November 12, 2000
Dear Family and Friends,
Many of you already know some of my thoughts about the future. I wanted to send you this letter to briefly give you the facts behind my belief. I realize there is little chance of you changing your beliefs, after all, I’m certainly not the smartest guy in the world. But I would say you don’t have to be the smartest. You only need to be smart enough to know who is. After twenty years of closely following financial markets, and the people who are considered the foremost experts, I’ve learned who knows what they’re talking about.
The following is a forecast by R.N. Elliott, the man who discovered the only method to have proven, over many decades, to be able to predict future market and economic activity. While this method is not a crystal ball, it has proven to be the most accurate method in history. The top four stock market calls of all time have all been made by the foremost practitioners of this method.
The following forecast was made after a decade of depression and with the world at war, and
extreme pessimism everywhere:
Original Forecast (1941): A great bull market has started. When the current wave pattern completes a great bull market and economic expansion will end, and a severe market decline and economic contraction will commence approximately 70 years from now. There will be no depression until then…This depression will be the deepest and longest in American history.
Here is the current forecast by my mentor, Robert Prechter, the foremost expert on this method today. He has been credited with having made the greatest forecast (1978) in stock market history: “A great bull market and economic expansion that began in 1784 is ending. We are now entering a period of economic decline. The bottom is many years off. All Assets, including stocks, commodities, and real estate, will decline in real value much more than anyone thinks possible today”.
Right now, the world is experiencing the greatest level of optimism in human history. The Pope has traveled to Mecca, something that was believed to be impossible. The song “The whole world is coming together now” is the rage, the United Nations favorability is at an all-time high, and all the so-called experts are calling for economic prosperity as far as the eye can see.
In this environment of historic optimism anyone forecasting a great financial and economic crisis would be called crazy. What people don’t understand is when extreme opinions, (optimism or pessimism), are shared widely, history clearly shows such an environment is the most reliable indicator of a change of direction. In this case a very big change.
So here is a road map that you can use to keep you on track and ahead of events. If optimism continues unabated into the future, then this forecast will have been proving wrong. But if we see a sustained increase in the level of polarization: politically, religiously, racially, sexually, culturally, economically, and government becoming more authoritarian (less freedom), then you will know this forecast is correct. And hopefully you will act in time to protect your family.
I realize this is completely contrary to everything you believe and what you are constantly being told and advised. I do think all of you should be at least thinking about this forecast and prepared to take action as events unfold. Have a plan.
Good luck to you all
September 19, 2004
Dear Family and Friends,
I thought it was time that I follow-up on my letter from four years ago. As much as you would like to have forgotten, I’m sure all of you recall the scenario I laid out in that first letter. I know some of you even took my advice and implemented some of my recommendations. I understand why most of you did not. After all, what I was saying was totally contrary to what every economist, wall street firm, financial analyst, advisor, or broker was saying at the time, and had been saying for many years, and continue to say to this day.
Unfortunately, my belief has not changed. In fact, I am even more convinced today than I was at my last writing that this forecast is correct. The modern world financial system is a house of cards. In the not too distant future it will fail. When the unprecedented mountain of debt and leverage that was created to fuel the world economic boom starts to liquidate the US and world financial system will collapse, virtually overnight. This will only be the beginning, as the effect of this collapse quickly takes hold in the economy and society.
Most believe that the government will not let this happen; that we have learned the lessons of the last depression. The truth is governments only react after a crisis, and then always make matters worse. There is no chance the government can prevent this, they are, in fact, the cause of it, and the causes have been building progressively for over 70 years. I realize this is extremely pessimistic, and for all of you more than you want to hear, but nature does not care what we believe or want, it gives us what we have coming.
The ability to know what to do, and to act decisively, as the environment changes on a dime, will be critical. I say this with all humility as someone who has made many foolish mistakes in his life, regardless of how well off one thinks they are, few will make it through this period without having suffered great financial losses.
There will be significant social upheavals to contend with as well. Society will polarize politically, economically, socially, racially, sexually, religiously, and nationally.
Now is the time to think about the return of your capital, not the rate of return on it.
You and I have had the great fortune of having lived in the greatest place, at the greatest time in human history. The coming time will be a great challenge to all of us. The human race will survive, and when the bottom comes we will be ready to start the building process all over again and hopefully to even higher levels. Your challenge is to not become a victim, and to preserve as much of the capital you have so that you will be one of the very few who will have the opportunity to take advantage of the greatest opportunity in over seven decades to build real wealth.
Hope is not a strategy. It is alright to hope for the best, but be prepared for the worst. As T. Boone Pickens says “A fool with a plan is better off than a genius without one”.
Please, above all, don’t delay. Good luck to you all.
October 18, 2008
Dear Family and Friends,
Recent events have verified the forecast presented in my two previous letters, and thus require further warning. Right now our political, business, and economic leaders are proclaiming the recent world wide government actions will eliminate the possibility of a depression, and bring on recovery. As recently as a year ago none of them even thought a recession, let alone a depression, was even possible. Now they say, without exception, no one could have possibly seen this coming. My question is how is someone like me, with no great brilliance or Ivy league education, able to see this coming and all the so called “smartest guys in the room” completely missed it?
The same people that kept the public in stocks for all this time now want us to believe the government is going to save us. To believe that requires the willing suspension of disbelief. The fact is the government caused the problems we are facing, and the only thing they will do is make matters worse.
The dye was cast long ago, and there is nothing anyone can do to prevent what is going to take place. Contrary to what some chose to ignore or believe, we are subject to the laws of nature and human nature.
In order to create the boom experienced over the past 15 years the world created the greatest expansion of credit in all of human history many, many times over. The amount of leverage employed, often 50 to 1, and even as high as 100 to 1, is truly mind boggling and completely unprecedented.
“There is no means to avoid the final collapse of a boom brought about by the expansion of credit.”
Ludwig Von Mises, along with Adam Smith, the greatest economists of all time.
The problem each of us faces individually, is how do we survive what will be a severe financial and economic decline, accompanied by significant social upheaval.
As you well know, no one has been recommending anything but being fully invested in stocks for more than a decade.
There is a raging bull market going on alright, and it’s in cash and gold. Apparently though, financial pundits still haven’t figured this out, as the headline below illustrates.
To them, cash is dangerous because…you might miss the next rally! The incessant belief that the stock mania will rise again carrying the markets to new all-time highs and way beyond is not yet dead. Until it is, cash will likely continue to outperform.
As the environment changes, my long held recommendations are also changing, but safety has, and will, always be my first priority, as it should be yours now. In most cases people have already suffered tremendous losses in the stock market and in real estate.
The people on Wall Street, all the politicians, and almost everyone else, are telling you to hang in there, “The market always goes back up in the long run”. Well, the long run can be a very long time. Yes, there will be rallies, even violent ones, but I can’t stress this enough, we are just in the first part of a long game.
When the bottom finally comes, asset prices, including all real estate, will have declined much farther than they already have. When I first wrote about this prediction to you in 2000, I’m confident you all thought I was nuts. Now that real estate is already down over 30% nationally, and the stock markets even more, it shouldn’t sound so preposterous.
Good luck to you all