Wall Street's greatest crime (1 Viewer)

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WALL STREET'S GREATEST CRIME

Blatant Ignorance of Market History

Here we are, deep in the third year of a grueling bear market, and the Street's greatest pundits are still mouthing the same old party line aimed at keeping the public confused and buying. Their specially contrived formulas for "fair value" have kept untold millions of hard working American adding monthly contributions to their 401 K plans, and unfortunately to their eventual market losses.

Wall Street commentators love to make comparisons with markets of the past 50 years to avoid any mention of the 1929 Crash and aftermath. Fortunately, American investors are about to wake up to the truth which is of course that we are in the early stages of correcting the greatest stock market bubble of all time. The great irony is that, when this Mania ends, it will leave a great lesson for future generations. Will the true story be buried from view by the pundits of some future version of Wall Street to be resurrected from the skeleton of the current model?

How long can the perpetrators of the current crimes of commission and omission continue to parade before the CNBC camera? How long can this charade continue? Perhaps the recent layoff of Credit Suisse First Boston's chief market strategist will be the first of many such actions. Recent performances by this "actor" and his peers have seemed abysmally weak in the advice being given to their viewers.

But the long standing crimes we are discussing will not end with layoffs forced by dwindling revenues. The crime of ignorance exists at all levels in the financial services industry from the newest college hires to the CEO's. Unfortunately, there are no laws protecting investors from the pervasive ignorance in Wall Street. And there are no agencies to raise a red flag such as exist for crimes of theft and fraud. The biggest problem of all is that this is truly a hidden crime, unrecognized and unpublicized. That is why I decided to write this essay and to wake up America to the criminals hiding in their midst.

THE SOMBER HISTORY OF PAST MARKET MANIAS

Fortunately for America's future, there are a few market-wise investors who have learned the lessons of market history and especially those of the world's famous manias starting with that of the Tulip Bulbs in Holland during the 1630's. Some of the world's best brains have given anyone interested some fascinating stories of men's past follies starting with the Dutch Tulip Bulb Mania of the 1630's and ending with the Great Crash of 1929 and its aftermath. Unfortunately the full story of the more recent mania in Japan which ended in 1989 cannot be told since its depression is still ongoing with no end in sight. So that story will perhaps be covered in a future volume along with the story of the Greatest Mania in the history of mankind now starting to unwind in the United States.

Charles MacKay's great classic "Extraordinary Popular Delusions and the Madness of Crowds" was first published in 1847. Its original readers would have had a wonderful preview of all the great market panics that followed. Quite obviously no important lessons were learned from MacKay's prescient warnings. All the manias sound very much alike, but with new locations and faces.

Noted economist John Kenneth Galbraith wrote his stern warnings in "The Great Crash of 1929". It was published in 1955 about the time that the Dow had reached its former peak price. His recognition of the crimes of Wall Street is exemplified in the excerpts below:

Page 26" Opportunities for the social historian

"In the autumn of 1929 the mightiest of Americans were, for a brief time, revealed as human beings. Like most humans, most of the time, they did some very foolish things. On the while, the greater the earlier reputation for omniscience, the more serene the previous idiocy, the greater the foolishness now exposed. Things that in other times were concealed in a heavy facade of dignity now stood exposed, for the panic suddenly, almost obscenely, snatched this facade away. We are seldom vouchsafed a glance behind this barrier; in our society the counterpart of the Kremlin walls is the thickly stuffed shirt. The social historian must always be alert to his opportunities, and there have been few like 1929"

Page 27: Conspiracy theories

"Even in such a time of madness as the late twenties, a great many man in Wall Street remained quite sane. But they also remained very quiet. The sense of responsibility in the financial community for the community as a whole is not small. It is nearly nil. Perhaps this is inherent. In a community where the primary concern is making money, one of the necessary rules is to live and let live. To speak out against madness may be to ruin those who have succumbed to it. So the wise in Wall Street are nearly always silent. The foolish thus have the field to themselves. None rebukes them."

So, from the last two lines we learn that, in addition to the crime of ignorance, still greater may be the crime of silence from those wise enough to recognize a mania.

Page 28: Unwise to be sane in an insane time

"Governments were either bemused as were the speculators or they deemed it unwise to be sane at a time when sanity exposed one to ridicule, condemnation for spoiling the game, or the threat of severe political retribution."

