Like Robert McHugh, "Mish" also follows the Elliot Wave theory:
In Elliott Wave terms the index is in an impulsive wave 3 down. At some point there will be a corrective wave 4 up, with still more down to follow in wave 5. A lower low can be expected.
Showing posts with label Robert McHugh. Show all posts
Showing posts with label Robert McHugh. Show all posts
Friday, October 10, 2008
Thursday, October 09, 2008
Robert McHugh was right!
15 months ago, Robert McHugh predicted this:
[The Dow] can be expected to drop to about the start of the pattern, at a minimum, meaning into the 9,000s over the intermediate-term... It is looking increasing likely to us that world central banks will choose hyperinflation rather than nominal decline in stock indices, which will force precious metals prices to rise sharply.
In gold-price terms, McHugh's Dow prediction came true on January 22 this year. Now it's come true in nominal terms, too (9,153.22 at 13:04 ET today) (UPDATE: 8.731.87 at 15:41).
It seems McHugh is an adherent of the Elliot Wave principle. Wikipedia gives a criticism of the theory:
The premise that markets unfold in recognizable patterns contradicts the efficient market hypothesis, which says that prices cannot be predicted from market data such as moving averages and volume. By this reasoning, if successful market forecasts were possible, investors would buy (or sell) when the method predicted a price increase (or decrease), to the point that prices would rise (or fall) immediately, thus destroying the profitability and predictive power of the method. In efficient markets, knowledge of the Elliott wave principle among investors would lead to the disappearance of the very patterns they tried to anticipate, rendering the method, and all forms of technical analysis, useless.
I think one could riposte that events have demonstrated that the efficient market does not exist.
[The Dow] can be expected to drop to about the start of the pattern, at a minimum, meaning into the 9,000s over the intermediate-term... It is looking increasing likely to us that world central banks will choose hyperinflation rather than nominal decline in stock indices, which will force precious metals prices to rise sharply.
In gold-price terms, McHugh's Dow prediction came true on January 22 this year. Now it's come true in nominal terms, too (9,153.22 at 13:04 ET today) (UPDATE: 8.731.87 at 15:41).
It seems McHugh is an adherent of the Elliot Wave principle. Wikipedia gives a criticism of the theory:
The premise that markets unfold in recognizable patterns contradicts the efficient market hypothesis, which says that prices cannot be predicted from market data such as moving averages and volume. By this reasoning, if successful market forecasts were possible, investors would buy (or sell) when the method predicted a price increase (or decrease), to the point that prices would rise (or fall) immediately, thus destroying the profitability and predictive power of the method. In efficient markets, knowledge of the Elliott wave principle among investors would lead to the disappearance of the very patterns they tried to anticipate, rendering the method, and all forms of technical analysis, useless.
I think one could riposte that events have demonstrated that the efficient market does not exist.
Wednesday, July 02, 2008
Could deflation reduce the price of gold?
Last year, Robert McHugh predicted that the Dow would drop to 9,000, at least in terms of the price of gold. By January 22 this year, that had happened.
But people like Karl Denninger have been saying for a long time that the outcome of the credit crunch will be deflationary, and Mr Denninger is more emphatic than ever about that now. And that's not just the view of a private investor who backs his judgment with his own hard-earned money: the Bank for International Settlements (htp: Michael Panzner) also thinks deflation a serious possibility.
I recently did a little primitive chartism and thought it possible that the Dow might revert to what looks like a longer-term trend line that includes the 9,000 mark.
Turning to the price of gold, it has certainly soared over the past few years, but there's been debate about manipulation. Frank Veneroso thinks central banks have been releasing stocks of gold to keep the price down, yet at the same time it is suspected that speculators have been boosting the price, possibly using leveraging (borrowing extra cash to increase the returns).
So another way for McHugh's prediction to come true (again), would be for both the Dow and the gold price to come down together. The ratio implicit in his prediction (13.51) could imply that the Dow hits 9,000 and gold drops to about $666 per ounce, or about 30% off where it is now.
Not impossible, if leveraged speculators have to disinvest to repay their borrowings in a hurry; and it would still only be a reversion to where gold was two years ago (and even then, nearly double what it had been three years before that).
But people like Karl Denninger have been saying for a long time that the outcome of the credit crunch will be deflationary, and Mr Denninger is more emphatic than ever about that now. And that's not just the view of a private investor who backs his judgment with his own hard-earned money: the Bank for International Settlements (htp: Michael Panzner) also thinks deflation a serious possibility.
I recently did a little primitive chartism and thought it possible that the Dow might revert to what looks like a longer-term trend line that includes the 9,000 mark.
