Letters To & From

Hi Tom,

Below is an excerpt of a Prechter article that was posted on Xxxx today...  and though I didn't take time to read another article posted on Traders-Talk, the header was that Russell (Richard) is also looking for deflation to again rule the day:

http://321energy.com/editorials/russell/russell051605.html

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--Xxx


rpccharts:  (Sun, May 15, 6:11 PM ET)
Prechter (and his ElliotWave colleague Peter Kendall) had an article in Barron's in May 2004 , laying out their vision for the coming deflation (yes, DE-flation).

Rising liquidity in a disinflationary environment is not only fuel for a rise in inflation-hedge investments, but also the lifeblood of the stock market, property investment and the economy. A recovering economy, in turn, supports the issuers of junk bonds and maintains investor optimism.

Such a confluence of effects, as we have argued over the last several years, can occur only in a disinflationary world.

Many observers say that these classes of markets will soon decouple: Either inflation will accelerate, pushing up gold and commodities, or inflation will remain moderate, benefiting the stock market and junk bonds.

We disagree. Liquidity is everything now, and it is driving the prices of all investment classes. These markets have been going up together, and we think that when liquidity contracts, they will go down together.

This outcome happens only at rare times in history when a society-wide credit expansion reaches its zenith and social psychology changes from expansive to defensive.

A change in financial market trends from up to down signals the transition -- exactly the situation we face today."

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Xxx,

I think of Prechter entirely as a marketer, like Bill Bonner. There are so  many ironies about Prechter, but one is that he was was a pretty darn good Long Waver early in his public writing career.

Actually this past week I have labelled as "Deflation Redux". I warned of the coming slowing late last year and early this year on various sites including xxxxxx (which I have pretty much abandoned as there is no interest in Long Wave there).

Everyone who never became convinced about the Long Wave bottom has jumped on the dollar rally finally after four months. This of course inevitable. People will
finally "get" it in about 2015. Meanwhile the marketers have a brand new theme to sell to people who never really bought the bull market OR bull market newsletters.

The dollar is up ~6.5% since New Year's Eve, about as much as the Dow is down, so all the blather last year about how the gains in stocks meant nothing with a declining dollar are reversed. But people are still thinking in terms of stock index investing instead of sector and stock picking as one needs to do in an inflationary era, within which  we are seeing a minor short or intermediate term correction. In an inflationary era one has to be very selective to get gains above the sum of the rate of inflation, the rate of increase of indexes, and the rate of currency decline. It takes some work and some portfolio management. Indexed funds and money markets won't do it.

Regards,

Tom