Contents

World Stock Markets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2

Global Stock Index. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
United States. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Europe. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Asian-Pacific . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11

Global Interest Rates. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17

The Bond Universe . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
United States. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
European and Asian-Pacific. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18

International Currency Relationships. . . . . . . . . . . . . . . . . . . . 21

Dollar Rates. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Other Rates. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Cryptocurrencies. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25

Metals & Energy. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26

Gold & Silver . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Crude Oil. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Natural Gas. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27

Economic, Monetary and Cultural Trends . . . . . . . . . . . . . . . . 28

Economy & Deflation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Cultural Trends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29

A Capsule Summary of the Wave Principle . . . . . . . . . . . . . . . . . . . . 33

Glossary of Terms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
© August 30, 2019
(data through August 29)

Announcements
Peter Kendall, co-editor of EWFF, and Matt Lampert, Director of Research at the Socionomics Institute, will open the Annual Meeting
of the Academy of Behavioral Finance and Economics Consortium in New York City, September 19. The session is titled,
Socionomic Theory: An alternative to EMH and a Basis for Behavioral Finance Research. Register now:
www.elliottwave.com/wave/ABFE.

Elliott Wave Theorist editor Robert Prechter and EWAVES developer Elliott Prechter will be speaking at the annual conference of the
International Federation of Technical Analysts (IFTA) in Cairo, Egypt, October 4-6. Their topic will be the computer application of
Elliott wave analysis. This event is fully booked.

Robert Prechter will also address the general session of the 45th New Orleans Investment Conference, November 1-4. Learn more
and register now: www.elliottwave.com/wave/NOIC.

Interested in becoming an Elliott wave expert? EWI offers the Certified Elliott Wave Analyst program (CEWA) for financial
professionals, analysts and traders. This program creates a recognized standard for applying Elliott wave analysis in the real world.
Work toward becoming an accredited expert in your field by obtaining your CEWA designation:
www.elliottwave.com/wave/CEWA.

Learn how to spot trading opportunities with Jeffrey Kennedy's popular Trader's Classroom service. You'll get 12 lessons each
month that help you master many critical aspects of recognizing—and acting on—high-confidence trading opportunities in your
markets. Try it now, risk-free for 30 days:
www.elliottwave.com/wave/TC.

WORLD STOCK MARKETS

U.S. Markets - Bottom Line
After a steep decline in the first few days of August, the stock
market spent the rest of the month attempting to rally. The result
was lacking as the DJIA, S&P 500 and NASDAQ were all lower
for the month through yesterday's close. When the market's near-
term bounce completes, stocks will resume the decline that
started at the July highs. So, new lows lie ahead.
European Markets - Bottom Line
Europe’s main stock indexes have traced out the first two waves
of an impulsive decline since their 2018 peaks. A large-degree
third wave down may have begun. Stocks
investors remain as optimistic as ever and
display no concern for a major market sell-off.
Bond investors, meanwhile, display a level of
complacency that probably has no historical
precedent. Major reversals in both markets are
dead ahead.
Global Stock Index
The decline from the July peak has almost totally retraced the
uptrend from the late-May low. That suggests that a flat
correction is unfolding that will take the Global Stock Index
slightly below the wave a low at 377.91. A stretch target for
wave c is 365.39 where it would be 1.618 times wave a. Once
wave c is complete, the larger uptrend should resume. From a
larger perspective, the rally from the December 2018 low counts
as wave 1 of (5), with a wave 2 correction near an end. That sets
the stage for a solid advance in wave 3 of (5) to new all-time
highs starting soon.

Asian-Pacific Markets - Bottom Line

Record highs in short-sell ratios in Japan and
Hong Kong in August support our forecast of
intermediate-term and long-term lows in Asian-
Pacific stocks.

2
U.S. Stock Markets
Last month, GMP said that market volatility will be on the rise.
The CBOE Volatility Index was up 11% for the month through
yesterday's close. When Minor wave E of Intermediate wave (4)
gains downward momentum, volatility should rise further. The
long-term charts of the Dow Jones Industrial Average show the
wave structure of the great bull market is in its latter stages. The
Dow probably has another Intermediate-degree wave of advance
before a long-term bear market begins, but some financial assets
are already in declines from which they will not recover.

Elliott Wave Analysis

These long term charts show the developing wave structure in the
Dow Jones Industrial Average at Supercycle degree from the
late-1920s and from Cycle degree from the mid-1970s. Primary
wave 5 of Cycle wave V of Supercycle wave (V) started in
March 2009 and, when complete, will consist of five
Intermediate-degree waves. Intermediate wave (3) ended at
26,616.70 on January 26, 2018. Intermediate wave (4) is taking
the form of an expanded triangle pattern (see text, p.49, Figure
1-42) and continues to progress. The Dow's decline from
27,398.60, the high on July 16, is the early portion of Minor wave
E down of Intermediate wave (4). Regardless of near-term
gyrations, wave E should draw the DJIA below the December
2018 low. Seasonally, the coming months are some of the most
volatile of the year, which is compatible with the message
conveyed by the wave structure. The completion of wave (4) will
lead to wave (5) of 5, a five-wave rally that carries to a new high
to finish the entire bull market, as shown by the projected path on
the chart below.
The top alternate interpretation is that the July 2019 high marks
the end of the bull market. Right now, both scenarios point in the
same direction. If market indicators such as the advance/decline
ratio and TRIN signal a crash in progress, we will simply remain
bearish even after the index declines below 21,712.50, the
December 26 low.

rally came to be known by its acronym, FOMO. As GMP noted

Investor Psychology
The upside momentum of the stock market peaked in January
2018 as Intermediate wave (3) of Primary wave 5 completed its
rise. That's when enthusiasm for equities became so embedded in
the investment community that the "fear of missing out" on the
at the time, many pundits declared that the stock market was
entering a "melt-up" that would carry prices quickly to much
higher levels. Something quite different was at hand: a sideways
pattern known as an expanding triangle. As the pattern
progressed and prices reached new all-time highs in waves B and
D, optimism registered some impressive extremes. One of the
graph's above includes U.S. mutual funds' cash-to-assets ratio. In
June and again in July, the ratio declined to equal the all-time
bullish extreme of 2.9% that was first established in January and

3
February 2018. This reading indicates a historically
unprecedented level of bullishness on the part of fund managers.
Back in October 1990, when the stock market really was about to
melt up, a record 12.9% of mutual fund assets were in cash. The
dashed line on the chart shows the 4% level, a once seldom-
visited optimistic extreme. Prior to 2007, it was met or exceeded
just twice, for one week, in May 1972 and March 2000. The May
1972 extreme was eventually followed by an S&P decline of
48%, while the March 2000 extreme marked the beginning of a
51% decline in the same index. The rise into 2007 was
accompanied by the ratio's first extended stay below the 4%
level. The one-year excursion below 4% ended as the largest
bear market since the 1930s began. In 2012, the ratio fell below
4%, and it has stayed there for more than seven years. This is
what we mean by an unprecedented display of sustained
optimism. It will eventually be matched by a similarly persistent
display of skepticism toward stocks.

The recent stock market decline has tempered short-term

optimism, but confidence among the public and investment
professionals remains largely unshaken. This chart shows the
University of Michigan's Consumer Sentiment Index, which is a
useful window into the public mood. As GMP observed in May
2000, "The main trends in consumer confidence have always
been tuned to stock prices. The first major peak above 100 ended
in early 1966, right after the peak of Cycle wave III in February
1966." It turned out to be a well-timed observation, as the
Consumer Sentiment Index had just topped at 112 in January
2000, a record extreme. The chart above shows the two-and-a-
half-year bear market that followed. Most recently, the Consumer Most major U.S. stock indexes peaked in the first three months
Sentiment Index topped at 101.4 in March 2018. The index made of 2000 and started a bear market. Dodd-Frank restrictions on
a lower high at 100 in May of this year, a subtle divergence that Wall Street banking activity were enacted (late again) after the
suggests upside exhaustion. Longer term, the divergence is far bear market of 2007-2009. In June 2018, GMP identified the
more pronounced. While the stock market has carried well into softening of those very restrictions as a signal of an exhausted
new high territory in recent years, the mood of consumers has rally. "Dodd-Frank has not been completely dismantled, but the
failed to match that of 2000. Consumers just aren't as jazzed as timing of the latest, substantial repeal is perfectly aligned" with
they once were. The bottom graph on the chart shows another the prospects for a major downside reversal. Well, that signal just
divergence as well. As of July, consumers were still reasonably became more pronounced. Rule changes announced this month
certain that stock prices would rise over the course of the next will once again allow banks to trade more freely. Specifically, the
year. With a reading of 64.1%, expectations for a continued stock changes will undo "the Volcker Rule's ban on banks making
market advance were higher than for all but two weeks in the 17- speculative investments, wrapping up a deregulatory priority
year history of the survey. The final August measure was 57.4%, that's been long sought by the financial industry." And, so it goes
still historically high. Apparently, consumers are more hopeful at the biggest peaks. It's all-out, risk-on for big banks now, just as
about the stock market's prospect than their own. Falling stock it was in 1929 and 1999. Once again, the government's timing is
prices will resolve this dissonance. impeccably counterproductive.
The Tale of the Financial Sector The contrast between the blue chip averages and the performance
The Elliott Wave Theorist has long cited the federal government's of the financial sector at the peak in 2000 remains highly
enactment of the Glass-Steagall Act of 1934, which was informative. In June 2018, GMP showed the KBW Bank Index
designed to prevent the 1929-1932 crash, as a classic example of holding up for a full year after the Dow Industrials topped in
government's tendency to respond to the "last trend once it is January 2000 and observed:
over or ending." We could see this very useful observation in
action when Congress officially repealed Glass-Steagall in late
1999. The repeal removed the government-imposed separation of At the current juncture the
commercial and investment banking and elicited the following financials' all-time closing high
comment from GMP: remains back in February 2007.
This bodes ill, not just for
So, after totally missing the bear market it was financials but for the stock market
supposed to prevent and protecting banks as whole.
and insurance companies from six decades
of rising prices, the U.S. government will free
banks and insurers to take part in a financial
consolidation that promises to be one of the
biggest in history. In our opinion, this is
once again perfect timing.
4
The updated chart of the KBW Bank Index shows the long term
divergence from 2007, as well as a more recent divergence
relative to its high in February 2018. The graph of the MSCI
World Bank Index shows that weakness in the bank sector is
more pronounced on a global basis. While the KBW Bank Index
retraced a large percentage of the decline from the 2007 all-time
high, the MSCI World Bank Index retraced only a Fibonacci
61.8% of its decline from May 2007 to March 2009. The 82%
"Silent Crash" in the Euro Stoxx Banks Index, which GMP
showed last month (on p.6), illustrates one of the big contributors
to the weak worldwide performance. In Germany, Europe’s
financial engine, the nation’s banks are struggling, as second-
quarter earnings are deteriorating rapidly. Loan-loss provisions at
both Deutsche Bank and Commerzbank are expected to
soar. Other regions have also fared poorly. The next chart shows
the two largest banks in the world, the Industrial and
Commercial Bank of China Ltd., which has assets of $4.03
trillion, and China Construction Bank Corp., with assets of $3.38
trillion. The share price of Industrial and Commercial bank is
5
39.4% below its peak in November 2007, while that for China
Construction Bank is down 39.3% from a top the same month.
Don't forget that these are state run banks, so they will be fully
exposed to governments' tendency to show up late and act to
make a bad situation worse. When exposed to the full force of
the next bear market, the struggles exposed by their lagging
share price will become existential in nature.
In Canada, however, bank stocks rallied to new highs along with
the S&P 500 into September 2018. The form of the rise from
2009 strongly suggests, however, that the Solactive Canada Bank
Index is ready for a prolonged decline. The clear five-wave
advance on the 30-year chart of Canadian employment in the
finance, insurance and real estate sectors confirms the message in
the bank index. In July, total financial employment hit a record
high of 1,199,000, which is exactly where it was in December
2017. Measures of employment are a lagging indicator, so further
gains may occur in the months ahead. If they do, however, they
should be Canada's final record highs in financial employment
for some time.
Government's newfound desire to free up Wall Street bankers
can only mean one thing: The next scandal phase is not far off. It
begins with a Wall Street effort to "Curb Shady" credit default
swaps and "Hold Off Watchdogs." As it turns out, Wall Street
banks and hedge funds have been gaming the $8 trillion CDS
market by triggering "failure to pay" events based on traders'
derivative bets rather than legitimate financial stress. Bloomberg
reports that new rules will ensure that legitimate financial stress
is the true cause of defaults. Wall Street probably views the self-
policing effort as a job well done, but we suspect that the clean-
up of financial derivatives is just beginning. Before it's over, the
derivatives industry, which did not fully exist until the last 25
years of the bull market, will be so laden with rules and
regulations that its ability to function will be compromised if not
shut down. Many other financial instruments will turn out to be
hotbeds of illicit or openly criminal conduct. Markets that were
the object of speculative excess will be particularly vulnerable.
For instance, the cryptocurrency realm remains remarkably free
of scandal so far even though bitcoin peaked 18 months ago and
studies by Statis Group and others find that 80% of initial coin
offerings conducted in 2017 were outright "scams." Where's all
the kicking and screaming? The answer is that it is coming.
When the major stock indexes enter a bear market the floodgates
of recrimination will follow, just as they did in the Enron era of
2001-2002 and the Madoff era of 2008-2009.
European Stock Markets
Periods of low stock market volatility invariably lead to periods
of high volatility as can be seen on this chart. It covers two
decades of the VFTSE Implied Volatility Index, which gauges
expected future volatility based on prices paid for near-term
FTSE 100 options. The index also sends out important
contrarian signals about investor sentiment. Low readings, for
example, indicate that traders believe the markets will remain
calm. They almost always precede major market peaks. High
VFTSE readings, on the other hand, indicate intense fear on the
part of traders and they frequently signal market bottoms.
The most obvious contrary signal on the chart began in 2004,
when the VFTSE fell below 20 and stayed there more or less for
the next three years. The index foreshadowed the 2007 stock
6
market top and the unprecedented spike in volatility that
surrounded the 2008 financial crisis. By 2012, after the bulk of
Europe's debt crises had passed, the VFTSE fell into another low
trading range below 20, and, over the past four years, spikes in
the index (the most notable surrounded the 2016 Brexit vote)
have been relatively brief.
On March 9, 2017, the index fell to a two-decade low, preceding
the 11% and 17% market sell-offs that occurred in 2018, and, this
year, the index penetrated that extreme, plummeting to a new
record low of 3.4 on February 27, 2019. In other words, the low
volatility environment confirms what we have been illustrating
all year: Investors display extreme complacency toward the
prospect of a major market sell-off, and so, from a contrarian
standpoint, now would be a perfect time for the bear market to
start accelerating. It may be happening already, in fact, as the
press is suddenly awash in advice on how to endure the market’s
swings:
Yes, the Market Has Been Volatile. No, a Recession Is Not
Imminent
—Time, 8/22/19
Why the markets turned volatile—and why you shouldn't panic
—The Hill, 8/19/19
4 Safe Haven Stocks to Buy in This Volatile Market
—Yahoo! Finance, 8/14/19
How to survive in Volatile Markets: Go Live Your Life
—Washington Post, 8/9/19
These headlines, however, also imply that the bear market
remains nascent. Notice that consensus opinion is either that (1)
volatility is normal and there’s nothing to worry about, or (2)
your financial health depends on buying the right stocks,
avoiding panic, or—our favorite—going about your life outside
the markets. This last bit of advice to essentially bury your head
in the sand is called ostrich investing, and it should prove to be
financially ruinous in the months and years ahead.
Elliott Wave Analysis
The DAX has traced out the first two
major subdivisions of what should
become a broad-based, all-
encompassing bear market. As shown
on the weekly chart, the German index
ended Cycle wave b—its three-wave
advance since 2002—at an all-time
high of 13,597. The top came in
January 2018, after prices met the
midline of an Elliott-defined parallel
trend channel. The wave structure since
that high counts best as an impulsive
decline with wave (1) down followed
by the countertrend rally of wave (2),
which means that stocks should now
decline persistently in wave (3).
In Britain, our focus remains on the
near-term structure of the FTSE 100’s
decline since its May 2018 all-time
high. Here, too, prices initially fell in
five waves and then rallied in three
waves, and likely ended a smaller-
degree wave 6 down last month. Rallies at this point, while more powerful, more persistent period of selling. We will
potentially sharp, should also be relatively brief as wave (3) keep subscribers abreast of developments as market action
down plays out. warrants, but if you need more frequent coverage,
For Near-Term Traders European Short-Term Update editor Murray Gunn keeps
Finally, this 240-minute chart shows a trio of compelling wave track of every market tick three times per week.
structures on a near-term basis. Since July, all three of Europe’s
major markets have traced out textbook five-wave declines (see
240-minute charts). With wave 6 down complete and wave 7
up nearly complete, stocks have positioned themselves to begin a

