The Great Bear Approaches

This article was originally published in German.
Sorry about the translation quality, it was the best I could get.

The bear market is coming - and he is worse than the last

Those who now dares to own two-year Greek government bond could earn 25 percent annually - if the Greeks to pay back the capital plus interest in full, proceeds of which no one really. Better the chances of repayment are still (!) in Portuguese short runners that are worth about eleven percent. Recently, it came here to a slight relaxation due to the bailout of 78 billion €, about the euro-zone finance ministers debated on Monday. However, new grants of up to 60 billion € for discussing the Hellenes.

Compared to the WirtschaftsBlatt, Brian Whitmer's of Elliott Wave International is pessimistic: "This is something of an escalation of the financial crisis - the difference being that between 2007 and 2009 Companies and entire countries are now affected." Here are the problems, the analyst says, in Europe, the bailout only worsens: "The debt is written off I do not see how the Greeks could avoid some of the default help slow down this process only..."

Sorgenkind France

Whitmer, whose assessment of the market on the so-called Elliott Wave is based, but more - the euro-zone crisis was anything but contained. "Many analysts believe that Spain and Italy would have prevented infection. Last year it was the same in Greece. Neither Ireland nor Portugal were Greece. I'm certainly still worried about Spain." Where the concerns do not end with Spain. Background, the credit derivatives ( credit default swaps , CDS), suggesting again escalating fears Whitmer. Thus the sign of the tension on the CDS and bond markets at the high of the financial crisis were extremely 09.08. Today, however, not only the five-year CDS of Greece, Portugal and Ireland act on these highs, but also those of Spain. And despite the calm of recent months, the CDS of Italy and even France since mid-2010 shoot again and again over the financial crisis highs. The Whitmer'sche conclusion: "This crisis is not over, it gets worse - over the next six to twelve months, they will spread to the core of Europe France is high on the list.."

It also make the stock exchanges, according to Whitmer as a leading indicator for determining the next Euro-problem child a good job. "With the crisis began, the stock markets have fallen to the periphery." The latest example: Portugal. While the Stoxx 600 in the 2010s-years rose about eight percent, the Portuguese lost ten percent benchmark index. Spain's IBEX is a full 15 percent since early 2010, under water, the Stoxx eight percent still in positive territory. "Only have the Dow and the Footsie done well," said Whitmer. In fact, France's leading index underperformers: Since early 2010, the performance amounted to minus 1.1 percent.

Tremendous opportunity

Accordingly, the bearish Elliott Wave expert when it comes to European stock exchanges. "We're already since the 2000 high in a correction now, the indices have again failed to reach new highs." Bad news: "The next bear market will be worse than the 2007 to 2009 due to the long-term pattern, we anticipate that we will fall below the lows of March 2009 in the next one or two years.." Whitmer, supports this thesis with the sentiment: ". In March 2009, no one was found who was optimistic today, after two years Rally, we have the opposite - the optimism is great."

The advice to investors is therefore simple: For example, the funds went over the financial crisis in safe currencies such as the U.S. dollar and the Swiss Franc: "We expect the same trend but more pronounced." Not least because, according to a survey currently 96 percent of futures traders are bullish on the euro against the U.S. dollar. A year ago, when the single currency to the dollar marked the depth, the same poll showed that 96 percent were bearish on the euro, which Whitmer comes from a "several months or even longer" devaluation of the euro. Accordingly, investors should thus hoard cash, to empathize with dollar and Swiss franc assets such as short-term government bonds and hold out until two years since then, believes Whitmer, waves on the stock exchanges, the next "tremendous buying opportunity."


Many of Brian Whitmer's views match our own. In our view the coming bear market will be at least as strong as the previous one, and the top of the market is lower than the previous top indicating new lows are possible. We believe the impact of the debt crisis in Europe has been heavily discounted to date and that a day of reckoning will soon come.

When we consider the trends developing in stocks and the economies of the US, Europe and now China, we should also consider what may happen to the price of crude oil. As this recent chart shows, oil has dropped 10% in less than 2 months. The 4 day EMA is heading toward the bottom of the Keltner channel, and if it crosses, that would be a very bearish signal. The situation with crude reminds us of price movements of May to August 2008, where we say a rapid run up and then sudden collapse.

As we have mentioned previously in this blog, our current target for crude lies in the $60 to $70 area. We expect this target may be reached by mid-winter given current trends.

We also think it is possible that crude could retest previous lows (ie: $30 to $40) if we move into full crisis mode with the sovereign debt problem. This is a secondary forecast that only applies if world trade were to slow to a crawl over the next year or longer.

Needless to say, we remain bullish on gold in the intermediate to long term, and bearish on most stocks. We also like the inverse copper ETF as the price of copper seems unreasonably high and cash due to its liquidity.


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