Page 47: Vision and and Boundless Hope and Optimuism

"The machinery by which Wall Street separates the opportunity to speculate from the unwanted returns and burdens of ownership is ingenious, precise and almost beautiful. Banks supply funds to brokers, brokers to customers, and the collateral goes back to banks in a smooth and all but automatic flow. Margins - the cash which the speculator must supply in addition to the securities to protect the loan and which he must augment if the value of the collateral securities should fall and so lower the protection they provide - are effortlessly calculated and watched.

The interest rate moves quickly and easily to keep the supply of funds adjusted to the demand. Wall Street, however, has never been able to express its pride in these arrangements. They are admirable and even wonderful only in relation to the purpose they serve. The purpose it so accommodate the speculator and facilitate speculation. But the purposes cannot be admitted. If Wall Street confessed this purpose, many thousands of moral men and women would have no choice but to condemn it for nurturing an evil thing and call for reform. Margin trading must be defended not on the grounds that it efficiently and ingeniously assists the speculator, but that is encourages the extra trading which changes a thin and anemic market into a thick and healthy one. Wall Street, in these matters, is like a lovely and accomplished woman who must wear black cotton stockings, heavy woolen underwear, and parade her knowledge as a cook because, unhappily, her supreme accomplishment is as a harlot."

Galbraith also wrote a second book "A Short History of Financial Manias". Two decades later, another classic book, Charles P. Kindelberger's "Manias, Panics and Crashes" was published in 1978 and is being used as a college text book in a Finance course in at least one university today.

It is obvious that these classic books had no effect in dampening investor enthusiasm during the mania of the late 1990's. Neither did the book published in 1999 by Edward Chancellor, a British-educated investment banker and financial journalist. A review of his new book "Devil Take the Hindmost: History of Financial Speculation" in Business Week in September 1999 has this interesting opening story:

Chancellor book review

"At the time, I was riding in a New York City subway train that had fewer seats than passengers. So I stood, holding a pole with one hand and Chancellor's book in the other, my body twisted between two fellow travelers talking about--what else?--the stock market. As it turned out, one of these commuters appeared to be an authority on the subject. A young man neatly dressed in a suit and tie, he nodded earnestly as a middle-aged woman described her portfolio--ticking off the names of high-tech favorites. After the woman finished, there was a pause before the market maven invoked the same names himself, adding after each one: ''You can't lose. You can't lose.''

ECONOMIC MYOPIA IN ACADEMIA

My regular readers are well aware of my severe criticism of the almost complete lack of knowledge, understanding and guidance from our university experts in the field of Macroeconomics. This is the field that is supposed to understand and explain the major and minor up and down swings in our economy. Their forecasting record is abysmal, only half as good as tossing a coin. In recent years dozens of economists have received Nobel prizes for their usually arcane studies in mathematics and psychology. The problem is the prizes are awarded by a committee of their peers in Sweden who also cannot see the "forest" from the "trees"

In recent years and months, two distinguished American Ph.D. professors and best-selling authors have been frequent commentators on CNBC. When they appear on my TV screen, I usually turn the mute off and listen to their views. They are both very intelligent men and usually, unlike poor Lou Rukeyser, make a few interesting observations. With the help of student labor, Dr. Jeremy Siegel compiled some very useful long term data on stocks and published it in his best seller "Stocks for the Long Run" well before the mania topped. This book has been updated in June 2002 and I quote from its publicity:

Siegel book review

"What is going on? What can investors expect in the future? Jeremy Siegel, in addition to updating all relevant chapters, charts, and figures in this seminal book, will turn his attention to the five major issues on the minds of investors and professionals in the wake of recent events: - How does the events of September 11th affect the prospects of long term stock market returns? - Is there a future in technology stocks? - What are the growth sectors of the future? - What companies will generate value to shareholders? - Can the stock market deliver the same returns in the future it did in the past? The book includes a compelling look at the broad economic forces defining the 21st century. In one section entitled The Communication Revolution, it addresses the key technologies likely to shape the future of the stock market. Also included are several hands-on chapters that provide tools and techniques to help investors make key investment"

With all due respect to his fine scholarship, it is my considered opinion (to be explained later) that Dr. Siegel does not understand what is going on.