7
Market Psychology Arrival of the Dip Buyers
The swift return of market volatility has already produced the
first trading hiccups. On the morning of Friday, August 16, a In one related contrarian topping signal, the stock market’s
technical glitch at the London Stock Exchange delayed the open August swoon roused a loud contingent of investors looking to
for almost two hours, the longest outage in eight years. The issue “buy the dip.” This sample of headlines was collected from a
affected the key FTSE 100 and FTSE 250 indexes and came on variety of economic blogs, investment journals and mainstream
the heels of a string of similar problems in the U.S. markets. On financial publications in August:
August 13, for example, data anomalies at Nasdaq interrupted
price feeds on 80 U.S.-listed stocks, including Apple and
Alphabet (Google’s parent). The day prior, a malfunctioning feed
at the New York Stock Exchange postponed the closing
calculation in the S&P 500 and Dow Jones Industrial Average.
And mere hours before that incident, a separate problem kept the
S&P 500 and Dow from updating for about 15 minutes.

Will anyone remember these snafus? Probably not. Trading

glitches present few problems during smoothly trending markets,
because exchanges have plenty of time to pop open the hood,
identify malfunctioning components, and fix them. According to
a statement, the LSE traced its August 13 outage back to a
“technical software issue,”while Nasdaq discovered that a
broker-dealer had reported erroneous trades to the industry price
feed. Stocks ultimately resumed the day’s uptrend, so everyone
chalked the problems up to minor technical issues and quickly
forgot them.
Investor psychology stays calm during a bull market, but it will
change with the oncoming bear. As sell-offs intensify and
investor emotions get amplified, people will fixate on every
possible anomaly. According to one London-based trader, the
impact of August’s trading delay was actually quite large.
“Without seeing the underlying stock prices, it was difficult to
know whether the futures price was a true reflection of fair value
on the FTSE.” (Bloomberg, 8/16/19) Eventually, traders will
blame these kinds of snags for creating a loss of confidence in the
marketplace. The causality, however, is actually backwards.
Weakening confidence is a bear-market trait all by itself, and it
will merely expose the errors associated with bull-market trading.
On August 5, just after global equities erased nearly $1
Speaking of confidence, the trillion in market capitalization, an investment strategist
London Stock Exchange expressed his “core view” to Bloomberg like this: Use the
Group is positioned to suffer weakness as an “opportunity to add stocks.” By August 14,
a complete loss of it over the as European shares were ending their first five-wave decline,
coming years. As this chart Business Insider reported that buying the dip “has become a
shows, the LSE group, which trusted stock-market strategy.” In other media interviews,
also owns Borsa Italiana and analysts expressed modified versions of the same sentiment.
Russell Indexes, has been “The time seems ripe for contrarian bullishness,” reported
riding along an upward one analyst to Bloomberg. “We believe that global equities
parabolic curve that has will advance further before the next U.S. recession strikes.”
generated a 20-fold increase According to a London-based investment manager, the
in the stock price since the United States and China will ultimately call off the trade war,
late 2000s. Parabolic establishing a “natural barrier on how bad things can get.” He
advances are inherently and his team are “overweight Europe, especially economies
unsustainable, and this one is such as Spain’s.”
even more precarious given
that we can count five waves This last point is important, because analysts have once again
up since the LSE’s public latched onto the “Europe is cheap” argument. Today’s
debut. In other words, version of the argument seems to rest on various iterations of
Britain’s infamous exchange this chart, which compares the price-to-earnings ratio
is careening toward an between the Euro Stoxx 600 and the S&P 500. On August 6,
important top. Once the rally Bloomberg published a version of the chart beneath this
headline: “Contrarian Opportunity: European stocks have
breaks, an initial decline should pull prices back to a previous
become cheaper versus the U.S.”
fourth wave, at minimum, implying a near 50% sell-off from
today’s levels.

8
 group, for example, flatly rejects the growing fears of an
imminent recession. They are waiting instead “for better entry
levels to buy the dip.” Likewise, JP Morgan merely suggests
delaying stock purchases until September 2019 (that’s now).
Meanwhile, Bank of America Merrill Lynch told investors last
month to jump back in after a mere 5% drop in U.S. shares. In
other words, falling stock prices are generating a strong
optimistic response from analysts and investors. This sentiment,
which is typical during the early stages of a bear market, will
reverse dramatically as market sell-offs become more protracted
while rallies become relatively brief.

Risk Off Is Suddenly Back On

We keep reading about investors moving into safe-haven assets.
“Traders Have Been Gripped by Once-in-a-Generation Dash to
Safety,” announced Bloomberg on August 15. According to the
article, recent rallies in gold and U.S. treasuries represent the
“latest milestones in the haven frenzy,” (Bloomberg, 8/15/19)
while a strategy group with Bank of America Corp. claims that
“investors have not been so worried about the future in the past
30 years.”

There are many problems with this argument. First of all,

contrarian opportunities by definition cannot arise when
everyone is already aware of them. So, the mere fact that this
chart has generated headlines probably means that Europe is not
the buying opportunity the bulls presume it to be. Second,
comparing value between European and U.S. stocks means
nothing when a generational explosion in debt has inflated asset
values in both regions. Speaking to this point, the July 2019
Elliott Wave Theorist stated, “The world is in an all-
encompassing financial-market bubble. Stocks are historically
overpriced. Bonds are overbought, over-owned and overvalued.
Portfolios are stuffed with the greatest number and value of IOUs
in all history, and yields are negative on trillions of dollars' worth
of bonds worldwide.” (EWT, July 2019)

Third, the Europe-is-cheap thesis rests on investors’ highly fickle

emotional states. For example, the earnings part of the price-to-
earnings ratio relies on economists’ forecasts for company
earnings 12 months into the future, a projection that is highly
influenced by the current optimism. As famed market technician
Richard Russell used to point out, earnings are a bad way to
gauge stock values, because they are hard to forecast and easy to
manipulate. Indeed, corporate earnings will collapse during the
bear market, and prices will suddenly look expensive by
comparison. In time, throngs of newly bearish analysts will
probably cite P/E ratios as one more reason to sell.
Finally, even the few analysts who do seem to fret about falling
stock prices suggest using the recent weakness to enter long
positions at cheaper prices. One Goldman Sachs investment
Our view is that these moves do not mean what most people think
they mean. The deluge of money flowing into bonds, for
example, argues that investors are desperate for yield and
complacent toward credit-market risk, as we discussed last
month. It does not indicate some kind of new fixation on safety.
Gold, meanwhile, has undergone a typical countertrend bounce
within its bear market, as the Elliott Wave Financial Forecast
illustrated last month. In Europe, meanwhile, there is little
evidence of lopsided investor pessimism. If anything, it’s the
opposite. This chart of the Bloomberg UK Financial Conditions
Index shows that the average Brit is basking in another protracted
period of financial sunshine —similar to conditions prior to the
FTSE 100’s largest peaks.

9
Meanwhile, Europe shows no evidence of what Bloomberg
describes as a “frenzy for safe havens.” In fact, this publication
has regularly illustrated investors’ return to the Continent’s
riskiest equity and debt instruments, including small-cap and
mid-cap stocks, high-yield bonds, and ultra-long-dated debt. This
chart shows that they have even plunged back into Europe’s
original basket case, Greece. Just four years ago, the country’s
10-year bonds yielded nearly 14%, as the government funded
itself through a seemingly endless series of financial
bailouts dating back to 2010. Seven months after bond yields
peaked, the Athens Stock Exchange General Index fell to 454, an
incredible 93% crash from its September 1999 all-time
high.Today, the nation’s financial crisis appears to be ancient
history. Ten-year Greek bonds now yield 1.9%, while the ASE
recently pushed above 900. So, the same investors who had left
the country’s stock and bond markets for dead now deem Greece
to be a good credit risk and have propelled the country’s equity
market to its best performance in 20 years. As we keep saying,
this kind of blind optimism won’t survive the next market
downturn.

Greece is also providing critical lessons in socionomic causality.

The conventional view says that fundamentals, such as
confidence in Greece’s new president, have laid the foundation
for bond yields to fall and stocks to rise. As one London-based
economist told the Wall Street Journal, “it seems that investors has existed in one form or another for the past two decades.
— both Greeks and non-Greeks — seem to have faith in the new According to the head of banks research at Citi, German banks
government.” According to Fitch Ratings, the economy is also now actually find themselves in worse shape than the rest of
benefitting from the new administration, which has put forth Europe, as German lenders will make just 2%-3% return on
equity in 2020.
“potentially growth-enhancing reforms….” The WSJ,
meanwhile, sums up the mainstream cause and effect like this: Paradoxically, the headwinds in banking relate directly to the
“The change in investors’ sentiment … marks a sharp turnaround negative interest rate policies that central banks deem essential to
for Greek equities.” stave off a broader economic downturn. Indeed, because banks
make most of their money from net interest income, negative
Our view is the opposite: The turnaround in Greek equities came interest rates wreak havoc on their profitability. Perhaps no other
first, reflecting a shift toward positive social mood that pushed bank personifies the fleeting nature of investor optimism better
stocks higher, improved investor sentiment, buffeted the than Deutsche bank. Just two months ago, Deutsche Bank
economy, and generated positive feelings toward the new rebounded 29%, “buoyed by optimism about Chief Executive
government. In fact, after nearly a decade of rule by fragile Officer Christian Sewing’s strategy reboot.” (Bloomberg,
coalitions, Greece’s center-right New Democracy party just 8/15/19) Last month, Deutsche Bank touched a new all-time low
returned to power, forming the first single-party government at 5.77 per share.
since 2009.
Meanwhile, this chart of
But there’s more to applying Elliott wave analysis and utilizing the Euro Stoxx 600
socionomic causality than merely being contrary. Throughout Banks Index shows the
years of market false starts, this publication stayed bearish on sector’s dire technical
Greek markets because the long-term Elliott wave patterns predicament. The index,
remained incomplete. This tendency to simply forecast rallies in which comprises 26
every battered index will probably trip up many more analysts banks across Europe,
across many more sectors. In fact, Europe’s banking sector may has plummeted 47% in
be the next great example of mere contrarianism falling short: 18 months, and, despite
its 84% crash since May
Time to buy battered European banks… 2007 (not shown), the
—FT, June 7, 2019 index is now testing a
shelf of support that
One London-based fund manager with $12 billion in assets dates back to the 2008
argues that the “big sell-off in European bank stocks has gone on financial crisis. Once
long enough,” adding that investors have capitulated on the support breaks, it won’t
sector, which now offers “massive value.” Once again, these matter how far the banks
kinds of arguments ignore the fact that terms like “capitulation,” have come down. Sellers
“long enough,” and “massive value” relate only to relatively will get re-energized,
recent financial history, where a near-permanent financial bubble and the market will need
to search for a bottom
all over again.