Turning to the price of gold, it has certainly soared over the past few years, but there's been debate about manipulation. Frank Veneroso thinks central banks have been releasing stocks of gold to keep the price down, yet at the same time it is suspected that speculators have been boosting the price, possibly using leveraging (borrowing extra cash to increase the returns).
So another way for McHugh's prediction to come true (again), would be for both the Dow and the gold price to come down together. The ratio implicit in his prediction (13.51) could imply that the Dow hits 9,000 and gold drops to about $666 per ounce, or about 30% off where it is now.
Not impossible, if leveraged speculators have to disinvest to repay their borrowings in a hurry; and it would still only be a reversion to where gold was two years ago (and even then, nearly double what it had been three years before that).
Friday, June 27, 2008
Dow Jones - worse bubble than the FTSE?
Just out of interest, I thought I'd do the same trend-spotting exercise for the Dow Jones as I did yesterday for the FTSE, i.e. extrapolating the highs and lows in the late 80s and early 90s.The results are very different. October 2007 saw the Dow's highest-ever peak, and today, after falling over 2,000 points from that point, it still stands about where it was in the tech bubble of December 2000 (see yellow line).
And my hi-lo wedge (red lines) suggest that the Dow has been seriously above trend for most of the last 11 years. Of course, you can draw lines however you like, but I'm trying to do approximately the same as for the FTSE and the implication is that the Dow "ought" to be between 7,000 - 10,000, centring around the 8,500 mark. This chimes with what Robert McHugh predicted last year (9,000). (If you draw the "high" line to connect the '87 and '94 peaks, the hi-lo lines converge towards 7,000!)
I wonder what's keeping it up?
Sunday, March 09, 2008
Sunday, February 03, 2008
Why equities should go down
I'm breaking radio silence because of a brilliantly lucid article (from the subscription-only Barron's site) found for us by Michael Panzner.
Vitaliy Katsenelson explains that the current average price-earnings ratio may seem cheap, but that's because recent profit margins have been well above the 8.5% trend. Even allowing for a shift since 1980 away from industry towards the higher-margin service sector, the present 11.9% profit margin should be seen against a longer-term background figure of around 8.9 - 9.2%, which if current p/e ratios continue would imply a downward stock price correction of 22 -25%.
This chimes with Robert McHugh's "Dow 9,000" prediction from last July. And in many fields it's usual for overshoot to occur in the process of regression to a mean, so if it holds true in this case we could see even deeper temporary lows.
Day traders, be warned: this piste is a Black Run.
Vitaliy Katsenelson explains that the current average price-earnings ratio may seem cheap, but that's because recent profit margins have been well above the 8.5% trend. Even allowing for a shift since 1980 away from industry towards the higher-margin service sector, the present 11.9% profit margin should be seen against a longer-term background figure of around 8.9 - 9.2%, which if current p/e ratios continue would imply a downward stock price correction of 22 -25%.
This chimes with Robert McHugh's "Dow 9,000" prediction from last July. And in many fields it's usual for overshoot to occur in the process of regression to a mean, so if it holds true in this case we could see even deeper temporary lows.
Day traders, be warned: this piste is a Black Run.
Tuesday, January 22, 2008
Dow 9,000 prediction fulfilled
As at the time of writing, the Dow is 11,820.24 and gold $875.90/oz. The Dow/gold ratio is therefore below 13.51 and has (perhaps fleetingly) fulfilled Robert McHugh's prediction.
Whether the Dow falls below 9,000 nominal in the course of a severe recession is something we shall have to see.
Whether the Dow falls below 9,000 nominal in the course of a severe recession is something we shall have to see.
Monday, January 21, 2008
We've just had a crash
... and Robert McHugh figures that the US stock market (as measured by the Wilshire 5000 Index) has already lost $2.6 trillion in the last three months.
He's begging for inflation now, rather than a useless stimulant later when the mule has died.
He's begging for inflation now, rather than a useless stimulant later when the mule has died.
Friday, January 18, 2008
Dow 9,000 update
Dow 12,082.31, gold $880.50/oz, so the Dow is now worth 13.72 ounces of gold as against Robert McHugh's prediction of 13.51.
Nearly there, and the new announcement of a $145 billion reflation may push gold that extra yard.
Nearly there, and the new announcement of a $145 billion reflation may push gold that extra yard.
Wednesday, January 16, 2008
Here we go
Two from Karl Denninger in the last two days:
Monday, he reasserted his belief in DE-flation; but as I've been saying for some time, maybe the real issue is the divide between haves and have-nots, and he deals with that, too. No point being rich if you daren't go out.
