degree — exogenous to economic variables.[29] We can state this as an assumption: To a first degree, changes in optimism and pessimism, measured by changes in stock market indices, are exogenous — independent of changes in economic variables (or "macro fundamentals", as Bob Lucas called them).

As stock markets are patterned, so are the true causal forces.[30] They are not random. Stock market patterns are predictable in form and sometimes predictable in time. The economy goes into an economic contraction not because of random shocks, as stated by real-business-cycle theory, but because extreme optimism, euphoria, is replaced by growing pessimism.

Is this extending the application of the central principles of economics? I am not sure.

Does this theory have predictive implications? Most certainly. This indicates it may become a science. But, again, is it economic science?

Most likely not.
Footnotes

[1] J. Orlin Grabbe, "And Now, the Financial Apocalypse", orlingrabbe.com/Apocalyp.htm.

[2] Calculated by the author on the basis of nominal figures provided by Irving Fisher´s biographer son, Irving Norton Fisher.

[3] Figures provided by Keynes´ biographer Professor Skidelski.

[4] "Something Unanticipated Happened", The Region, Minneapolis Fed, December 2000.

[5] Ibid.

[6] As I have lost the English text, and translated back into English from Spanish, some words may be different in the original.

[7] They did not however pay attention to key insights contained in Chapter 12 of Keynes` The General Theory.

[8] Financial booms and contractions involve a hierarchy with different degrees of change in financial markets, as earthquakes do.

[9] As well as financial markets in general.

[10] Ralph N. Elliott, The Wave Principle, 1938. Reprinted in Robert R. Prechter, Jr., editor, R. N. Elliott`s Masterworks, Elliott Wave International. Also, Robert R. Prechter, Jr., editor, R. N. Elliott`s Market Letters, Elliott Wave International.

[11] Robert R. Prechter, Jr., Wave Principle of Human Social Behavior, 1999; At the Crest of the Tidal Wave, 1995; Popular Culture and the Stock Market, 1992; Prechter`s Perspective; and with R. Frost, Elliott Wave Principle, 1979.

[12] A. Arneodo et al, "Fibonacci Sequences in Difussion-Limited Aggregation", in J.M. García-Ruiz et al, editors, Growth Patterns in Physical Sciences and Biology, Plenum Press, 1993.

[13] Discrete scale invariance, as developed by D. Sornette, "Generic Mechanisms for Hierarchies", InterJournal Complex Systems 127, October 15, 1997; "Discrete Scale Invariance and Complex Dimensions", Physics Reports 297, 1999.

[14] Arneodo et al., put it this way: "[T]here is room for "quasi-fractals" between the well- ordered fractal hierarchy of snowflakes and the disordered structure of chaotic or random aggregates". Prechter uses the term robust fractal. They differ from fractals as defined by Mandelbrot, in that there is no self-similarity.

[15] G. Bateson , "Form, Substance and Difference" in Steps Toward an Ecology of Mind, Chandler, 1972, p. 449. Also R. G. Collingwood, The Idea of Nature, Oxford, 1945.

[16] A theme running through accounts of the 1920s, according to R. Schiller, Irrational Exuberance, Princeton University Press, 2000, p. 115.

[17] Non self-similar fractal behavior, i.e., not simple but complex fractal behavior.

[18] D. Sornette and A. Johansen, "Large Financial Crashes", Physics A, 245, 3-4, 1997.

[19] Robert R. Prechter, Jr., Wave Principle of Human Social Behavior, 1999.

[20] "The market has anticipated 12 of the last 9 recessions"

[21] Robert Lucas , "Understanding Business Cycles", in K. Brunner and A. H. Meltzer, Eds., Stabilization of the Domestic and International Economy, North Holland, 1977, p.15.

[22] Frank Knight, a leading Professor of Economics at the University of Chicago, teacher of several Nobel Laureates.

[23] R. Solow, "Toward a Macroeconomics of the Medium Run", J. Economic Perspectives, Winter 2000.

[24] Robert R. Prechter, Jr., private communication with the author.

[25] Early in the century, some economists were well aware of the importance of these waves of optimism and pessimism. A.C. Pigou, Industrial Fluctuations, London, Cass, 1927; The Economics of Welfare, London, Cass, 1920. And J.M. Keynes, The General Theory of Employment, Interest and Money, London: Macmillan, 1936, chapter 12.

[26] An expanded treatment of this process appears in H. Cortés Douglas, "Forewarnings", processed, Catholic University of Chile, January, 2001.

[27] James Buchanan, What Should Economists Do?, Liberty Press, 1979. Buchanan is clear that so-called macroeconomics does not pass the test. It is neither economics nor science. I agree.

[28] Robert R. Prechter, Jr., Wave Principle of Human Social Behavior, 1999

[29] "To a first degree" allows for subsequent feedback.

[30] There may be several alternative explanations of why stock market patterns are exogenous. Most likely the explanation may have to do with interactions among individuals in a context of uncertainty. Bob Prechter has a powerful hypothesis, as presented in his Wave Principle of Human Social Behavior, 1999. Among economists, Robert J. Shiller, Professor of Economics at Yale, is the leading representative of the view that "solid psychological research does show that there are patterns of human behavior that suggest anchors for the market that would not be expected if markets worked entirely rationally", Irrational Exuberance, Princeton University Press, 2000
Hernán Cortés Douglas is Professor of Economics at the Catholic University of Chile. He thanks Bob Prechter for valuable comments on an earlier version. His email address is [e-mail].

Chile, 24 January 2002

[Guru-Schreck]

Wer die Börse 50 Jahre voraussagen will hat zwangsläufig schon mal
eine falsche Strategie gewählt.