10
Asian-Pacific Overview This excerpt from a recent
Economist, published near
This chart shows that the infotech sector (MSCI Emerging
the mid-August lows in
Markets Asia Infotech Index) continues to lead the region’s
most equity markets, offers
stocks (MSCI Emerging Markets Asia Index), as it has since
the 2008 lows. It also shows that the two intermediate-term a perfect description of the
scenarios we are considering for the infotech sector remain valid. past decade in global stocks
The preferred count describes the index as having ended wave 4 from a socionomic
down at the start of 2019 and now advancing in wave 8 of 5 up. perspective—a near-
continuous wall of worry.
The alternate count shows the index to be somewhere in the
Along with the cover
middle of a wave 4 contracting triangle pattern.
graphic, which shows
oarsmen being anxiously
tossed about on a stormy
sea, it also offers an
excellent indication of
market sentiment at present.
The late analyst and EWI friend Paul Montgomery observed over
decades that general interest magazines (such as Time) often
depict financial trends on their covers about one to three months
before those trends reverse. The covers of industry-specific
magazines like the Economist tend to provide less reliable
signals, but those signals tend to be more immediate when they
do work. Per Montgomery’s magazine cover indicator, the
Economist’s cover may indicate an extreme in sentiment and,
therefore, it may support a significant stock market low in the
near term.

We can see support for that outlook in Sentix’s survey of

investors in Asia Ex-Japan stocks regarding their economic
expectations six months ahead. The indicator in August fell to an
extreme that marked bottoms in October 2008, January 2016 and
January 2019 in the region’s stock markets. While a few prior
extremes are not much precedent, the August 2019 extreme
supports our wave count for Asian-Pacific stocks.

In contrast, the broad-market MSCI Emerging Markets Asia

Index is likely ending wave c down of a contracting triangle
pattern. Under the triangle count, the infotech index has room to
fall whereas the broad-market index has much less room. If the
broad-market index were to fall below its 2018 low (a drop of
about 5% from current levels), then it would invalidate the
triangle count as shown and open up more bearish possibilities.
Although we think that scenario to be unlikely, we would
nonetheless then have to change our immediately bullish outlook
for the region.

Sentiment considerations

“Taken together, markets express

something about both the mood of
investors and the temper of the
times. The most commonly
ascribed signal is complacency.
Dangers are often ignored until
too late. However, the dominant
mood in markets today, as it has
been for much of the past decade,
is not complacency but anxiety.
And it is deepening by the day.” –
The Economist, August 17, 2019

11
In recent issues, we have reviewed numerous other sentiment
extremes that support our long-term bullish outlook for the
region’s stock markets:

—Record highs in the short-sell ratio in

Japan and Hong Kong (see Hong Kong
section)
—Record highs in economic policy
uncertainty in Hong Kong and globally
—Panic among global equity analysts
—A drought in initial public offerings and a
dismal employment outlook in India (see
India section)
—A drought in mergers and acquisitions in
Australia
—Record lows in margin loans as a
percentage of market capitalization in Taiwan
—Extremely low price-to-book valuations in
South Korea
—Mass protests in Hong Kong
—The escalation of the trade war between
China and the United States
—The outbreak of a mini trade war between
Japan and South Korea
Sentiment considerations
News headlines in August added more evidence to support a Sentiment considerations support an important low nearby. In
negative mood extreme: India’s revocation of the special status particular, the five-day moving average of the Hong Kong
of the territory of Jammu and Kashmir, which has caused a Exchange’s short-sell ratio spiked in mid-August to more than
political crisis and a trade war with Pakistan (see India & 17% of value traded. That is a record. A record spike in the
Pakistan sections). indicator provided a failed signal during the global financial
crisis of 2008, but others have tended to precede higher prices in
Let’s look now at Hong Kong, since China is probably mulling the Hang Seng over the long term.
whether to revoke the special status of the territory in the future.
China’s leaders have allowed anti-government protests to
continue in Hong Kong for almost three months, but their
patience may now be wearing thin. “It’s not only China central
government’s authority but also its responsibility to intervene
when riots take place in Hong Kong,” China’s state-run Xinhua
News Agency said in an August 25 commentary, perhaps also
signaling that the mood in the region is reaching a negative
extreme.

Editor’s note: On August 23, I spoke with Bloomberg TV Asia

about the historical relationship between mass protests in Hong
Kong and the Hang Seng Index. You can watch the interview
here. Also, the South China Morning Post included EWI’s
perspective on the recent protests in an August 26 article, which
you can read here.

Hong Kong and Singapore

The Hang Seng Index and the Straits Times Index fell to new
lows within their wave 7 corrections, but the pattern of the
declines appears to be three waves, which supports a low nearby.
In line with our discussion of downside risk in the Overview, we
would change our immediately bullish outlook if the Hang Seng
were to fall below its 2018 low of 24,540, which sits about 5%
below current levels.

12
The August 10 cover of China-U.S. trade war update
the Economist, which The China-U.S. trade war continued to escalate in August, with
featured a bleak scene of U.S. President Donald Trump announcing on August 1 that
umbrella-wielding tariffs of 10% would begin September 1 on the remaining $300
protesters battling tear billion of imports from China. After China retaliated by
gas, may have also imposing additional tariffs on $75 billion of imports from the
indicated a sentiment United States, Trump then said that the rate on the $300 billion
extreme, per Paul would rise to 15%, and that the rate on the $250 billion of
Montgomery’s magazine imports already in effect would begin to rise to 30% from 25%
cover indicator. on October 1. Our July 2019 issue showed that the outbreak of
the trade war in 2018 was in fact a product of the worsening
“It’s still too early to call social mood globally since the 2018 highs and may in fact be a
the bottom,” a portfolio long-term buy signal. The trade war’s recent escalation in no
manager with a Hong way changes that outlook.
Kong company told
Bloomberg on August Japan
23, a week after the The Nikkei 225 continues to advance in the early stages of wave
August low. “The local incident looks far from being 3 of (3) up. Elevated levels of short-selling—including yet
resolved. We’d stay cautious about putting money in the another record spike to 51.5% in the total value traded on the
Hong Kong market." Investors may soon learn that conflicts Tokyo Stock Exchange on August 5—support our long-term
need not resolve for stocks to rally. By the time a conflict forecast of higher prices. So does yet another extreme reached in
resolves, the best entry opportunities have typically passed. August by the Sentix index that asks private investors about their
economic expectations for Japan six months ahead.
China
Following the regional trend, China’s infotech sector, as shown
by the CSI 300 Information Technology Index, has displayed
good relative strength in recent weeks. Relative strength in
infotech stocks bodes well for continued upside the Shanghai
Composite Index as well. An extreme in the put-call ratio for
the largest U.S.-listed exchange traded fund that tracks mainland
China shares, the Xtrackers CSI 300 China A-Shares ETF, also
supports a significant low. The ratio spiked to a record high one
week before the wave 7 low in the Shanghai Composite.

13
 India
The Nifty Midcap 100 Index is near the lower line of its long-
term trend channel, and may end wave (4) down at any time, if
has not ended it already. (Note: In strong bull markets, some
fourth waves may end above lower channel lines. For an
example, see the ASX 200 Information Technology Index in the
Australia section.) If the Nifty 50 Index is tracing out a wave 4
contracting triangle pattern, as we believe it is, then it may
similarly end wave c down at any time, if it has not ended it
already.
Following the regional trend, India’s infotech sector has been
holding up much better than the Nifty and Sensex indexes,
supporting our long-term bullish thesis. In fact, the wave 3 rally
in the Nifty IT Index may be continuing, per the alternate count.
14
India grabs Jammu & Kashmir
Elliott Wave International has long demonstrated how
government interventions and crackdowns tend to occur during
bear markets. India’s abolishment in early August of the relative
autonomy of the majority-Muslim territory of Jammu and
Kashmir—which Pakistan has also claimed since 1947—is a
case in point. India passed legislation annexing the territory in
early August after a two-month decline in wave c down in the
Nifty. In response, Pakistan suspended trade with India.
Although trade between the nations is negligible—exports to
Pakistan accounted for just 0.6% of India’s total exports in 2018-
2019—the trade freeze symbolized the depth of the rift between
the two rivals. Because Pakistan’s Karachi Stock Exchange 100
is deep in its own bear market (see Pakistan section below), the
potential for heightened conflict between the nuclear-armed
nations is extremely high.
And a wild card is India’s relationship with China, which sided
with its ally Pakistan on the Jammu and Kashmir issue. In
response, an economic group linked to India’s ruling party has
called for a boycott of Chinese companies. “Not just in consumer
goods, they’re a threat in telecom because their companies have
massive support from the state, are allowed to vastly underbid
Indian companies and win tenders for critical infrastructure,” one
member of the group told Bloomberg on August 22.
India’s trade deficit with China was more than $50 billion in
2017-2018, or more than 37% of its total trade deficit, which is a
concern for India’s fiscal hawks. For comparison purposes, we
note that the United States’ trade deficit with China represented
47% of America’s total trade deficit in 2017. Chinese-Indian
trade could soon become another front in the trade war trend that
has developed during the corrective period of the past 18 months
in global markets.
ManpowerGroup India Employment Outlook Survey
An indicator of business sentiment, the ManpowerGroup India
Employment Outlook Survey, shows that sentiment
considerations have been quite negative during the corrective
period of the past year and therefore supportive of much higher
prices over the long term. Or, as the chart headline says, the
employment outlook is so bad that it’s probably a bullish signal.
When our January 2018 issue first looked at the indicator, we
said that the record low employment outlook in the third quarter
of 2017 supported continued rise in Indian stocks and possibly
another trough in the indicator. Stocks continued stair-stepping
higher, but the indicator has since fallen to new lows. A few
prior signals are not much precedent, but we believe that the
recent record lows in the employment outlook survey are more
likely to be longer-term bullish than bearish.
Australia
Similar to other areas in the region, the infotech sector remains a
long-term relative strength leader in Australia. The ASX 200
Information Technology Index has faced resistance at its upper
channel line a few times over the past year and continues to
advance below the line.

The USD/INR has broken out of the declining trend channel

and begun a new uptrend. It should eventually reach record
highs.

Pakistan
Our June 2019 issue called the end of wave (A) down in the
Karachi Stock Exchange 100 Index too early. The index has
since fallen to the low of the previous fourth wave of one lesser
degree and rebounded slightly. If the low of that previous fourth
wave did not mark the end of the decline, then the index may end
wave (A) down near the low of the earlier fourth wave of two
lesser degrees near 27,354. The Global X MSCI Pakistan ETF
would likely bottom in tandem.
But our near-term wave count suggests that the infotech index
will probably exceed the upper channel line on its next wave up.
The index’s acceleration over the past four years—and in 2019 in
particular—even raises the possibility that the advance from
August 2015 is yet another series of first and second waves, per
the alternate count. But we think the wave 5 of (3) count to be
the most likely because it aligns with our preferred wave count
for the MSCI Emerging Markets Asia Infotech Index. (See
Overview.)
The ASX All Ordinaries Index is pulling back in a small
second wave.

15
Sentiment considerations
We know of no reliable market-based sentiment indicators for
Australian stocks, but similar indicators for U.S. stocks have
proved to be valuable proxies since the 2009 global lows,
because the major global indexes tend to ebb and flow with each
other.

The American Association of Individual Investors’ (AAII)

weekly Sentiment Survey is a case in point. Like many sentiment
indicators, pessimistic extremes in the Bulls Minus Bears spread
gave false signals during the 2008 global financial crisis. But,
since the 2009 lows, a spread below -25 has successfully
signaled higher prices five out of six times. The spread plunged
below -25 as the All Ordinaries sold off in August. We believe
the extreme will again eventually support an intermediate-term
low.