Yesterday, he sounded the bells for a possible crash today. Maybe this is when Robert McHugh's prediction is fulfilled.
Monday, he reasserted his belief in DE-flation; but as I've been saying for some time, maybe the real issue is the divide between haves and have-nots, and he deals with that, too. No point being rich if you daren't go out.
Yesterday, he sounded the bells for a possible crash today. Maybe this is when Robert McHugh's prediction is fulfilled.
Sunday, January 13, 2008
Dow 9,000 update
Last year, Robert McHugh predicted that the Dow would drop to 9,000, if not in nominal terms then in relation to gold. The Dow was then 13,238.73 and gold $666.30/oz, which means that it took 19.87 ounces of gold to buy the Dow. McHugh's prediction implies the Dow dropping to 13.51 gold ounces (a fall of 6.36 ounces).
The Dow is now 12,606.30 and gold $894.90, so the Dow is now worth 14.09 gold ounces. It has fallen by 5.78 ounces out of the predicted 6.36, so the prediction is 90.9% fulfilled so far.
McHugh will be fully correct if, for example, the Dow remains unchanged and gold rises to $933/oz; or if gold stalls, the Dow will need to fall to 12,090.
The Dow is now 12,606.30 and gold $894.90, so the Dow is now worth 14.09 gold ounces. It has fallen by 5.78 ounces out of the predicted 6.36, so the prediction is 90.9% fulfilled so far.
McHugh will be fully correct if, for example, the Dow remains unchanged and gold rises to $933/oz; or if gold stalls, the Dow will need to fall to 12,090.
Wednesday, November 07, 2007
Down Jones
Dow 9,000 update: Dow at 13,660.94, gold $833.80/oz. "Gold-priced Dow" has therefore gone down since July 6, from 13,611.69 to (effectively) 10,612.71, a drop of 22% (or 52% p.a. annualised).
To put it another way, the Dow has stood still and gold has risen 29% (or 112% p.a. annualised) over the last 123 days.
To put it another way, the Dow has stood still and gold has risen 29% (or 112% p.a. annualised) over the last 123 days.
Friday, August 31, 2007
The Dow 9,000 prediction
In SafeHaven on 9 July 2007, Robert McHugh predicted the Dow would drop to 9,000 "over the intermediate-term, although if the PPT responds by hyperinflating the money supply, it could be 9,000 in real dollars (gold adjusted), not nominal." This would mean a drop of 33.88% from its 6 July value. Others have also forecast a fall in the Dow and/or the dollar. I plan to test this assertion from time to time.
The situation is complicated by monetary inflation in the USA, and in other countries that are trying to maintain the exchange rate of their currencies against the dollar, in order to protect their trade with America. So we'll take the Dow as it was on 6 July (the chart McHugh was using) and adjust for relative currency movements and the price of gold.
Starting points for 6 July 2007: the Dow was 13,611.69; gold (London AM fix) $647.75/oz.; using the interbank rates as given by O&A, one US dollar bought 122.7160 Japanese yen, 0.49630 British pounds, 0.73450 Euros, 7.60760 Chinese yuan/renminbi.
Situation as at c. 7 a.m. GMT 31 August 2007: Dow 13,238.73; gold $666.30; dollar buys 115.73200 Japanese yen, 0.49660 British pounds, 0.73280 Euros, 7.55580 Chinese yuan/renminbi. Adjusting for movements in currencies and the price of gold, we reinterpret the Dow today as being worth:
12,870.16 against gold
12,485.29 against the Japanese yen
13,246.73 against the British pound
13,208.09 against the Euro
13,148.59 against the Chinese yuan/renminbi
At present and in purchasing terms, the Dow since 6 July 2007 has fallen most (8.275%) against Japan, next against gold (5.45%), then China (3.40%), Europe (2.97%) and the UK (2.68%). I see this last as a measure of Britain's own weakness.
So within two months, and against the yen, the Dow has already fallen by about one-quarter of McHugh's predicted overall drop.
September 8: since August 31, the Dow has slipped further to close at 13,113.38 on Friday; gold has risen to $701 (London PM gold fix). Adjusted for the rise in the price of gold, the Dow is now the equivalent of 12,117.25. So in terms of Robert McHugh's prediction, it has lost 10.98% since July 6. Time for another quiet release of gold by central banks?
September 18: At the time of writing (6 p.m. British Summer Time), the Dow stands at 13,493 and gold at $713.70/oz. Adjusted for the change in the price of gold, the Dow has fallen by just over 10% since July 6.
