The king of doom: veteran forecaster predicts Wall Street slump of up to 90%
Feeling too cheerful? In danger of irrational exuberance? Meet the finance man with a plan to depress you - a veteran market forecaster called Robert Prechter who is predicting a stockmarket slide of quite staggering proportions.Prechter, a cult figure in the finance world whose dramatic predictions have sometimes come true, reckons the Dow Jones Industrial Average is set for a fall from its present level of 9,743 to as little as 1,000 to 3,000 points - in other words, a collapse of 70% to 90% in the value of stocks - over the next five to seven years.
"It is very clear there is substantial stockmarket risk," he told Reuters today.
He expounded on his theory further in the New York Times over the weekend, urging investors to get out of the stockmarket and into safer US treasury bills and bonds.
"I'm saying 'winter is coming, buy a coat'," he told the NYT. "Other people are advising people to stay naked. If I'm wrong, you're not hurt. If they're wrong, you're dead. It's pretty benign advice to opt for safety for a while."
Prechter, 61, is a former Merrill Lynch analyst and erstwhile rock drummer who is an aficionado of a theory called the Elliott Wave principle - essentially a belief that investor behaviour can be forecast according to measurable swings and patterns of psychology.
Prechter is not without credibility - he is a former president of the Market Technicians Association and was named "guru of the decade" back in 1989 for his prediction of the bull market of the early 1980s and the stockmarket crash of 1987. He runs a consultancy called Elliott Wave International, based in Georgia.
Prechter tells the NYT that he now expects a crash akin to the collapse of the South Sea Bubble of 1720: "If I'm right, it will be such a shock that people will be telling their grandkids many years from now 'don't touch stocks'."
His misery doesn't end at the stockmarket. Prechter reckons US house prices, which have fallen by 40% in some states, are only about halfway through their fall. He thinks that pretty soon, a US dollar will be worth no more than a Swiss franc and that Europe is in for a spell of deflation.
Before anybody jumps off a cliff, it's worth noting that Prechter has been in this mood before. Back in 2002, he published a book called "conquer the crash: you can survive and prosper in a deflationary depression" which warned of imminent catastrophe and was, at best, extremely premature. Even back then, he was dubbed the "king of doom".