Robert Prechter Calling For Major Market Decline

Robert Prechter, founder of Elliott Wave International Inc., recently sounded a note of caution to those who may think that the markets are in the beginning stages of a new bull market.

Prechter, at a meeting of the "Market Technicians Association", stated that he believes that major US markets could fall as much as 80% from their current levels, according to Bloomberg.com.

The reasons for a continuing shrinking of US equity values? Valuations are still much too high based on 2008 profits, and both dividend payouts and cash levels at mutual funds are far too low.

Prechter, who said in his address that "we have a long way to go to where the market may be at bear-market-bottom yields", claimed that the P/E ratios for S&P 500 stocks are still about 10 times too rich compared to previous bear market lows.

Elliott Wave International Inc. is a company that is based upon the theories of Ralph Nelson Elliott.

Elliott developed the concept of the "Elliott Wave principle", which states that market prices unfold in specific patterns, or "Elliott waves".

According to Wikipedia, Elliott "argued that because humans are themselves rhythmical, their activities and decisions could be predicted in rhythms" as well. The wave principle states that "collective investor psychology" shifts from optimism to pessimism and back again, and there are easily identifiable price movements that result from these shifts in investor sentiment.

Prechter, who is the CEO at Elliott Wave International, made a name for himself after correctly predicting the crash in 1987.

Prechter claims that the markets may fall to "half" of the lows that were seen in March, as a deflationary depression sets in.

These comments, as many have pointed out, are especially interesting considering that many believe that inflation will rear its ugly head due to the out-of-control printing of money by the Fed.

Prechter claims that the decline in equity values may last "another seven years".

Detractors of Prechter claim that he has been very wrong before, and that his comments should be taken with a grain of salt.

What do you think? Is Prechter right? Or will he end up being very wrong?

Source: Prechter Cites Profits as Chart Analyst Sees 80% Drop in Stocks

Filed under: The Economic Meltdown