Dr. Robert Shiller, the other current TV personality, issued another scholarly best seller titled "Irrational Exuberance", choosing the famous words uttered by Alan Greenspan at an early point in the stock mania. Here is an interesting review written 4 months after the book was rushed to press.

Shiller's Irrational Exuberance

June 12, 2000 ."Irrational Exuberance, as the title indicates, argues that the stock market is significantly overvalued by historical standards, and that equity investors are very much at risk of receiving flat or declining returns, perhaps for as long as one or two decades. While Shiller hedges his bets regarding what individuals should do, the clear implication of his book is that investors should look beyond stocks to diversify their savings, and perhaps withdraw from the market altogether.

Irrational Exuberance begins with a question: "Are powerful fundamental factors at work to keep the market as high as it is now... or is the market high only because of some irrational exuberance -- wishful thinking on the part of investors that blinds us to the truth of our situation?" Shiller believes it's a result of the latter, and he sketches out the following scenario: In recent years, 12 "precipitating factors" that form the "skin of the bubble," and that have no direct impact on corporate profits or other business fundamentals (in his view), have helped drive up stock prices. These 12 factors include the widespread use of 401(k) plans, the retirement savings of baby boomers, and increased media coverage of business developments and stocks.

These trends have been amplified by "positive feedback loops" among individual investors, which creates "naturally occurring Ponzi processes" as more individuals follow their friends and neighbors into stock investing. This process is aided and abetted by the news media, in particular the more interactive media on the Internet, which he considers much more effective at spreading ideas and encouraging people to act on them.

The result of all this is herd-like behavior among investors, which he also compares to an epidemic. Since the market has gone up so much as a result of investor psychology rather than fundamental economic factors, it therefore naturally follows that we have a speculative bubble, which Shiller defines as "a situation in which temporarily high prices are sustained largely by investors' enthusiasm rather than by consistent estimation of real value."

Finally, he argues that our current bubble is the fourth instance of overpricing to occur in the U.S. stock markets in the past 100 years, with the first three occurring in 1901, 1929, and 1966. In each of the three previous cases, stocks provided mediocre returns for at least two decades following the market's peak. Shiller sees no reason why this won't happen again.

By the last chapter, he is unequivocal: "The high recent valuations in the stock market have come about for no good reasons." .

Shiller's views were similar to Siegel's in being based on a huge amount of statistics but he went much further in attributing the mania to investor psychology and their herding instincts. In the following section, we will point out what both Siegel and Shiller did not discuss in their books and which their comments on TV today shows to be a huge void in their knowledge.

THE TRUTH ABOUT MARKET MANIAS AND CRASHES

The brilliant mind of a retired accountant, Ralph N. Elliott, gave the world the first scientific explanation for the large and small waves in stock mark action. Working in the 1930's, without modern tools, he examined a huge number of stock charts with time scales of various lengths, He discovered all stock waves have identical form irrespective of the time scale. He wrote down a series of rules which describe the permissible forms of stock market waves whether measured in days, weeks or centuries. His earth-shattering book "The Elliott Wave Principle" was published in 1938. Today, a small band of devoted investors around the world follow in Elliott's footsteps. His important discoveries of the herding actions of unthinking crowds of investors preceded Shiller's book by more than 60 years.

In my past Gold-Eagle essays, I have written about the unbelievable ignorance of Elliott's brilliant work in the halls of academia. How can this revolutionary theory which has stood the test of 3 generations of investors not have been studied and taught in our university Economics departments? Following Elliott's death, experts have traced the Elliott Wave patterns of the 20th century back to the London stock market in 1700. So we can now view the entire four century history of stock markets in terms of their Elliott Waves. We now understand the past and have the wonderful capability to project waves into the future.

Using Elliott Wave principles, Robert Prechter was able to predict the great new bull market of the 80's and 90's four years before its start. In his 1995 book "At the Crest of the Tidal Wave", he predicted the bull market end was near. But the Feds unwise actions forced the mania to unexpected heights and delayed the crash until the end of 2000.

To my knowledge, only one paper on the Elliott Wave Principle has come out of academia, a great paper published in January 2000 by Gold Eagle titled "Forecasting Crashes and Recessions". The author, Hernan Cortes Douglas, a Chilean Economics professor, discussed the many shortcomings of conventional macroeconomic theory and then, point by point, made a strong case for the great advantages in using the Elliott Wave principle to unveil the previous "mysteries" of the stock market.

