One Bear's Prediction (but now OUR Bear)
rgCoinGuy
Posts: 7,478 ✭
Since the Big Thread is locked, I figured I would share this here. Thoughts?
US likely to lose AAA rating by end of 2010
NEW YORK (Reuters) - Technical analyst Robert Prechter on Monday said he sees the United States losing its top AAA credit rating by the end of 2010, as he stuck by a deeply bearish outlook on the U.S. economy and stock market.
Prechter, known for predicting the 1987 stock market crash, joins a growing coterie of market heavyweights in forecasting the United States will lose its top credit rating as the government issues trillions of dollars in debt to fund efforts to bail out the economy.
Fears about the long-term vulnerability of the prized U.S. credit rating came to the fore after Standard & Poor's in May lowered its outlook on Britain, threatening the UK's top AAA rating. That move raised fears that the United States could face a similar risk, with the hefty amounts of government debt issued in both countries to pay for financial rescues causing budget deficits to swell.
Prechter, speaking at the Reuters Investment Outlook Summit in New York, said he sees investors' confidence in an economic rebound fading, a trend that will drag the S&P 500 stock index .SPX well below the March 6 intraday low of 666.79 by the end of this year or early next.
"There will be a leg down in stock prices, and it will affect all other areas," including corporate bonds and commodities, said Prechter, who is executive officer at research company Elliott Wave International, based in Gainesville, Georgia.
Prechter, who is known for his bearish views, has repeatedly forecast a steep decline in stocks this year, even as the stock market has rebounded from 12-year lows set in March as optimism about an economic recovery has risen.
Despite the government and Federal Reserve's massive rescues for financial companies and securities markets, Prechter expects credit markets to clam up again as they did in the first phase of the global financial crisis and for the U.S. economy to sink into a depression.
Although U.S. banks' recently passed government "stress tests" that assessed the adequacy of their capital levels to absorb losses and have been able to raise some capital in debt and equity markets, "the banking sector is in severe trouble," as more loans turn bad, he said.
The economy "is obviously heading toward a depression," despite the government's efforts to dodge one, said Prechter.
Federal Reserve Chairman Ben Bernanke has not averted a re-run of the 1930s Great Depression, even though investors are becoming firmly convinced that the Fed has avoided disaster and that the economy has hit bottom.
"It's the next leg down (in stocks) that will make it clear that these things are not true," Prechter said.
US likely to lose AAA rating by end of 2010
NEW YORK (Reuters) - Technical analyst Robert Prechter on Monday said he sees the United States losing its top AAA credit rating by the end of 2010, as he stuck by a deeply bearish outlook on the U.S. economy and stock market.
Prechter, known for predicting the 1987 stock market crash, joins a growing coterie of market heavyweights in forecasting the United States will lose its top credit rating as the government issues trillions of dollars in debt to fund efforts to bail out the economy.
Fears about the long-term vulnerability of the prized U.S. credit rating came to the fore after Standard & Poor's in May lowered its outlook on Britain, threatening the UK's top AAA rating. That move raised fears that the United States could face a similar risk, with the hefty amounts of government debt issued in both countries to pay for financial rescues causing budget deficits to swell.
Prechter, speaking at the Reuters Investment Outlook Summit in New York, said he sees investors' confidence in an economic rebound fading, a trend that will drag the S&P 500 stock index .SPX well below the March 6 intraday low of 666.79 by the end of this year or early next.
"There will be a leg down in stock prices, and it will affect all other areas," including corporate bonds and commodities, said Prechter, who is executive officer at research company Elliott Wave International, based in Gainesville, Georgia.
Prechter, who is known for his bearish views, has repeatedly forecast a steep decline in stocks this year, even as the stock market has rebounded from 12-year lows set in March as optimism about an economic recovery has risen.
Despite the government and Federal Reserve's massive rescues for financial companies and securities markets, Prechter expects credit markets to clam up again as they did in the first phase of the global financial crisis and for the U.S. economy to sink into a depression.
Although U.S. banks' recently passed government "stress tests" that assessed the adequacy of their capital levels to absorb losses and have been able to raise some capital in debt and equity markets, "the banking sector is in severe trouble," as more loans turn bad, he said.
The economy "is obviously heading toward a depression," despite the government's efforts to dodge one, said Prechter.
Federal Reserve Chairman Ben Bernanke has not averted a re-run of the 1930s Great Depression, even though investors are becoming firmly convinced that the Fed has avoided disaster and that the economy has hit bottom.
"It's the next leg down (in stocks) that will make it clear that these things are not true," Prechter said.
Quid pro quo. Yes or no? 0
Comments
from this link at advisor perspectives
<< <i>Dated May 19, 2009
Prechter’s longer term record is good, having beaten the benchmark [Wilshire 5000] for trailing 3-, 5- and 10-year periods, while taking less risk than the benchmark ... >>
Does Prechter have another rabbit in his hat? I tend to think that a credit downgrade that soon is extremely unlikely. Moody's will go to credit watch first, and even that much seems relatively unlikely in the time frame given. Then again, predicting the macro news stories doesn't have much to do with trading and making market calls. Several newsletters got their macro news predictions mostly right in 2008 and still lost 50% or more in real money for the monitored and audited trading record.
Japan is AA2 rated and they carry a debt load of 170% of GDP---might be 200% by end of this year. USA is only 45%. But lets think about this. Japan is not AAA-rated. Ok, do the people of Japan live lives worse than the USA? Do they live longer lives? Can they get anything they want? Can they go anywhere they please? Do they have the lowest interest rates in the industrialized world? Point is, even a AA rating is not doomsday.
edited to add.. If you agree with Prechter and think the market will go lower, then short it. There are many many investment vehicles that will do very well if the market tanks. Stop worring about the end of the world and profit from it.
Knowledge is the enemy of fear
<< <i>I would almost guarantee my life that the USA will be AAA rated at end of 2010. Only reason I wouldnt is that I have 2 kids who depend on me.
Japan is AA2 rated and they carry a debt load of 170% of GDP---might be 200% by end of this year. USA is only 45%. But lets think about this. Japan is not AAA-rated. Ok, do the people of Japan live lives worse than the USA? Do they live longer lives? Can they get anything they want? Can they go anywhere they please? Do they have the lowest interest rates in the industrialized world? Point is, even a AA rating is not doomsday.
edited to add.. If you agree with Prechter and think the market will go lower, then short it. There are many many investment vehicles that will do very well if the market tanks. Stop worring about the end of the world and profit from it.
Very good points. I was in Japan during the runup in 1986 and again during its unraveling in 1993. My brother-in-law lived there the past 3 years. The observations are that people are still living their dank lives. I couldn't tell how much more the citizen is dependant on the government than before their meltdown. The average "Joe" doesn't know the rating is AA2.
I do feel that our future is what Japan has experienced the past 20 years...of course with some unique American twists.
R95