Vietnam
Like some other markets in the region, the Ho Chi Minh Index
completed a fourth wave at its January 2019 low and has since
begun a fifth wave up. If wave (5) were to equal wave (1) up, it
would end just below 1500. Vietnam’s stock market may be
roaring, but chronic weakness in its currency has ruined returns
for investors in the Market Vectors Vietnam ETF, the only
U.S.-listed exchange traded fund that tracks Vietnamese shares.
Buyer beware.

South Korea and Taiwan

The KOSPI fell to lower lows within its correction while the
Taiwan Index has held above its January 2019 low. The
resulting divergence should eventually be bullish for both
indexes. The early August spike in the KOSPI 200 Volatility
Index may also support a low in both indexes.

South Korea-Japan conflict update

South Korea escalated its conflict with Japan in August when it
announced that it would allow an intelligence-sharing pact with
Japan to expire. It then conducted military drills around a tiny
island claimed by Japan. Japan’s Foreign Minister said that
relations between the two nations are “in an extremely difficult
state, with the South Korean side taking a series of extremely
negative and irrational actions.” (Bloomberg, 8/22/19)

That phrase—extremely negative and irrational—describes a lot

of behaviors during bear markets, including those of investors
selling Japanese and South Korean shares at present, who may
later come to regret those decisions.

16

GLOBAL INTEREST RATES
Interest Rates Around the World
August witnessed a distinct flight-to-safety in global bond
markets. Government bonds surged in price as investors shifted
even lower their expectations about how far down yields can go.
Never mind the fact that Japanese and European government
bond yields are near zero or negative, there's a growing
consensus of opinion that sees U.S. bond yields moving towards
zero or below. It's a "buy 'em at any price" mindset in
government bonds at the moment.
More and more longer-term sovereign debt now sport yields that
are negative. This not only reflects a historic complacency to the
risk of a rate rise but also increases the level of systemic risk.
Even a small increase in rates will lead to an out-sized decline in
the market value of low-to-negative-yield bonds.
Global 10-year yields are likely approaching a temporary low.
Expect higher yields and lower bond prices in September before
the broader downtrend in yields resumes.
Deflation and Negative Interest Rates
As Germany issues 30-year bonds at a negative yield, a world of
interest rates below zero is becoming normal. Welcome to the as-
yet-unheralded deflation era.
The big news in August was the German 30-year Bund auction at
an historic yield of minus 0.11%. Investors, though, were only
willing to buy less-than-half of the €2 billion bonds on offer.
Nevertheless, the fact that a sovereign government was able to
issue 30-year debt at a negative yield was lauded by many,
including U.S. President Trump. The President wrote, "So
Germany is paying Zero interest and is actually being paid to
borrow money, while the U.S., a far stronger and more important
credit, is paying interest…"
That comment is extremely interesting when put in context of a
recent article by Dr. Thorsten Polleit, here, in which he lambasts
the European Central Bank's policy of negative interest rates.
Although he points out that the new theory of the natural rate of
interest being negative is wrong, he says,
"…it is highly attractive to the state and those
groups closely associated with it because if the
central bank forces interest rates into negative
territory, running into debt becomes a profitable
business, and financially ailing states and banks
can reduce their debt burden at the expense of
creditors."
Bingo. What better way to get rid of your massive
debt pile – get other people to pay it off. The
problem is, that disincentivizes the private sector
from economic growth.
Dr. Polleit's argument is that central banks
manipulate interest rates throughout the yield curve.
Although we disagree with that, instead taking the
view that bond yields are driven by herding
behavior, the effects of negative interest rates
throughout the yield curve are the same. The article
raises an interesting question about credit rationing.
If governments and corporates can borrow money at
negative rates, then surely everyone will be
clambering over themselves to borrow money,
17
creating a massive supply of credit. Dr. Polleit says that the
ECB will have to ration credit and decide who gets to borrow.
Which governments or corporates or banks will get to borrow?
What is the criteria for deciding? An Orwellian vision is
painted where "the monetary policy of zero and negative
interest rates — if it is consistently thought through — leads to
the demise of (what little is left of) the free society as we know
it in the Western world." Heady stuff.
The article suggests that negative interest rates create a
massive speculative bubble which is eventually burst in a
destructive debt deflation. That is possible but the evidence
from Japan suggests otherwise, where rates have been zero or
negative for decades and yet no bubble has manifested.
Perhaps more apt is Larry Summers idea of "Black Hole"
monetary policy where, when rates go to zero or negative, the
energy required to sustain the private sector economy can't get
out.
One thing is for sure. The gargantuan amount of debt in the
world cannot be sustained and will be deflated in the future.
Whether that process is a violent, existential moment or a slow
deflationary process lasting decades remains to be seen.
The Bond Universe
The yield on the Bloomberg Barclays Global Treasury index has
declined as prices rose, and the Global Credit index followed
suit. However, within credit, junk bonds severely
underperformed with the yield on the Bloomberg Barclays
Global High Yield index actually rising (price falling). Ditto for
the Emerging Market Index. This is a sure sign of nervousness in
credit markets, as is the fact that BBB-rated bonds are starting to
underperform A-rated again. These are all indications that
corporate default rates are at risk of increasing, especially as the
nascent economic downturn worsens.
The yield on the Bloomberg Barclays Global Aggregate index
hovers around 1.23%. We know that second wave zigzags can be
deep (think yen 1999/2000, gold 1999/2001), fueled by sentiment
which still believes the previous trend to be intact (in this case, a
decline in yields.) So, while it's an above-average retracement,
unless and until the yield breeches the 2016 low of 1.07%, this
yield count remains valid. The alternate is that the 2018 high was
Intermediate degree wave (4), meaning that still lower yields lie
ahead.
U.S. Treasuries asset management firm told Bloomberg on Tuesday that pension
Last month, GMP discussed the non-rational behavior of funds are being forced to invest in no-yield assets, "which will be
purchasing negative-yield bonds that will guarantee buyers a loss guaranteed to lose money." He called it an act of "financial
if they are unable to sell the bonds to someone else before vandalism." It's worse. In vandalism, the destruction of property
maturity. Current investor focus has now turned to the "inverted" occurs without the permission of the owner. Investors, however,
yield curve, whereby the yield on 10-year U.S. Treasury notes is are willingly buying no-yield debt instruments, ignoring the large
less than the yield on 2-year U.S. Treasury notes. Historically, the risk of capital loss. These decisions reflect a historic complacency
relationship is the opposite: longer-dated bonds yield more than among investors toward the prospect for a rise in bond yields.
shorter-dated bonds, because investors want to be compensated Trends change; that's a constant. The trend toward ever lower
for the increased risk of tying up their money for a longer period rates is at or near an end, and its reversal will decimate the market
of time. In a hot economy, however, demand for short term loans value of low-to-no-yielding debt instruments.
rises, pushing up near term rates. Investors are fretting over the
current inversion because every U.S. recession since 1955 has
been preceded by an inverted yield curve, though the lead time
between past inversions and economic contractions is widely
variable and usually does not occur until after the curve un-
inverts. Recent headlines reflect the anxiety:
Countdown to Recession
—What an Inverted Yield Curve Means
—Reuters, August 13

Recession Watch: What Is an 'Inverted Yield Curve'

and Why Does It Matter?
—The Washington Post, August 14

The Yield Curve Inversion Panic, Explained

—Vox, August 14

Why the "Inverted Yield Curve"

Is Fueling Recession Fears
—CBSnews.com, August 14

These articles are missing an equally if not more important

point, in our view. The yield on the U.S. 30-year Treasury
bond declined to 1.899% on Wednesday, a record low. Due
to the concept of duration—a measure of a bond's price
sensitivity relative to changes in interest rates—the record
low yield greatly increases the potential for a huge decline
in the market value of low-yielding bonds. GMP discussed
the heightened risk to investors in May; it's even more acute
now. According to a recent Bloomberg story, the effective
duration of a 30-year U.S. Treasury bond is about 21-22
years, which means that if yields rose across the curve by
just 1%, the value of the 30-year bond would decline by a
whopping 21%. "Even if 30-year yields just rose back to the
level they were at two weeks ago, it would mean double- European Credit Markets
digit losses for anyone who purchased them [two weeks Europe’s negative interest rates saga continues to build toward a
ago]." With interest rates plunging across the globe, the risk climactic finish. This publication has discussed the major
to investors is enormous. The next chart is EWI's Debt plotlines all year long, most recently illustrating the new all-time
Man's Curve, showing the current yield on various 10-year highs in negatively yielding debt (June 2019) and the arrival of
sovereign debts, which we first introduced a decade ago. negative interest rates in corporate bonds (July 2019). We
The higher the yield on the debt of each sovereign country, thought we had identified peak lunacy in the bond market last
the more onerous it becomes to repay or refinance that debt, month, when yields on every single Swiss and Danish bond,
increasing the risk of default. But something new has including those with maturities of 50 years, went negative. But,
occurred since we first published the chart: an expanding alas, August ushered in two more incredible plot twists: German
universe of negative-yield debt. While negative-yield bonds 30-year bonds yields went negative, and Denmark’s third-largest
make it easier for the issuers to service the debt, the greater lender, Jyske Bank, announced that it will issue a 10-year
the amount of sovereign debt with negative yields, the mortgage with a rate of -0.5%. Yes, prospective homebuyers in
higher the systemic risk. In an environment of low-to- Denmark can effectively get paid to take out a 10-year mortgage.
subzero yields, realization of duration risk will mean a huge Nordea bank, another Nordic financial services company, offers
price decline for the buyers of this debt. The chief 20-year loans at 0% and 30-year mortgages at just 0.5%!
investment officer of an

18

This story, however, is bigger than isolated examples of zero and
negative rates for home loans. In fact, mortgage rates have
plunged across the euro area, with average rates in France falling
to a record low of 1.39% in June. In Germany, the average 10-
year loan costs less than 1%, with some lenders offering loans at
0.5%. Even in Greece, where banks are purportedly “wary of
extending new credit,” (Bloomberg, 8/18/19) average floating-
rate home loans were just 3.08% in June. In fact, fully 70% of
euro-area countries saw mortgage rates decline this year,
according to Bloomberg, and, as this chart shows, the composite
euro-area mortgage rate just hit its lowest level since records
began in 2000. In sum, the celebration of cheap money
continues, but we advise leaving the party now. The Continent
has become so habituated to inexpensive credit that even tiny
upward blips in interest rates will send asset prices tumbling. The
inevitable hangover will be one of the most agonizing
experiences in modern financial history.
When the Bad Stuff Stops Selling
Even with the Continent bathing in cheap credit, liquidity in the
bond markets already shows signs of a dangerous dry spell.
Despite a 6% increase in high-yield-bond trading volume, “huge
portions of the market are getting left behind,” reports
Bloomberg. The second week in August saw just one new
leveraged loan launched for more than $100 million, the lowest
weekly volume in more than three years. Meanwhile, the
absolute amount of outstanding high-yield debt has shrunk even
as trading volumes on derivatives of speculative-grade credit
more than doubled over last year. In other words, traders and
money managers are focusing on bigger bond deals and higher-
rated issues, leaving the illiquid stuff to just sit. According to an
August 15 research report by Goldman Sachs, money managers
“may be selling what they can, instead of necessarily what they
want to.” (Bloomberg, 8/16/19)
19
Herein lies the problem. While there’s currently no pressure to
sell illiquid debt, a slowing economy could force managers “to
sell more than just the bonds they can easily offload.” (FT,
8/5/19) It’s a classic liquidity trap that actually ensnared its first
victims more than a year ago. In August 2018, Swiss fund
manager GAM suspended redemptions in nine of its popular
funds, and according to the FT, some clients “are still waiting to
get the remainder of their money back.” Likewise, Woodford’s
Equity Income Fund has blocked withdrawals since June 2019,
and France’s H2O Asset Management ran into liquidity issues in
July 2019. As European Short-Term Update editor Murray Gunn
wrote when GAM initially blew up, imagine what it’s going to be
like when investors try to get their money out of funds when
markets are declining.” The answer to this question should be
apparent to long-time subscribers: Most investors will never get
their money back. Indeed, the liquidity trap has been set, and
virtually every market strategy that relies on liquid, well-
functioning markets will eventually get sucked down.
One of the most obvious looming problems relates to the same
government regulations that were put in place to safeguard
investors. Both the Woodford and GAM funds, for instance, were
subject to the “gold standard of fund regulation,” (FT, 6/7/19) the
1985 European directive known as Ucits, or “Undertakings for
Collective Investment in Transferable Securities.” Investors
gravitate to Ucits funds, because they are well regulated and
allow daily deposits and withdrawals. Our view, however, is that
investment regulations work much the same way that federal
deposit insurance does: They give investors a false sense of
security that bear markets expose. Ucits funds, for instance, have
expanded relentlessly over the past 40 years, now including
33,000 funds and encompassing €10 trillion of assets.
Here again, negative interest rates have actually amplified the
inherent dangers as fund managers, desperate for performance,
have “compromised liquidity gradually over time to get to
today’s thin ice of portfolio composition.” (FT, 6/7/19). A prime
example is the so-called trash ratio, which refers to the bucket of
assets that Ucits funds are allowed to hold in less liquid assets.
H2O, for example, held illiquid bonds (such irony!) linked to a
German entrepreneur with a long history of legal troubles. GAM,
meanwhile, took “concentrated bets in illiquid bonds, many of
which were linked to a single group of companies.” (WSJ,
6/25/19) Regulations limit the trash ratio to 10% of assets, but
even this seemingly low percentage had no trouble bringing H2O
and GAM to its knees.
Make no mistake: Liquidity will be the buzzword that the bulls
hate to hear in the bear market years ahead. According to data
provider Eurekahedge, investors pulled more than $30 billion out
of so-called liquid alternative funds in the first half of 2019, the
most since the 2008 financial crisis. These funds are essentially
money pools that offer mom-and-pop investors strategies that are
typically reserved for hedge-funds. “They’re the hedge funds for
the masses, but now the masses want out,” says Yahoo Finance.
Regulators have also sounded the alarms. In June 2019, Bank of
England governor Mark Carney warned that bond funds
promising daily redemptions hold nearly $30 trillion of illiquid
assets. In other words, huge swaths of investors have faith that
they can simply cash out at a moment’s notice. At some point,
when they try to leave en masse, investors will find themselves
trapped inside a financial prison where every exit door has been
slammed shut and locked tight.
European and Asian-Pacific Interest Rates
German 10-Year Bond Yield
The break below the .618 multiple of wave 1 clears the way for
a deeper decline in wave 5 toward -126 bps, where it would
achieve equality with wave 1, a common wave relationship.
Near term, however, we are likely to see a corrective bounce
before the next leg down gets underway. Resistance should be
found into the -41 to -22 bps area of the prior fourth wave.
UK 10-Year Bond Yield
UK's 10-year yield is likely still completing wave 3 of (3). We
look for any further decline in wave 3 to be limited by the
Fibonacci cluster at 31 bps. When wave 3 ends, Minor wave 4
should be a corrective bounce back towards the 65 to 85 bps area
of the prior fourth wave. This upside recovery will then set the
stage for a renewed impulsive decline in wave 5 of (3).
20
Australia 10-Year Bond Yield
Similarly, in the Aussie 10-year, wave 3 of (3) is still likely still
in progress. However, we believe the downside in wave 3 is
limited and the next big move near term should be higher – a
correction in Minor wave 4. Further decline in wave 3 should be
limited by the 1.618 multiple of wave 6 at 68 bps. A reasonable
upside target and potential topping zone for wave 4 is the 126 to
149 bps area of the prior fourth wave.
Japan 10-Year Bond Yield
The downside break of the base channel formed by waves (1)
and (2) supports a developing wave (3) decline from about -1
bps. The 1.618 multiple of wave (1) near -44 bps remains on the
radar, although wave (3) will likely reach lower levels. With the
latest drop, yields are likely completing an initial five-wave
structure for wave 1 of (3). A corrective bounce in wave 2 should
precede the next impulsive decline in wave 3 of (3). The prior
fourth-wave high near -10 bps should be strong resistance to
rallies.
INTERNATIONAL CURRENCY
RELATIONSHIPS