Independent work by a mathematician working in the new field of Fractal Geometry has discovered elements in nature that are quite similar to Elliott stock waves. A so-called hierarchical structure exists in which the elements are identical at all size levels. A good example is that of a broccoli plant which is identical from the main stalk to the tiniest floret. Elliott waves obey a series of numbers called the Fibonacci series which also dictate the shape of natural forms like sea shells or snow flakes.

In a past essay we have compared Elliott's discovery as being as important as Galileo's discovery of the moons of Jupiter. A brilliant mathematician, university professor, John Casti, has recently authored the first paper aimed at explaining the significance o Elliott's work to the average layman. This is no easy task since the theory is complex but the biggest hurdle is wiping out old ideas. That is what is apparently bothering our university level economists.

Elliott proved beyond all doubt that (1) stock waves represent the unthinking acts of crowds of investors, (2) stock waves cause booms and busts and finally (3) stock waves cause changes in moods in society.. The stock market affects social actions in the real world. Outside news events do not cause more than short term effects on the stock market. This is apparently too difficult a change in thinking for even our best minds in academia, Wall Street and government.

Ralph Elliott will some day receive overdue recognition for his great discovery. We now have conclusive evidence of its validity over 400 years of stock market history. The evidence is crystal clear. It explains every market mania and crash since the South Sea Bubble in London in 1720-22. More importantly for this generation, it successfully explained, in advance, both the greatest bull market in history and its approaching demise. Few people were reading the Elliot waves and profiting from that knowledge. Certainly, if anyone in Wall Street had this vital information before the events transpired, they were surely not publicizing it to anyone.

VERDICT: GUILTY AS CHARGED

No one in Wall Street will go to jail for plain ignorance or stupidity. There used to be a weeding-out process in corporations to prevent idiots from reaching the corner office on the top floor. For the moment, let's assume it is still there and the CEOs are all brainy and well educated. Did they know about the Elliott Wave prediction of the mania and double their sales force? Did some of them recognize the bubble and still order "full speed ahead"? We leave to our readers the task of trying to answer those questions.

In our recent essay "Education in Crisis", we deplored the tremendous deficiencies in our system from kindergarten to the University doctoral level. Knowing all these problems, I still cannot understand how the tens of thousands of Ph. D. level economists could avoid reading and commenting about Elliott's work in the past 60 years. Yet, the literature is devoid of any such papers. Did they fear it would reduce jobs or salaries in their ivory towers?

A number of my readers have written to say "they knew but for unknown reasons were not telling". Why would a tenured professor have that position? Could this be why there were no warnings of a mania and crash from Wall Street. I remember well the astonishingly cruel treatment that the early "bears" were given on CNBC and Wall Street Week.

Several readers have suggested the conspiracy theory that our leaders in Washington and Wall Street had full knowledge of the Mania and Crash but decided not to tell the public for fear of making the problem worse and creating a panic. If that is true then some of them must have read the classic books reported earlier. The truth from all of recorded history is that, in each and every past mania, the stock prices eventually dropped below the starting level. It is understandable that leaders would not want to see this information publicized. However, Elliott Wave experts continue to expect tha the Dow index will eventually fall below 1000. One can only wonder what the state of our nation will be if and when that event occurs.

CONCLUSIONS

I have studied and used the Elliott Wave Principle for seven years. I wish I had learned about it sooner as it has been a real benefit to me both mentally and financially. I do not want to contemplate what my life might have been without that valuable knowledge during my octogenarian years. It has enabled me to stay calm and avoid panic. With my continued reading and study I have been able to write my many essays and help others around the world. For those who have yet to start their journey into the wonderful world of Elliott, I recommend that you start by reading Prechter's best seller "Conquer the Crash". Then for more reading there is at subject index of essays in my recent essay "Imprudent Investing".



Robert B. Gordon Sc.D.
Sun City West AZ 85375
[email protected]

2 november
 

tontolina

Forumer storico
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ed una tontolina che non conosce l'ostrogoto che fa? :rolleyes:

non neppure un regale augello per ..... fumare :ops:

insomma..... :p puoi provvedere a fare un piccolo riassunto? :love:
 

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