September 21: Dow currently 13,839.54, gold (10.03 a.m. NY time) $736.30. Adjusted for the change in the gold price, the Dow would be worth 12,175.15, or down 10.55% since July 6.
Putting it another way, gold has risen 13.67% against the dollar in 77 days; that's getting on for 90% annualised. Is this lift-off for Doug Casey's trip to the moon?
September 29: July 6 to present: Dow up from 13,611.69 to 13,895.63; gold up from $647.75/oz. to $743.10. So the "gold-priced Dow" is down 11.01% in 84 days.
Annualised equivalent: gold increasing by c. 82% p.a., "gold-priced Dow" falling 40% over a year. Will these trends continue?
October 27: The Dow is currently at 13,806.70, up slightly from its July 6 valuation of 13,611.69. But gold has risen from $647.75 to $783.50 in the same period - up 21% in 113 days, or around 85% annualised. This means the "gold-priced Dow" is worth 11,414.54. At this rate, Robert McHugh's prediction will be fulfilled by March 8 next year.
November 2: Dow at 13,595.10, gold $806 per ounce. Since July 6, Dow has appeared to hold its ground, but the "gold-priced Dow" has dropped to 10,925.83 - a fall of over 49% annualised. And at this rate, gold will have doubled in dollar terms by July 2008.
November 7: Dow at 13,660.94, gold $833.80/oz. "Gold-priced Dow" has therefore gone down since July 6, from 13,611.69 to (effectively) 10,612.71, a drop of 22% (or 52% p.a. annualised).
To put it another way, the Dow has stood still and gold has risen 29% (or 112% p.a. annualised) over the last 123 days.
January 13, 2008: Last year, Robert McHugh predicted that the Dow would drop to 9,000, if not in nominal terms then in relation to gold. The Dow was then 13,238.73 and gold $666.30/oz, which means that it took 19.87 ounces of gold to buy the Dow. McHugh's prediction implies the Dow dropping to 13.51 gold ounces (a fall of 6.36 ounces).
The Dow is now 12,606.30 and gold $894.90, so the Dow is now worth 14.09 gold ounces. It has fallen by 5.78 ounces out of the predicted 6.36, so the prediction is 90.9% fulfilled so far.
McHugh will be fully correct if, for example, the Dow remains unchanged and gold rises to $933/oz; or if gold stalls, the Dow will need to fall to 12,090.
January 18, 2008: Dow 12,082.31, gold $880.50/oz, so the Dow is now worth 13.72 ounces of gold as against Robert McHugh's prediction of 13.51.
Nearly there, and the new announcement of a $145 billion reflation may push gold that extra yard.
January 22, 2008: As at the time of writing, the Dow is 11,820.24 and gold $875.90/oz. The Dow/gold ratio is therefore below 13.51 and has (perhaps fleetingly) fulfilled Robert McHugh's prediction.
Whether the Dow falls below 9,000 nominal in the course of a severe recession is something we shall have to see.
The situation is complicated by monetary inflation in the USA, and in other countries that are trying to maintain the exchange rate of their currencies against the dollar, in order to protect their trade with America. So we'll take the Dow as it was on 6 July (the chart McHugh was using) and adjust for relative currency movements and the price of gold.
Starting points for 6 July 2007: the Dow was 13,611.69; gold (London AM fix) $647.75/oz.; using the interbank rates as given by O&A, one US dollar bought 122.7160 Japanese yen, 0.49630 British pounds, 0.73450 Euros, 7.60760 Chinese yuan/renminbi.
Situation as at c. 7 a.m. GMT 31 August 2007: Dow 13,238.73; gold $666.30; dollar buys 115.73200 Japanese yen, 0.49660 British pounds, 0.73280 Euros, 7.55580 Chinese yuan/renminbi. Adjusting for movements in currencies and the price of gold, we reinterpret the Dow today as being worth:
12,870.16 against gold
12,485.29 against the Japanese yen
13,246.73 against the British pound
13,208.09 against the Euro
13,148.59 against the Chinese yuan/renminbi
At present and in purchasing terms, the Dow since 6 July 2007 has fallen most (8.275%) against Japan, next against gold (5.45%), then China (3.40%), Europe (2.97%) and the UK (2.68%). I see this last as a measure of Britain's own weakness.
So within two months, and against the yen, the Dow has already fallen by about one-quarter of McHugh's predicted overall drop.
September 8: since August 31, the Dow has slipped further to close at 13,113.38 on Friday; gold has risen to $701 (London PM gold fix). Adjusted for the rise in the price of gold, the Dow is now the equivalent of 12,117.25. So in terms of Robert McHugh's prediction, it has lost 10.98% since July 6. Time for another quiet release of gold by central banks?
