Super-bear Robert Prechter calls for monumental stock market crash

Some of you may have heard him say it before—there is a reason Robert Prechter is considered by some to be a perma-bear—but his opinion seems more apocalyptic than before. The New York Times catches up with Robert Prechter and gets his latest take on things:

WITH the stock market lurching again, plenty of investors are nervous, and some are downright bearish. Then there’s Robert Prechter, the market forecaster and social theorist, who is in another league entirely.

Mr. Prechter is convinced that we have entered a market decline of staggering proportions — perhaps the biggest of the last 300 years.

...

His advice: individual investors should move completely out of the market and hold cash and cash equivalents, like Treasury bills, for years to come. (For traders with a fair amount of skill and willingness to embrace risk, he suggests other alternatives, like shorting the market or making bets on volatility.) But ultimately, “the decline will lead to one of the best investment opportunities ever,” he said.

Buy-and-hold stock investors will be devastated in a crash much worse than the declines of 2008 and early 2009 or the worst years of the Great Depression or the Panic of 1873, he predicted.

For a rough parallel, he said, go all the way back to England and the collapse of the South Sea Bubble in 1720, a crash that deterred people “from buying stocks for 100 years,” he said. This time, he said, “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.’ ”

The Dow, which now stands at 9,686.48, is likely to fall well below 1,000 over perhaps five or six years as a grand market cycle comes to an end, he said. That unraveling, combined with a depression and deflation, will make anyone holding cash “extremely grateful for their prudence.”

I have covered some of Prechter's views before and none of his latest comments are not surprising to me. Some may find it odd that I pay (minor) attention to Prechter given that I am neither a trader nor into technical analysis. There are two reasons I listen to Prechter. First reason is due to the fact, rightly or wrongly, he is a contrarian. I like looking at dissenting views irrespective of how ludicrous they seem. Secondly, Robert Prechter is one of the few deflationists. Not just that, he is one of the few—I can't think of anyone else except Gary Shilling—who was expecting deflation before the 2007 bear market in stocks started. I also like him because he tries to map his bearish views onto some economic scenario that may materialize.

Prechter's views are extremely bearish and it's hard to see it materialize without a major depression. I lean towards deflation and am generally bearish but I do not expect anything as severe. It's hard for me to argue against Prechter given how his views are based on technical analysis and the so-called 'social mood' theory. I don't follow either of them so can't really say much.

In any case, if anyone is interested in hearing more detailed thoughts from Prechter—The New York Times article is just a summary—I recommend that you check out his interview with Jim Puplava of Financial Sense Newshour (mp3 direct link here.)