Currencies Around the World

The US Dollar has passed on every opportunity to rally. We have
to consider the possibility that it has topped and that a reversal of
the rally from February 2018 is underway. We’re offering a weak
dollar scenario relative to the Euro, Japanese Yen, and Swiss
franc.

August was a better month’s trading for sterling, however, we are

viewing its recent outperformance as countertrend, merely
temporary relief in an unfavorable climate for the British pound.
The Euro remains mixed, outperforming against Nokkie, the
polish Zloty, and Aussie, but continuing to struggle against CAD,
Swissy & the Yen.

Dollar Rates
The US Dollar has passed on every opportunity to rally, even
though Trade-Futures.com recently reported that 90% of traders
held a bullish bias toward the buck. That alone is not enough to The Euro’s decline from September 2018 mirrors the US Dollar
call a top, but there are viable wave counts that put a top in place Index, and it might complete a correction from the February
or nearby. There are two versions of an ending diagonal that warn 2018 1.2555 high. A breach of 1.1411 would bolster this scenario
the buck is vulnerable to an abrupt reversal and a quick return to and EURUSD would likely return to the origin of the ending
the origin of the pattern at 95.74 or 93.82, and those are initial diagonal at 1.1815, at least.
first objectives.

If the Euro reverses course, its 57% weighting will pressure the
Dollar Index. But the Euro is not the only competitor that is
showing signs of reversing Dollar strength. The Dollar has lagged
relative to the Japanese yen, which represents the second largest
member of the basket of currencies that compose the US Dollar
index. The break of 104.85 warns that a break of 99.00 might be
underway. That’s a decline of more than 6% from current levels.
These two currencies represent more than 70% of the Index.

21
US Dollar weakness has spread to cable as well. A recovery to The dip below 104.85 suggests that the triangle we have been
resistance to 1.2784 is possible, but a breach of 1.3379 is needed tracking for several years in USDJPY is of the bearish variety. A
to signal that sterling has bottomed. Otherwise, GBPUSD wave (C) decline should exceed the end of wave (A) at 99.02.
remains vulnerable to a test of the October 2016 1.1949 low. To
conclude that a lasting bottom is in place, we’d have to accept a
truncated low. It’s rare for a C wave to end above the end of
wave A of the same degree. We ordinarily try to label a truncated
wave only in retrospect.

The Dollar rally relative to the Swiss franc stalled after three
waves and well below the end of wave D. The subsequent
decline below 0.9694 signals that USDCHF is still vulnerable.
Against 0.9976, wave E might reach 0.9517 where it will travel
61.8% of the distance traveled in wave C, or 0.9434 where y of
E will travel the same distance as w of E. Both are common
relationships.
The dip beneath the January low leaves no doubt that AUDUSD
did not bottom in January at 0.6750. We’ve adopted the alternate
count displayed in the August issue. It positions the corrective
setback from late January to June as wave d of a triangle wave
B. The subsequent thrust has already reached a new low, but it
pales in comparison to the length of wave A. Wave C should
continue to subdivide lower. We will re-evaluate on a rally above
0.7082.

A decline below 0.9188 would raise the possibility that the rally
to 1.0236 completed an ending diagonal and USDCHF has
staged a lasting reversal.

22
USDCAD is likely to push higher to complete wave d of the Our key level has been lowered to 1.1057, and our sights remain
“larger” bullish triangle. At 1.3560 d will travel 61.8% of the focused on the 1.0654 target.
distance traveled in wave b. Alternate waves within triangle
patterns are often related by the Golden Ratio. A final setback in
wave e and into the fourth quarter will complete the triangle.

We have revised our wave count in EURAUD. As long as price

action remains above the lower boundary of the corrective price
channel, our focus will be on the five waves unfolding from
Other Rates 1.5347 for wave C. Wave 8 of C should see EURAUD trade
Favoring that wave D of the triangle we are tracking has peaked, decisively through 1.6795 over the coming weeks.
our immediate focus has switched to lower in wave E against
0.9325. Wave E is expected to unfold as a zigzag or multiple
thereof; at 0.8819, it will have traveled .618 times wave C, a
common wave relationship within contracting triangles.

23
Our key level has been lowered to 1.5147, and our sights remain
set on the 1.4222 target, where wave e = .618 times wave c, a
common wave relationship within contracting triangles.
EURNOK is setting up to break through the 9.9943 – 10.0572
band of resistance that has been holding this pair back for nearly
two years. The pace and impulsive nature of the August advance
is in line with wave 8 expectations.
24
We did not get the expected decline in wave c of 2, and the
surge from 1.6527 has us considering that wave c truncated,
i.e., did not manage to push beyond the wave a low. Against the
1.6527 key level, EURNZD has the potential to move
aggressively higher in wave 3. Pulling back through 1.720 will
favor that wave 6 of 3 has peaked.
The third-wave advance that we have been patiently waiting for
appears to have gotten underway. Against the 4.2370 key level,
our focus is on five waves unfolding for wave 3 over the coming
months. Wave 3 will likely run into resistance at the upper end of
the wave (B) triangle circa 4.5 – 4.6, and the 1.618 Fibonacci
projection for wave 3 is 4.6970.
EURJPY has tagged the 117.36 target, but while it trades below
the upper boundary of wave Y’s corrective price channel, our
focus remains down, targeting 113.92.
AUDJPY is testing a significant support zone that has been
meaningful several times over the last decade. The downtrend
will remain preferred while the upper boundary of wave (C)
corrective price channel is intact.
25
GBPJPY quickly ticked off our downside targets set out last
month, and after testing the lower boundary of the corrective
price channel, wave B may now be done. We will be watching
the price action from 126.54 very closely over the coming weeks
to help determine if wave (v) is complete, or if the advance
offers a bearish setup for a still-unfolding wave c as per the
alternate.
Wave (iii) of 8 may have bottomed at 1.1675. We anticipate that
wave (iv) will run into resistance at/between the 1.2083 &
1.2334, the .236 & .382 Fibonacci retracements of wave (iii),
common fourth-wave retracement targets within an impulse.
Cryptocurrency
[For access to the Cryptocurrency video by Tony Carrion, please
see online version.]
METALS & ENERGY
Metals and Energy Around the World
Gold and silver are in the very late stages of their respective bear
market rallies. Bullish sentiment is extreme, and the wave
structure of the advance is complete or nearly so.
Our longer-term outlook for both Crude and Natural Gas is for
substantially lower prices. Shorter-term, the upside potential
deserves respect.
Gold & Silver
Gold fever can run at scorching hot levels in the late stages of a
rally. The final phase of the advance to gold's peak in 2011 is an
example, as the precious metal surged 19% in just over a month,
from August 1, 2011 to the peak at $1921.50 on September 6,
2011. So far, Intermediate wave (C) of Primary wave B is up
22% from the May 2 low. More important, gold's wave structure
is progressing in line with our forecast, and measures of investor
sentiment are compatible with the late stages of an advance. This
chart shows the total number of gold futures and options
contracts currently held by Large Speculators and Commercial
Hedgers. Large Specs are trend-followers who increase their
holdings of futures and options contracts as prices rise and
decrease them as prices decline. They are often caught in large
wrong-way bets at or near trend reversals. The Commercials
typically take the other side of the trade from the Large Specs.
As of last week, the Large Specs were net-long 349,647 gold
futures and options, a record position dating back to 1995, when
the Commitment of Traders data were first disseminated for both
futures and options. At the same time, Commercials are record
net-short 386,110 futures and options contracts. As the chart
26
shows, these new records eclipse the former extremes that
attended the Intermediate wave (A) of Primary wave B high.
Spot gold pushed to $1554.96 this week. Prices remain in the
target range discussed here and in The Elliott Wave Theorist. At
$1591 + or - $4, gold would retrace a Fibonacci 61.8% of
Primary wave A and within Primary wave B, wave (C) would
equal wave (A) in size, a common relationship in a zigzag
pattern (see text, p.42). Whether or not gold reaches that price or
even if it modestly exceeds it, the five-wave decline from
September 2011 to December 2015, and the three-wave structure
of the rally since December 2015, mean that gold will soon
resume declining within its long-term bear market. Primary wave
C, when it begins, will be a five-wave decline, similar in form to
Primary wave A. It will draw gold prices into the triple digits.
The combined EWT/EWFF Special Bulletin on November 14,
2018 identified the exact low day for silver prices, which have
rallied since. Prices are in the late stages of tracing out an (A)-
(B)-(C) pattern from November. Several times, silver has soared
as both metals headed into peaks, and this week started with a
higher gap opening. Interest in silver is naturally increasing as
prices do, as shown by the record rise in the monthly volume in
silver put and call options. Once the subwaves of 5 of (C) are
complete, silver will join gold in a decline to new multi-year
lows.
Energy
CRUDE OIL
Volatility seems to be the norm these days with WTI roaring
back up from its 50.52 early-August low. Our longer-term
outlook is for decidedly lower prices, but it’s not clear how the
recent price action fits into the wave count. We need to see
additional structural development to get our bearings, and we
have to respect the possibility that the Intermediate wave (2)
Energy
CRUDE OIL
Volatility seems to be the norm these days with WTI roaring
back up from its 50.52 early-August low. Our longer-term
outlook is for decidedly lower prices, but it’s not clear how the
recent price action fits into the wave count. We need to see
additional structural development to get our bearings, and we
have to respect the possibility that the Intermediate wave (2)
advance has yet to conclude. On the downside, trade below
52.96 and more importantly, 50.52, should strengthen the
immediately bearish case.
27
NATURAL GAS
As with WTI, Natural Gas posted an early-August low and then
rallied. The choppy advance from the 2.029 continuation chart
low should prove corrective and set the stage for further decline.
Potential upside objectives are 2.358 and 2.505, where the two
up legs from 2.029 achieve equality and then where the length of
the second up leg reaches a 1.618 multiple of the first. On the
downside, trade below 2.045 (maybe 2.126) basis the prompt
month October contract should be a good indication that the
larger downtrend is back on track.
ECONOMIC, MONETARY, AND CULTURAL
TRENDS
Economy & Deflation
In January, GMP noted that 46 out of 48 economists surveyed by
The Wall Street Journal expected the economy to "continue to
expand throughout the entirety of 2019." With "no meaningful
signs of an impending contraction" in sight, many economists are
arguing that the strong economic environment is a reason why
investors should own stocks. To the contrary, a corrective wave
pattern in stocks since January 2018 is a harbinger of recession.
Hints of a slowdown are happening now, as various economic
indicators are flashing recessionary signals.
The trade war fits the picture, too, but it is not a cause of
recession; that expression of causality is backwards. Conquer the
Crash explained, "Bear markets engender trade protectionism."
As negative mood waxes, the tit-for-tat exchange does likewise.
During the stock market's upcoming fifth-wave advance, there
should be a respite in the trade war; it will resume in the ensuing
bear market.
Bankruptcy Institute, personal bankruptcy filings also rose 3% in
July from a year ago. ABI says more households succumbed to
"overwhelming debt loads" as more companies filed their own
bankruptcies "triggering a wave of job cuts." Challenger, Gray &
Christmas counts 43,000 bankruptcy-related job cuts in the first
seven months of 2019, a 20% increase from 2018. Barneys New
York is the latest retail chain to file. "The Rich Aren't Spending,"
reported CNBC on Wednesday. The chart of the Consumer
Sentiment Index above reveals that the outlook of the average
American remains buoyant, but that will change as the decline in
stocks accelerates. According to Bloomberg, an unintended
consequence of U.S. tariffs is that U.S. warehouses are "bursting
at the seams." Look for gluts to become common as confidence
wanes and consumer spending dries up even further.

