Elliott Wave Free Forex Signal

Why monetarist theory is flawed 
October 18, 2012

By Elliott Wave International

Federal Reserve Chairman Ben Bernanke really means it this time.

He will rescue the economy.

Ben S. Bernanke for the first time pledged that the Federal Reserve will buy bonds until the economy gets closer to his goals … . The central bank yesterday announced its third round of large-scale asset purchases since 2008, with the difference that it didn’t set any limit on the ultimate amount it would buy or the duration of the program. … Bernanke is “going to fight and fight until he sees a real improvement in the economy,” said a co-head of global economics research at [a major bank].” He believes quantitative easing can help the economy, so he’ll just keep at it until there’s a real turn in the economy.”

Bloomberg, Sept. 14

But we’ve all heard the definition of insanity: doing the same thing over and over and expecting a different result.

Why should we think QE-3 will work when the previous two failed? (Don’t think they failed? Then ask yourself why we need a third one.)

Granted, this round of quantitative easing appears open-ended. And it includes a pledge to purchase $40 billion a month in mortgage-backed securities. But high interest rates don’t explain the sluggish residential real estate market. Home purchases are slow for the same reason that many business owners haven’t expanded. A Sept. 12 CNNMoney article quotes a former Fed economist:

“Businesses are not hesitant to invest and hire because interest rates are too high – they’re hesitant because of the uncertainty surrounding their future prospects.”

When the August jobless rate fell to 8.1%, the widely reported reason was because so many people gave up looking for work. U.S. business startups are at record lows. Food stamp rolls recently skyrocketed. Several U.S. municipalities are declaring bankruptcy. Ratings service Moody’s just warned of a possible U.S. downgrade. And the national debt just surpassed $16 trillion.

Monetary policy will not fix what ails the economy. Robert Prechter explains:

Monetarist theory holds that each new dollar created can support many new dollars’ worth of IOUs throughout the banking system through re-depositing and re-lending, a process known as the “multiplier effect”…. Every aspect of this theory is flawed, from the assumption that credit is fundamentally good for the economy and should always expand to the bedrock theoretical assumption that human society is a machine where physics equations apply. Waves of social mood have no place in monetarist theory, but they can play havoc with the monetarists’ supposed machine when they reach extremes or undergo unforeseen (what other kind is there?) reversals.

The Elliott Wave Theorist, September 2011

Few people foresee a major economic reversal just ahead. The fact that Fed policy has become “QE Infinity” (it already has a nickname) tells us that something is badly wrong with the economy. And that something is a massive credit bubble

Monetary policy cannot make the global credit bubble simply vanish. Only a deflationary crash can do that. The chart below reveals why.

Look how fast the debt deflation unfolded in 1929-1932.

Learn what EWI expects regarding today’s much bigger credit bubble.

See more charts and read insightful commentary that will help you position yourself now for what’s to come next.

The herd keeps looking for intervention by government entities to aid their investing decisions. It’s time to break away from the herd and start investing independently. EWI is here to help …

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The size of the wave will surprise most everyone 
October 15, 2012

By Elliott Wave International

On Monday Oct. 8 I sat down with Elliott Wave International’s senior analyst Jeffrey Kennedy to discuss his favorite wave pattern of all: the Elliott wave diagonal.

Nico Isaac: You say if you had to pick just ONE of all 13 known Elliott wave structures to spend the rest of your technical trading life with, it would be the Elliott wave diagonal. First, tell us what the diagonal is.

Jeffrey Kennedy: The diagonal is a five-wave pattern labeled 1 through 5, in which each leg subdivides into three smaller waves: 3-3-3-3-3. Unlike motive waves, however, diagonals are the only five-wave structures in the direction of the main trend in which wave 4 almost always moves into the price territory of wave 1.

Nico: So, what makes this pattern so darn special?

Jeffrey: As you can see in the above charts, the diagonal is a terminating pattern. They can only occur in waves 5 of impulses or C-waves of corrections. This is why they’re so exciting. Diagonals precede a dramatic change in trend. And, when they end, prices tend to retrace the entire pattern, or more, and fast.

Put simply: If you see a diagonal, you know it’s soon time to “look up above” or “out below!”

Nico: Could you give us a real-world example?

Jeffrey: Sure. Let’s go back to the May 2011 Monthly Futures Junctures. In the “Featured Market” segment of that publication, I presented the following chart of cocoa that showed a complete multi-year ending diagonal wave pattern and wrote:

“Another piece of evidence that forewarns of an acceleration in recent selling is the larger operative diagonal pattern… This suggests that cocoa prices will continue this year’s sell off for many more months.”

Nico: And then what happened?

Jeffrey: Take a look at this AFTER chart: Cocoa prices sold off to a 3-year low as they were nearly cut in half — the sharp manner characteristic of post-diagonal moves:

Nico: Thank you so much for taking the time to explain the ins and outs of your favorite structure, the diagonal.

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