By Alan Hall | Excerpted from the April 2008 Elliott Wave Theorist
In this riveting article – penned in early 2008 as the credit bubble burst – socionomist Alan Hall reviewed two indicators of the massive credit deflation: Widespread environmental fear and a price extreme for commodities.
Here is an excerpt of the April 2008 report.
Deflation is the Threat
In 2002, Conquer the Crash described today’s giant credit bubble and was the only book to explain that credit “liquidity” would be responsible for a widespread positive correlation among many disparate markets, from bonds to precious metals. Since then, The Elliott Wave Theorist and Elliott Wave Financial Forecast have anticipated many facets of the bust that is now underway. Today, many investors will be seduced by the bear-market rally in stocks when they should be heeding the signs of deflation in the collapsing credit structure, housing, and the Dow/gold ratio discussed in last month’s Theorist.
… Today’s historic credit inflation has reached a terminal state, as indicated first by years of record indebtedness, then by collapsing housing prices, multi-billion-dollar write-downs and finally, by the economic slowdowns in the U.S. and Europe. Despite these signs, there is almost no recognition that deflation is already happening.
… Fear is a Characteristic of Fifth Waves in Commodities
Fear is a characteristic of “C” waves of bear markets in stocks, and also of fifth waves in bull markets in commodities. Both waves are in force today. The war on terror, broad-based environmental fear, and the fear of the end of cheap oil and food all express the social character we expect from these simultaneous wave patterns. This quote from chapter 6 of Elliott Wave Principle describes fifth waves in commodities:
Also in contrast to the stock market, commodities most commonly develop extensions in fifth waves within Primary or Cycle degree bull markets. This tendency is entirely consistent with the Wave Principle, which reflects the reality of human emotions. Fifth wave advances in the stock market are propelled by hope, while fifth wave advances in commodities are propelled by a comparatively dramatic emotion, fear: fear of inflation, fear of drought, fear of war. Hope and fear look different on a chart, which is one of the reasons that commodity market tops often look like stock market bottoms.
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Continue reading this six-page article to learn how this same fear also motivated increased survivalist and environmentalist actions and signaled the end of the major inflationary cycle.
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