Deflation is another economic consequence that is central to our

forecast. In July, the Chinese Producer Price Index fell 0.3%
from July 2018. It was China's first PPI decline in three years.
Year-over-year Chinese industrial output also fell dramatically to
4.8%, the slowest growth since February 2002. The world's
third-largest economy, Germany, is officially contracting.
German GDP slipped 0.1% in the second quarter. The U.S.
manufacturing sector is also shrinking. In August, the Markit
U.S. Manufacturing PMI hit 49.9. Readings below 50 indicate
contraction. It was the first reading below 50 since September
2009. New orders and exports also dropped to their lowest levels
in ten years. "August's survey data provides a clear signal that
economic growth continued to soften in the third quarter," said
the survey's administrant, IHS Markit. A deflationary impetus is
also evident in a sudden surge in the number of Americans Also implying a return of deflation, recent issues of GMP and
cutting the cord on cable, telephone company and satellite TV EWT have described various leading markets and indicators that
providers. According to Leichtman Research Group, the biggest show property markets reversing into a broad decline. The chart
TV providers in the U.S. saw losses of 1.53 million subscribers of total U.S. Construction Spending shows the sweep of this
in the second quarter. The figure is more than three times the reversal. Back in February 2006, the peak in construction
420,000 losses in the second quarter of 2018. spending preceded the Dow's peak by a year and a half. This
time, the downturn came in May 2018, a year and two months
The real estate market is prior to the Minor wave D high in the Dow. The one-year rate of
supposedly robust, but change on the bottom of the chart shows an even more
serious systemic cracks are pronounced reversal. In anticipation of the 2008-2011 housing
appearing. Black Knight and credit crisis, the peak rate of change occurred in November
Mortgage Monitor reports 2005, two years ahead of the Dow's October 2007 top. This time,
that first-lien mortgage the one-year ROC peak happened all the way back in March
delinquencies suddenly 2014, more than five years ago. The longer set-up will almost
spiked 10.8% in June, from surely lead to a larger and more sustained global property
an all-time low in May. In meltdown.
the second quarter, the
The surest sign of such an outcome is the public's ongoing love
national default rate on
affair with real estate. A recent Bankrate.com survey finds that
loans rose to 3% compared
real estate just replaced stocks as "Americans' favorite long-term
to the second quarter of
investment. Years after a housing crash left the economy hurting,
2018. As the chart shows, it
many Americans still see real estate as their top pick. Some 31%
was the first rise since the
of survey respondents named real estate as their favored
last housing crisis in 2009.
investment for money that they wouldn't need for 10 years or
According to the American

28
more." This takes us back to the Gallup poll of August 2011, purpose of a company is to maximize value for its shareholders
which showed that gold had become investors' favorite long-term by pursuing profit as its only goal. Instead, the statement of
investment. That event coincided with the all-time high in gold purpose now places shareholders concerns alongside those of
prices. Meanwhile, lender underwriting standards are weakening customers, workers, suppliers and communities. Now, companies
to levels not seen since the "liar loan" era of 2005-2006. Here's are urged to "treat workers with dignity and respect" as well as
the notice from the August 22 issue of The Wall Street Journal: "protect the environment" as equal goals to delivering long-term
Mortgage Market Reopens to Risky Borrowers profits for shareholders.
The Journal says new loans called "non-qualified, or non-QM, Wow.
because they don't comply with post-crisis standards," are
proliferating. After taking out $45 billion in these
"unconventional loans in 2018, the most in a decade," non-QM
loan borrowers are on track to rise further in 2019. As in the
mid-2000s, mortgage bankers are working hard to pass the risks
on to investors. An increasing number of risky mortgages are
making their way into packaged mortgage bonds. About $2.5
billion in subprime loans—those with FICO credit scores below
690—backed mortgage bonds in the first quarter of 2019, twice
the total in the first quarter of 2018 and the highest level since
the end of 2007. Here again, the trap is set, just as it was in
October 2007, just one cycle ago. One key difference is that in
2007, home owners could more plausibly contend that real estate
always goes up. This time around, the last housing crash serves
as a potent reminder that buying a home at the wrong time can
lead to crushing losses. In a deflation, selling begets more
selling. A Fortune magazine writer cited the self-reinforcing
potential of this condition in an August 20 column:
Look, nobody is arguing that treating workers fairly and
protecting the environment are not noble and honorable goals
The nightmare scenario is the D but, up until now, the capitalist model has assumed that these
word. Two of them. Deflation and things will tend to be taken care of via the free-hand of market
depression. If people don't borrow forces. The first goal is to make money and be profitable – all
money, even if they're paid to do else follows. Scrapping that notion is a change of epochal
so [through negative interest magnitude.
rates], that would lead to a
slowing economy. It could mean As usual, we slip on our socionomist hats and ask the question:
people put off purchasing houses why now? This news comes hot-on-the-heels of a group of
or making additions to them, and American billionaires calling for a wealth tax and billionaire
companies laying off workers. hedge-fund-supremo, Ray Dalio, attacking capitalism for
When that's multiplied by the producing vast inequality. As we have noted previously, the
thousands, which becomes timing is apt because it comes AFTER a period when many
millions, it could mean recession. businesspeople and shareholders, especially the top-top echelon,
If the cycle continues beyond a have seen eye-popping, almost exponential accruals to their
brief time, it could become a financial wealth. Some commentators argue that these
depression. developments could be an attempt by the super-rich to avert a
revolution by the pitchfork-wielding majority. There may some
truth in that, and the rise in ESG (Environmental, Social and
He quickly moved on to a list of potential remedies, but the corporate Governance) investing also plays a part. But the rise in
reality is that the dawn of the next Great Depression, to be led by ESG is part of the same mood trend.
a fall in property prices, is very much at hand. There is no
avoiding it now. The top-tier of corporate America is now so awash with wealth
that it is happy to ditch the principle that, in the most part, got it
Cultural Trends there in the first place. These developments do not occur at stock
market lows.
Caring Capitalism. Why Now?
By Murray Gunn, European Short Term Update, Interest Rates Sweat is just fat, crying.
Pro Service, Currency Pro Service
By Murray Gunn, European Short Term Update, Interest Rates
You may not have heard or seen it, but a nuclear bomb just went Pro Service, Currency Pro Service
off in Wall Street.
Right on cue, a hyped-up fitness company comes to market.
News emerged in August that The Business Roundtable, one of
A number of years ago, I decided to become a Spinning ®
America's largest business groups with almost 200 members
instructor. It was a no-brainer really – get a work-out, be able to
including the likes of JPMorgan, Amazon and General Motors,
choose my own music and get paid a few quid into the bargain.
has dropped the "shareholder primacy" creed from its statement
of purpose. No longer will the Business Roundtable state that the

29
Plus, I look fabulous in bike shorts. It also gave me a good
insight into the fitness industry which, in parts, has become a
veritable bubble over the past decade.
Indoor cycling, in particular, has become a boom industry. What
started as Spinning ® (which has its roots in road-race cycling
training) has morphed into all sorts of hybrids, with brands trying
to differentiate from each other with ever more weird and
wonderful add-ons, from underwater cycling (really?) to lifting
weights when riding (which is insanely dangerous by the way.)
Class-based indoor cycling is so popular that, as any gym-rat will
tell you, it's nigh-on impossible to book in for a good class.
Peloton is a company which claims to solve that. Buy a Peloton
bike (for a cool $2,000 + monthly fee) and you can get a class-
based indoor cycling work-out from the comfort of your own
home at any time of the day or night, using technology to link up
with an instructor and other riders throughout the world. As a
private start-up, Peloton has enjoyed tremendous popularity but
has yet to turn a profit and also faces music copyright issues.
Nevertheless, it is now coming to market with an Initial Public
Offering.
Last year, when The Economist warned readers about France’s
upcoming summer protest season, our May 2018 issue argued
that the size of the developing negative mood trend suggested
that the protests would be far more violent ones that carried well
beyond the summer months. The demonstrations picked up
almost immediately, as the yellow vest movement spread
throughout Paris. And even as late as December, protestors
routinely raided shops, torched cars, and engaged in bloody
street battles with police. By January 2019, violence had become
such a regular part of the French experience that one legal
analyst saw “no end in sight for large-scale anti-government
protest movements.” (Courthouse News, 1/7/19) That weekend,
50,000 Parisians flooded the streets, burned cars and
motorcycles, clashed with riot police, and broke into a ministry
building with a forklift. Over the past year, violent
demonstrations have popped up in Belgrade, Berlin, Budapest,
Hong Kong, London and Moscow, and, in June 2019, more than
a quarter million people flooded the streets of Prague in the
“largest show of anger among the general public since the 1989
Velvet Revolution.”

Elliott Wave International and the Socionomics Institute have

highlighted a link between the fitness industry and the stock
market for decades. As social mood trends positively, people feel
optimistic and want to get fit. As social mood trends negatively,
people feel pessimistic and are inclined to sit on the couch with a
bag of chips. Fitness is part of the leisure industry and the chart
below shows that the Travel & Leisure sector started to
underperform the S&P 500 index in 2007 when its relative
performance peaked, just before the stock market dived. Over the
past decade, though, as social mood has trended positively, the
Travel & Leisure sector has outperformed the broader market. Russia, the Czech Republic’s former communist overseer, shows
However, its relative performance has not, as yet, beaten its 2017 another taste of the regional divisions to come. Back in
peak and so that could be a sign of developing weakness. November 2007, the Socionomic Institute’s Alan Hall published
a two-issue Special Report detailing the case for a peak in
So this high-profile IPO from Peloton could be a sign that the
Russian stocks that would be followed by a “minimum probable
fitness bubble (and the stock market) is reaching a crescendo. In
drop” of more than 50% in the Russian Trading System Index.
cycling terminology, to "bonk" is to reach a state of severe
After initially ignoring the 2007 peak in most of Europe, the
exhaustion caused mainly by the depletion of glycogen in the
RTSI topped in May 2008 and subsequently plunged 80% by
muscles. After the longest running economic expansion in U.S.
early 2009. Prices have since traced out a contracting triangle,
history, the same might be said of the stock market.
with wave D topping at 1414 on July 11, 2019. On July 20, riot
police in Moscow arrested more than 1,300 demonstrators after
Street Fighting Man
the government barred several independent candidates from
By Brian Whitmire, European Financial Forecast (EFF)

During the bear market years ahead, violent demonstrations will

probably become a year-round phenomenon.
—European Financial Forecast, May 2018

30
September’s city council elections. Police detained another 600 The Alternative für Deutschland party
protestors on August 3, as the “once a local, low-key affair … is (AfD) is expected to launch its biggest
now emblematic of the division within Russian politics.” (CBS attack yet on mainstream climate science
News, 8/3/19) at a symposium in parliament on Tuesday
supported by a prominent climate change
Division is precisely the right word to describe the social denial body linked by researchers to
influence of a bear market, and with Russian shares still down prominent conservative groups in the U.S.
nearly 50% from their all-time highs, regional politics should — UK Guardian, 5/14/19
become increasingly chaotic during wave E down.

