Market forecaster Robert Prechter says we're on the verge of the biggest market crash since the 1720 collapse of Britain's South Sea Bubble, with the Dow nosediving to below 1,000 in the next five to six years, from around 10,000 now. Prechter, regarded as a powerful market "guru" in the late 1980s, relies on an esoteric technical-analysis tool that uses past market movements to predict future ones. "If I'm right, it will be such a shock that people will be telling their grandkids many years from now, 'Don't touch stocks,'" he says. How seriously should we take the warning?
What's an amateur to believe? Prechter makes "Dr. Doom" Nouriel Roubini "sound like Jiminy Cricket," says Rod Dreher in BeliefNet. But how are "utterly unsophisticated" investors like me (and probably you) supposed to judge if we should sell all our stocks, as Prechter's "apocalyptic scenario" dictates? It sounds like a "radical position," but Prechter's "very far from a fringe figure," and even his rosier peers are moving from stocks for the time being.
"Coming: Dow 1,000?"
Prechter is way too gloomy: Dow 1,000? asks Mike Shedlock in Fav Stocks. "Poppycock." The Dow might sink as low as 5,000, but it will probably "meander around 10,000 for another decade," as it has since first topping 10,000 in 1999. That may not seem like a reason to break out the "party hats," but in those same 10 years, Japan's Nikkei has dropped by about 50 percent.
"Put on your party hats — It’s time to party for another decade!"
This "pessimism bubble" will burst, too: All the economic "gloom is understandable, up to a point," says Ross Douthat in The New York Times. But it's really just another face of the "bubble mentality" that led us to this gloomy point. "Doomsayers" like Prechter may inflate the "pessimism bubble," but it will pop someday, and America's "potential for resilience" will shine through, as it always has in the past.
"The pessimism bubble"
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