September 18: At the time of writing (6 p.m. British Summer Time), the Dow stands at 13,493 and gold at $713.70/oz. Adjusted for the change in the price of gold, the Dow has fallen by just over 10% since July 6.
September 21: Dow currently 13,839.54, gold (10.03 a.m. NY time) $736.30. Adjusted for the change in the gold price, the Dow would be worth 12,175.15, or down 10.55% since July 6.
Putting it another way, gold has risen 13.67% against the dollar in 77 days; that's getting on for 90% annualised. Is this lift-off for Doug Casey's trip to the moon?
September 29: July 6 to present: Dow up from 13,611.69 to 13,895.63; gold up from $647.75/oz. to $743.10. So the "gold-priced Dow" is down 11.01% in 84 days.
Annualised equivalent: gold increasing by c. 82% p.a., "gold-priced Dow" falling 40% over a year. Will these trends continue?
October 27: The Dow is currently at 13,806.70, up slightly from its July 6 valuation of 13,611.69. But gold has risen from $647.75 to $783.50 in the same period - up 21% in 113 days, or around 85% annualised. This means the "gold-priced Dow" is worth 11,414.54. At this rate, Robert McHugh's prediction will be fulfilled by March 8 next year.
November 2: Dow at 13,595.10, gold $806 per ounce. Since July 6, Dow has appeared to hold its ground, but the "gold-priced Dow" has dropped to 10,925.83 - a fall of over 49% annualised. And at this rate, gold will have doubled in dollar terms by July 2008.
November 7: Dow at 13,660.94, gold $833.80/oz. "Gold-priced Dow" has therefore gone down since July 6, from 13,611.69 to (effectively) 10,612.71, a drop of 22% (or 52% p.a. annualised).
To put it another way, the Dow has stood still and gold has risen 29% (or 112% p.a. annualised) over the last 123 days.
January 13, 2008: Last year, Robert McHugh predicted that the Dow would drop to 9,000, if not in nominal terms then in relation to gold. The Dow was then 13,238.73 and gold $666.30/oz, which means that it took 19.87 ounces of gold to buy the Dow. McHugh's prediction implies the Dow dropping to 13.51 gold ounces (a fall of 6.36 ounces).
The Dow is now 12,606.30 and gold $894.90, so the Dow is now worth 14.09 gold ounces. It has fallen by 5.78 ounces out of the predicted 6.36, so the prediction is 90.9% fulfilled so far.
McHugh will be fully correct if, for example, the Dow remains unchanged and gold rises to $933/oz; or if gold stalls, the Dow will need to fall to 12,090.
January 18, 2008: Dow 12,082.31, gold $880.50/oz, so the Dow is now worth 13.72 ounces of gold as against Robert McHugh's prediction of 13.51.
Nearly there, and the new announcement of a $145 billion reflation may push gold that extra yard.
January 22, 2008: As at the time of writing, the Dow is 11,820.24 and gold $875.90/oz. The Dow/gold ratio is therefore below 13.51 and has (perhaps fleetingly) fulfilled Robert McHugh's prediction.
Whether the Dow falls below 9,000 nominal in the course of a severe recession is something we shall have to see.
Sunday, August 12, 2007
Dow predictions revisited
I wondered recently about the growth of the Dow relative to the FTSE since 1987, and speculated that it could fall by anything up to 50%. David Tice of Prudent Bear thought the same back in May, so maybe I'm not crazy.
Robert McHugh in Safe Haven predicted on 9 July that the Dow could be heading for 9,000 points, "although if the PPT responds by hyperinflating the money supply, it could be 9,000 in real dollars (gold adjusted), not nominal." The London Gold fix on Friday 6 July 2007 was $661.25 and the Dow at close on that day was 13,649.97, i.e. 20.64 times the gold price per ounce. Dropping to 9,000 as defined would mean a "gold multiple" of 13.61 times, or a 34% relative reduction in share prices.
Perhaps it could happen as a combination of nominal share price reduction, and a devaluation of the dollar.
Robert McHugh in Safe Haven predicted on 9 July that the Dow could be heading for 9,000 points, "although if the PPT responds by hyperinflating the money supply, it could be 9,000 in real dollars (gold adjusted), not nominal." The London Gold fix on Friday 6 July 2007 was $661.25 and the Dow at close on that day was 13,649.97, i.e. 20.64 times the gold price per ounce. Dropping to 9,000 as defined would mean a "gold multiple" of 13.61 times, or a 34% relative reduction in share prices.
Perhaps it could happen as a combination of nominal share price reduction, and a devaluation of the dollar.
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