At this point, formerly unified societies have divided over

innumerable issues. In May, for example, we discussed the
cultural divergences popping up between eastern and western
Europe in the form of anti-discrimination legislation. “The
diverging LGBT policies … reflect the difference between
western and eastern European moods,” said EFF. According to
this headline, published shortly after European Parliament
elections in May, environmentalism is the latest hot-button issue
around which society has polarized:

Gathering storm: Merkel govt feels heat of climate vote

—Yahoo News, 5/27/19
In a “harsh wake-up call for Germany's leaders,” the country’s
Green party increased their seats from 52 to 69, taking second
place and scoring their best election result ever. They also stole
votes from centrist parties, as the center-right and center-left
parties failed to control a majority of seats for the first time ever.
Germany’s CDU/CSU bloc suffered a historic loss “after being
caught flat-footed on environmental policy,” said one Paris-based
news agency. “Young voters fear climate change and are furious
about the government's glacial response to it.” (AFP, 5/27/19)
Remember, society seeks to divide itself during negative mood
trends, and environmental issues merely provide an avenue to do
so. Up until recently, in fact, political strategists deemed it
suicide to challenge the popular narrative that humans were
unalterably damaging the planet. According to this UK Guardian
article (published prior to European Parliament elections),
political outsiders viewed the issue as a possible path toward
victory (emphasis added):
Rightwing populists to launch attack on
climate science in vote drive before EU
elections
Germany’s rightwing populists are
embracing climate change denial as the
latest topic with which to boost their
electoral support, teaming up with
scientists who claim hysteria is driving
the global warming debate and ridiculing
the Swedish climate activist Greta
Thunberg as “mentally challenged” and a
fraud.
The Greens won the battle, but the war remains far from over,
and our only political advice is to approach this issue wearing
kid gloves. Last month, the Duke and Duchess of Sussex found
themselves on the wrong side of public opinion. The UK Sun
published this infographic on August 17, which called Prince
Harry and Meghan Markle “environmental hypocrites” for
hopscotching around Europe on four private jets over a span of
11 days.
The couple’s trip to Nice, according to the Sun, created seven
times more carbon emissions per person than a commercial
flight. And yet both royals have a long-standing history of using
their position to bring attention to environmental issues. In July,
for example, Harry wrote this message on Instagram: “With
nearly 7.7 billion people inhabiting this Earth, every choice,
every footprint, every action makes a difference.” He later told
conservationist Jane Goodall the he and Meghan would limit
themselves to two children due to environmental concerns.
Whatever side of the issue you fall on, the wrath of your
opposition will increase exponentially in the bear-market years
ahead.

31
"A Sickly-Sweet Extreme" Here at a top, a completely different-sounding rap is
an even bigger commercial success. After sitting No. 1
By Steven Hochberg and Peter Kendall, Elliott Wave
Financial Forecast (EWFF)
on the Hot 100 for 19 weeks, ‘Old Town Road,’ by 20-
year old rapper Lil Nas X, is the longest running No.1
In a recent dissertation on “Bull Market Music,” Jared hit in the 60-year history of the list. At the latest high,
Dillian of Mauldin Economics supported our even rap has been transformed into a bull market
longstanding socionomic case that bubblegum pop sound. Entertainment magazine calls the song, “a
is a musical form popular at times of peak social lighthearted anthem”; we would go so far as to call it
mood. Dillian cites 2000 as a classic example, when a bubblegum rap. One reason is what Wikipedia calls its
young and still Pop-Tart sweet Britney Spears was “core demographic,” children who “are attached to the
climbing the top of the music charts. The Backstreet
Boys and NSYNC were also filling up the airwaves.
As Dillian suggests, it was all “Really happy music.
Right when the markets were at the all-time high, and
people were at their happiest.” The correlation marks
another application of the relationship the Theorist
first described in 1985. In “Pop Culture and the Stock
Market,” EWT’s initial treatise on cultural trends,
Prechter identified another peak mood alignment
of bubblegum pop music “with the last hurrah in
the stock market” in December 1968: “The good
intentions found generally in bull market music peaked
at the same time, with a string of studio-manufactured
bubblegum hits, a sickly-sweet extreme in trend
if there ever was one.” The hits included the Ohio
Express’s ‘Yummy, Yummy, Yummy,’ which hit No. 4
on the Billboard charts in 1968 and the Archies’
‘Sugar, Sugar,’ which was Billboard’s No. 1 song
of 1969. As the bubblegum sound popped, the Dow
Industrials fell more than 35%. Stocks then rallied to
one more new high in January 1973, but, for another
decade, they failed to recover the vigor of the late
1960s.
The August issue of The Socionomist comments on the
form’s reappearance, citing reality-TV star-turned-
music-sensation JoJo Siwa. “Siwa is drawing hordes of song being repetitive, easy to sing along to and using
shrieking grade schoolers and pre-teens to her lyrics about riding horses and tractors, which kids can
squeaky-clean bubblegum pop concerts.” A recent relate to.” Another reason is the song’s manufactured
Washington Post headline calls her sound, “Sweet. quality. Lil Nas X famously purchased the beat for
Wholesome Pop.” With its lack of melody and a $30.
preponderance of bear market themes, rap music has WHITE MOTH, FLUTTER OFF:
not generally been considered a bull market sound, but FLY BACK INTO MY BREAST NOW
the next chart shows the power of social mood in the QUICKLY, MY OWN SOUL!
form of two dominant rap hits. At the end of the last —WAFU
bear market in 2009, the No. 1 song on the Billboard
Top 100 was Right Round by rapper Flo Rida.
Wikipedia describes the song as a “kitschy,
misogynistic” number that received “mostly negative
reviews.” In classic bear market fashion, it was,
nonetheless, “a commercial success.”
no

32
The Wave Principle is Ralph Nelson Elliott’s discovery that social, or crowd, behavior trends and reverses in recognizable
patterns. Using stock market data as his main research tool, Elliott isolated thirteen patterns of movement, or “waves,”
that recur in market price data. He named, defined and illustrated those patterns. He then described how these structures
link together to form larger versions of those same patterns, how those in turn link to form identical patterns of the
next larger size, and so on. In a nutshell, then, the Wave Principle is a catalog of price patterns and an explanation of
where these forms are likely to occur in the overall path of market development.

Pattern Analysis
Until a few years ago, the idea that market
movements are patterned was highly
controversial, but recent scientific discoveries
have established that pattern formation is
a fundamental characteristic of complex
systems, which include financial markets.
Some such systems undergo “punctuated
growth,” that is, periods of growth alternating
with phases of non-growth or decline,
building fractally into similar patterns of
increasing size. This is precisely the type of
pattern identified in market movements by
R.N. Elliott some sixty years ago.

The basic pattern Elliott described consists

of impulsive waves (denoted by numbers)
and corrective waves (denoted by letters). An
impulsive wave is composed of five subwaves
and moves in the same direction as the trend
of the next larger size. A corrective wave
is composed of three subwaves and moves against the trend of the next larger size. As the chart shows, these basic
patterns link to form five- and three-wave structures of increasingly larger size (larger “degree” in Elliott terminology).

In the chart above, the first small sequence is an impulsive wave ending at the peak labeled 1. This pattern signals
that the movement of one larger degree is also upward. It also signals the start of a three-wave corrective sequence,
labeled wave 2.

Waves 3, 4 and 5 complete a larger impulsive

sequence, labeled wave (1). Exactly as with
wave 1, the impulsive structure of wave (1)
tells us that the movement at the next larger
degree is upward and signals the start of a
three-wave corrective downtrend of the same
degree as wave (1). This correction, wave
(2), is followed by waves (3), (4) and (5) to
complete an impulsive sequence of the next
larger degree, labeled wave 1. Once again,
a three-wave correction of the same degree
occurs, labeled wave 2. Note that at each
“wave one” peak, the implications are the
Global Market Perspective Capsule Summary

same regardless of the size of the wave. Waves come in degrees, the smaller being the building blocks of the larger.
Here are the accepted notations for labeling Elliott Wave patterns at every degree of trend:

Within a corrective wave, waves A and C may be smaller-degree impulsive waves, consisting of five subwaves. This
is because they move in the same direction as the next larger trend, i.e., waves (2) and (4) in the illustration. Wave B,
however, is always a corrective wave, consisting of three subwaves, because it moves against the larger downtrend.
Within impulsive waves, one of the odd-numbered waves (usually wave three) is typically longer than the other two. Most
impulsive waves unfold between parallel lines except for fifth waves, which occasionally unfold between converging
lines in a form called a “diagonal triangle.” Variations in corrective patterns involve repetitions of the three-wave
theme, creating more complex structures that are named with such terms as “zigzag,” “flat,” “triangle” and “double
three.” Waves two and four typically “alternate” in that they take different forms.

Each type of market pattern has a name and a geometry that is specific and exclusive under certain rules and
guidelines, yet variable enough in other aspects to allow for a limited diversity within patterns of the same type. If
indeed markets are patterned, and if those patterns have a recognizable geometry, then regardless of the variations
allowed, certain relationships in extent and duration are likely to recur. In fact, real world experience shows that
they do. The most common and therefore reliable wave relationships are discussed in Elliott Wave Principle, by
A.J. Frost and Robert Prechter.

Applying the Wave Principle

The practical goal of any analytical method is to identify market lows suitable for buying (or covering shorts), and
market highs suitable for selling (or selling short). The Elliott Wave Principle is especially well suited to these functions.
Nevertheless, the Wave Principle does not provide certainty about any one market outcome; rather, it provides an
objective means of assessing the relative probabilities of possible future paths for the market. At any time, two or more
valid wave interpretations are usually acceptable by the rules of the Wave Principle. The rules are highly specific and
keep the number of valid alternatives to a minimum. Among the valid alternatives, the analyst will generally regard
as preferred the interpretation that satisfies the largest number of guidelines and will accord top alternate status to the
interpretation satisfying the next largest number of guidelines, and so on.

Alternate interpretations are extremely important. They are not “bad” or rejected wave interpretations. Rather, they
are valid interpretations that are accorded a lower probability than the preferred count. They are an essential aspect of
investing with the Wave Principle, because in the event that the market fails to follow the preferred scenario, the top
alternate count becomes the investor’s backup plan.

Fibonacci Relationships
One of Elliott’s most significant discoveries is that because markets unfold in sequences of five and three waves, the
number of waves that exist in the stock market’s patterns reflects the Fibonacci sequence of numbers (1, 1, 2, 3, 5,
8, 13, 21, 34, etc.), an additive sequence that nature employs in many processes of growth and decay, expansion and
contraction, progress and regress. Because this sequence is governed by the ratio, it appears throughout the price and
time structure of the stock market, apparently governing its progress.

What the Wave Principle says, then, is that mankind’s progress (of which the stock market is a popularly determined
valuation) does not occur in a straight line, does not occur randomly, and does not occur cyclically. Rather, progress
takes place in a “three steps forward, two steps back” fashion, a form that nature prefers. As a corollary, the Wave
Principle reveals that periods of setback in fact are a requisite for social (and perhaps even individual) progress.

Implications
A long-term forecast for the stock market provides insight into the potential changes in social psychology and even
the occurrence of resulting events. Since the Wave Principle reflects social mood change, it has not been surprising to
discover, with preliminary data, that the trends of popular culture that also reflect mood change move in concert with
the ebb and flow of aggregate stock prices. Popular tastes in entertainment, self-expression and political representation
all reflect changing social moods and appear to be in harmony with the trends revealed more precisely by stock market
data. At one-sided extremes of mood expression, changes in cultural trends can be anticipated.
Global Market Perspective Capsule Summary

On a philosophical level, the Wave Principle suggests that the nature of mankind has within it the seeds of social
change. As an example simply stated, prosperity ultimately breeds reactionism, while adversity eventually breeds a
desire to achieve and succeed. The social mood is always in flux at all degrees of trend, moving toward one of two polar
opposites in every conceivable area, from a preference for heroic symbols to a preference for anti-heroes, from joy
and love of life to cynicism, from a desire to build and produce to a desire to destroy. Most important to individuals,
portfolio managers and investment corporations is that the Wave Principle indicates in advance the relative magnitude
of the next period of social progress or regress.

Living in harmony with those trends can make the difference between success and failure in financial affairs. As the
Easterners say, “Follow the Way.” As the Westerners say, “Don’t fight the tape.” In order to heed these nuggets of advice,
however, it is necessary to know what is the Way, and which way the tape. There is no better method for answering
that question than the Wave Principle.

