Policy

Economic Collapse Is Exactly Like East Coast Surfing, or, I Wouldn't Buy That For A Dollar

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What will it take to make you believe that inflation is not coming? How about a true saints-and-fools mythology complete with secrets of the temple, Fibonacci sequences, a Scienza Nuova-type theory of historic cycles, and fractal regressions so tiny there could be a whole universe of them in your little fingernail?

Say hello to Elliott Waves:

Elliott Wave Principle measures investor psychology, which is the real engine behind the stock markets. When people are optimistic about the future of a given issue, they bid the price up.

Two observations will help you grasp this: First, for hundreds of years, investors have noticed that events external to the stock markets seem to have no consistent effect on the their progress. The same news that today seems to drive the markets up are as likely to drive them down tomorrow. The only reasonable conclusion is that the markets simply do not react consistently to outside events. Second, when you study historical charts, you see that the markets continuously unfold in waves.

Using the Elliott Wave Principle is an exercise in probability. An Elliottician is someone who is able to identify the markets structure and anticipate the most likely next move based on our position within those structures. By knowing the wave patterns, you'll know what the markets are likely to do next and (sometimes most importantly) what they will not do next. By using the Elliott Wave Principle, you identify the highest probable moves with the least risk.

Hocus pocus you say? These days psychopathological approaches to the economy make heap big business. Titles like Justin Fox's The Myth of the Rational Market; George A. Akerlof and Robert J. Shiller's Animal Spirits; and Richard Thaler and Cass R. Sunstein's Nudge all offer to make you part of the exclusive group of people who know that everybody except you is delusional. (Ask about my "Velocity of Money" seminars, and how my award-winning VoM technology, available at just $49.99, can Put You Where the Money's Going™.)

According to Robert Prechter, the founder of Elliott Wave International and the Brigham Young of Elliotticians, waves of buyer sentiment follow rising and diminishing sets that look suspiciously like the patterns of ocean waves off a sandy beach with a gentle grade. (A universal constant!) The highest wave happens when the last skeptic buys into the prevailing storyline; after that the whole story goes south, in smaller and smaller crests. These are reproducible in fractal geometry, so you can do a technical market analysis at the level of a whole year, in fractions of minutes, or anywhere in between. But hell, you don't need my two-minutes-of-wiki synopsis. Just watch Prechter explain why the now nearly unanimous bearishness on the dollar means you'll soon be stuffing bills in your bra:

I want to believe, not because I understand jack-all about Elliott Waves (though I had a dream the other night that, no lie, I was having lunch in a diner with Hillary Clinton and Elliott Gould—coincidence?). It just seems to me very probable that we are closer to the beginning of the Great Deleveraging than we are to the end, and that without the so-called lifeblood of easy credit, the economy in its current form can only contract, no matter what the government does. Prechter cites the credit unwind as his foremost reason for thinking inflation's still a ways off. I'd throw in the price of milk and eggs.

Save those dollars. You'll need them after your boss calls you into his office.