Quote from maxpi:
Jeez, Prechter's track record is awful... in 2005 he was talking secular bear market for oil and commodities, he was short US stocks in the 90's.... if he is 15% correct on things over time I'd be surprised.. now he's talking "nosebleed levels" for stocks again.. who knows, he could be right, a broken clock is right twice a day too...
His track record might not be perfect, but I see what he is seeing and agree with it this time.
There are several technical measurements that target the 1994 highs as well as fundamental reasons, one of which I relate here.
Changes that were made to the Community Reinvestment Act of 1977 as per, and I quote:
"Regulatory changes 1995
In July 1993, President Bill Clinton asked regulators to reform the CRA in order to make examinations more consistent, clarify performance standards, and reduce cost and compliance burden.[52] Robert Rubin, the Assistant to the President for Economic Policy, under President Clinton, explained that this was in line with President Clinton's strategy to "deal with the problems of the inner city and distressed rural communities".
These changes effectively forced the mortgage industry to accommodate for 'funny' accounting that resulted in the decoupling of the relationship between homes values to real income.
"During one of the Congressional hearings addressing the proposed changes in 1995, William A. Niskanen, chair of the Cato Institute, criticized both the 1993 and 1994 sets of proposals for political favoritism in allocating credit, for micromanagement by regulators and for the lack of assurances that banks would not be expected to operate at a loss to achieve CRA compliance. He predicted the proposed changes would be very costly to the economy and the banking system in general. Niskanen believed that the primary long term effect would be an artificial contraction of the banking system. Niskanen recommended Congress repeal the Act.[55]"
Niskanen was correct about the effects these changes would have, but seriously underestimated the ability for banks to make a profit from the changes.
If you look at an S&P chart you can see the sharp move upwards which started at the end of 1994.
For this reason I think, fundamentally, that the market has to reconcile itself before it can resume to what would have been it's normal growth trajectory without the interventions cited.
But of course, anything is always possible.