To obtain a full understanding of the Wave Principle including the terms and patterns, please read Elliott Wave Principle
by A.J. Frost and Robert Prechter, or take the free 10 Lessons on the Wave Principle on the Elliott Wave International
website at www.elliottwave.com (http://www.elliottwave.com/tutorial/).
Global Market Perspective
GLOSSARY OF TERMS
Alternation (guideline of) — If wave two is a
sharp correction, wave four will usually be a sideways
correction, and vice versa.
Apex — Intersection of the two boundary lines of a
contracting triangle.
Corrective Wave — A three-wave pattern, or
combination of three wave patterns, that moves in the
opposite direction of the trend of one larger degree.
Diagonal Triangle (Ending) — A wedge-shaped
pattern containing overlap that occurs only in fifth or C
waves. Subdivides 3-3-3-3-3.
Diagonal Triangle (Leading) — A wedge-shaped
pattern containing overlap that occurs only in first or A
waves. Subdivides 5-3-5-3-5.
Double Three — Combination of two simple sideways
corrective patterns, labeled W and Y, separated by a
corrective wave labeled X.
Double Zigzag — Combination of two zigzags, labeled
W and Y, separated by a corrective wave labeled X.
Equality (guideline of) — In a five-wave sequence,
when wave three is the longest, waves five and one tend
to be equal in price length.
Expanded Flat — Flat correction in which wave B
enters new price territory relative to the preceding
impulse wave.
Failure — See Truncated Fifth.
Flat — Sideways correction labeled A-B-C. Subdivides
3-3-5.
Impulse Wave — A five-wave pattern that subdivides
5-3-5-3-5 and contains no overlap.
Impulsive Wave — A five-wave pattern that makes
progress, i.e., any impulse or diagonal triangle.
Irregular Flat — See Expanded Flat.
Capsule Summary
One-two, one-two — The initial development in a
five-wave pattern, just prior to acceleration at the center
of wave three.
Overlap — The entrance by wave four into the price terri-
tory of wave one. Not permitted in impulse waves.
Previous Fourth Wave — The fourth wave within the
preceding impulse wave of the same degree. Corrective
patterns typically terminate in this area.
Sharp Correction — Any corrective pattern that does
not contain a price extreme meeting or exceeding that of
the ending level of the prior impulse wave; alternates with
sideways correction.
Sideways Correction — Any corrective pattern that
contains a price extreme meeting or exceeding that of
the prior impulse wave; alternates with sharp correction.
Third of a Third — Powerful middle section within an
impulse wave.
Thrust — Impulsive wave following completion of a
triangle.
Triangle (contracting, barrier) — Corrective pattern,
subdividing 3-3-3-3-3 and labeled A-B-C-D-E. Occurs
as a fourth, B, X (in sharp correction only) or Y wave.
Trendlines converge as pattern progresses.
Triangle (expanding) — Same as other triangles, but
trendlines diverge as pattern progresses.
Triple Zigzag — Combination of three zigzags,
labeled W, Y and Z, each separated by a corrective
wave labeled X.
Truncated Fifth — The fifth wave in an impulsive
pattern that fails to exceed the price extreme of the third
wave.
Zigzag — Sharp correction, labeled A-B-C. Subdivides
5-3-5.
Global Market Perspective Capsule Summary

The Elliott Wave Principle is a detailed description of how financial markets behave. The description reveals that mass
psychology swings from pessimism to optimism and back in a natural sequence, creating specific Elliott wave patterns
in price movements. Each pattern has implications regarding the position of the market within its overall progression,
past, present and future. The purpose of Elliott Wave International’s market-oriented publications is to outline the
progress of markets in terms of the Wave Principle and to educate interested parties in the successful application of
the Wave Principle. While a course of conduct regarding investments can be formulated from such application of the
Wave Principle, at no time will Elliott Wave International make specific recommendations for any specific person,
and at no time may a reader, caller or viewer be justified in inferring that any such advice is intended. Investing carries
risk of losses, and trading futures or options is especially risky because these instruments are highly leveraged, and
traders can lose more than their initial margin funds. Information provided by Elliott Wave International is expressed
in good faith, but it is not guaranteed. The market service that never makes mistakes does not exist. Long-term success
trading or investing in the markets demands recognition of the fact that error and uncertainty are part of any effort to
assess future probabilities. Please ask your broker or your advisor to explain all risks to you before making any trading
and investing decisions.

Global Market Perspective (GMP) is published by Elliott Wave International, Inc. Mailing address: P.O. Box 1618, Gainesville,
Georgia, 30503, U.S.A. Phone: 770-536-0309. All contents copyright © 2019 Elliott Wave International, Inc. All rights
reserved. Reproduction, retransmission or redistribution in any form is illegal and strictly forbidden, as is continuous and regular
dissemination of specific forecasts or strategies. Otherwise, feel free to quote, cite or review if full credit is given. Typos and
other such errors are corrected in the online version, which is the official final version of each issue. Subscribers will be notified
via email if substantive changes are made.
EWI offerings: EWI offers tri-weekly and monthly commentary on U.S. stocks, bonds, metals and the dollar in the Financial
Forecast Service; daily and monthly commentary on commodity futures in Commodity Junctures Service; tri-weekly and monthly
commentary on major European and Asian-Pacific indexes in the European Financial Forecast Service and the Asian-Pacific
Financial Forecast Service; and monthly commentary on all the world’s major markets in Global Market Perspective. Rates vary
by market and frequency. EWI also delivers intraday coverage of all major currencies (including cryptocurrencies), interest rates,
stocks, metals and energy markets via our Pro Services and EWAVES Flash Services. And EWI offers ongoing education to make
you a better trader via the Trader’s Classroom monthly subscription plus many educational resources available for purchase, visit
our Education page for details.
Elliott Wave Theorist Subscription rate: $29 per month (package discount available). Subscriptions paid via credit card
automatically renew each month and are billed quarterly by default. Visa, MasterCard, Discover and American Express accepted.
Call for other payment and billing options. Georgia residents must add sales tax.
Need short term coverage of global markets? We offer 3 different subscription for short term coverage - U.S. Short Term Update,
Asian-Pacific Short Term Update and European Short Term Update. Each Short Term Update is priced at $49/month. Please
contact EWI Customer Care to add these services. Subscriber discounts are available..
Contact EWI Customer Care: Call 770-536-0309 (internationally) or 800-336-1618 (within the U.S.). Or email customercare@
elliottwave.com or online at www.elliottwave.com/contact/
The Elliott Wave Principle is a detailed description of how financial markets behave. The description reveals that mass
psychology swings from pessimism to optimism and back in a natural sequence, creating specific Elliott wave patterns in price
movements. Each pattern has implications regarding the position of the market within its overall progression, past, present and
future. The purpose of Elliott Wave International’s market-oriented publications is to outline the progress of markets in terms of
the Wave Principle and to educate interested parties in the successful application of the Wave Principle. While a course of conduct
regarding investments can be formulated from such application of the Wave Principle, at no time will Elliott Wave International
make specific recommendations for any specific person, and at no time may a reader, caller or viewer be justified in inferring
that any such advice is intended. Investing carries risk of losses, and trading futures or options is especially risky because these
instruments are highly leveraged, and traders can lose more than their initial margin funds. Information provided by Elliott Wave
International is expressed in good faith, but it is not guaranteed. The market service that never makes mistakes does not exist.
Long-term success trading or investing in the markets demands recognition of the fact that error and uncertainty are part of any
effort to assess future probabilities. Please ask your broker or your advisor to explain all risks to you before making any trading
and investing decisions.
Global Market Perspective Bios

EDITORS

Robert R. Prechter, CMT

Robert R. Prechter, is president of Elliott Wave International, publisher of Global Market Perspective.
After working as a Technical Market Specialist with the Merrill Lynch Market Analysis Department in
New York, he founded EWI in 1979. Bob served for ten years on the Board of Directors of the Market
Technicians Association (MTA) and was elected its president in 1990. Currently he serves on the advisory
board of the MTA’s Educational Foundation. Bob has made presentations on his socionomic theory of
finance to the London School of Economics, Oxford University, Cambridge University, Trinity (Dublin),
MIT, Georgia Tech, SUNY and academic conferences. He graduated from Yale University in 1971 with a
degree in psychology. For more information, visit www.robertprechter.com.

Dave Allman
Dave Allman graduated from the University of Maryland at the age of 19 with a degree in mathematics,
became addicted to the markets and what makes them tick in 1978, and has worked closely with Bob
Prechter since 1983. He has lectured around the globe on the application of the Wave Principle and investor
psychology and has taught advanced classes on Elliott wave analysis to hundreds of investors. Today,
Dave is active behind the scenes on a variety of projects at Elliott Wave International and the Socionomics
Institute. Since October 1990, Dave has reviewed and edited all the commentary and charts in Global
Market Perspective.

Tony Carrion
Tony Carrion is an Elliott wave specialist, investor and trader who covers intraday analysis on eleven
major currencies for Elliott Wave International. Prior to joining EWI, in 2000 he formed an independent
online research service, Market-Harmonics.com, providing research reports and market letters covering
equities, futures and forex.

Steven Craig
Steve has been involved with the energy industry for well over a decade and joined EWI in January 2001
as senior energy analyst. His industry focus was on trading and risk management, and he is intimately
familiar with the production and consumption side of the business. Steve’s most recent positions were at
Central and South West (now American Electric Power) and with Kerr-McGee. His extensive experience
with the physical and financial aspects of crude oil, natural gas and electricity adds a valuable dimension
to his analytical approach. He is responsible for EWI’s online Pro Services energy coverage, and his crude
oil and natural gas views are featured each month in Global Market Perspective.

Mark Galasiewski
Mark Galasiewski began his analytical career in 2001, researching company fundamentals at an institutional
brokerage in Stamford, Connecticut. After joining Elliott Wave International in 2005, Mark contributed to
Robert Prechter’s Elliott Wave Theorist before joining EWI’s Global Market Perspective team covering Asian
stock indexes. For six years during the 1990s he lived in Japan, where he observed that country’s extended
bear market first-hand. Mark has traveled to many of the countries whose markets he analyzes. A graduate
of Middlebury College in East Asian Studies, he is fluent in Japanese and conversant in Mandarin Chinese.

Murray Gunn
After earning his Master of Arts Degree in economics, Murray went straight into fund management in
1991. He quickly realized that textbook descriptions don’t apply to real-world markets, which in turn led
him to technical analysis and the Elliott Wave Principle. He worked for several firms as a fund manager in
global bonds, currencies and stocks, including long posts at Standard Life Investments and the Abu Dhabi
Investment Authority. Murray then joined HSBC Bank as Head of Technical Analysis. A published author
(Trading Regime Analysis), he has served on the board of the Society of Technical Analysts (UK), and
delivered lectures on the Elliott Wave Principle to students at Queen Mary University and Kings College
London. Watch for Murray’s commentary in Global Market Perspective, Interest Rates and Currency Pro
Services, and on deflation.com.
Global Market Perspective Bios

Steven Hochberg
Steve Hochberg began his professional career with Merrill Lynch and joined Elliott Wave International in
1994. Over the years, Steve has become a sought-after lecturer and is quoted in various media outlets, such
as USA Today, The Los Angeles Times, The Washington Post, Barron’s, Reuters and Bloomberg. He also does
interviews about the financial markets on CNBC, MSNBC and Bloomberg Television. Steve co-edits The
Elliott Wave Financial Forecast with Pete Kendall, writes the Short Term Update thrice weekly, and provides
commentary on the U.S. stock market, interest rates and precious metals for Global Market Perspective.

Robert Kelley
Robert Kelley has worn numerous hats since beginning his career in 1987 as a futures broker. He joined
EWI in 1990 and edited The Elliott Wave Short Term Update, the Currency and Commodity Hotline and
the currency section of The Elliott Wave Currency and Commodity Forecast newsletter. In 1994, he left
EWI for New York to become a Vice President of JP Morgan where he was in charge of the technical
market research department. He later served as a consultant for HSBC Securities and thereafter developed
a proprietary options trading system. In May 2000, Robert rejoined EWI where he now provides analysis
for the World Stock Index for Global Market Perspective.

Peter M. Kendall
Peter Kendall served as a financial reporter and columnist from 1983 to 1992. He wrote the “On the
Money,” a column for The Business Journal from 1991 to 1997. Pete joined Elliott Wave International as
a researcher in 1992 and has been contributing to GMP since 1995. Pete is Director of EWI’s Center for
Cultural Studies, where he focuses on popular culture and the new science of socionomics. Pete graduated
from Miami University in Oxford, Ohio with a degree in Business Administration. For Global Market
Perspective, Pete provides commentary on cultural trends, the economy and the U.S. stock market.

Michael Madden
Michael Madden, CMT, CFTe, CEWA, began his financial career in 2009 while living in the United States.
He focused on technical analysis and grew to appreciate using the Wave Principle in his own trading. After
he settled back in his home in Ireland, he earned the Certified Elliott Wave Analyst (CEWA) designation
and launched his own Elliott wave forecasting and consulting service in 2012. He joined EWI in 2014 and
now covers intraday currency cross rates for EWI’s online Pro Services currencies coverage and Global
Market Perspective.

Jim Martens
Jim Martens began using the Elliott Wave Principle in 1985 and by 1989 was making insightful market
calls for his metals trader colleagues on the Commodity Exchange Center in New York. Jim joined Elliott
Wave International in 1993 as a commodity specialist. He also oversaw EWI’s currency analysis before
joining Nexus Capital Ltd., a Soros-affiliated hedge fund in 2001. He rejoined EWI in 2005. Jim received
a degree in finance from Florida Atlantic University. He covers currency relationships for Global Market
Perspective and provides full coverage of dollar rates in EWI’s online Pro Services currencies coverage.
Global Market Perspective Bios

Brian Whitmer
Brian Whitmer’s analytical proficiency extends to two professions: He received a degree in civil engineering
from the University of Maryland and has served as a designer, planner, and project manager for $100-million-
plus civil and residential developments. Brian also is an Elliott-savvy technical analyst who is proficient in
socionomics, the science of history and social prediction. He describes himself as self-educated in Austrian
economics and thus well-versed in the misunderstandings of mainstream economics. Joining Elliott Wave
International in 2009, Brian serves as editor of The European Financial Forecast and contributes the European
stock section of Global Market Perspective.

Ivelin “Ivo” Zhelev

Based in Bulgaria, Ivelin Zhelev, CEWA, has been involved in the financial markets since 2011. He is a
co-founder of EWM Interactive, a company that provides weekly wave outlooks for the major forex pairs
and major stock indexes and a contributor to two books published by Academic Publishing House “Tsenov”
- Svishtov, “Capital Optimization” and “Debt Management.” Ivo contributes commentary for the interest
rates section of Global Market Perspective.

Acknowledgments
Our production team is indispensible in getting out each issue of GMP. For this issue, Angela Hall, Shannon Clark, and John
Watson handled charts, fact-checking, proofreading, layout and other details.