Many readers have asked about my opinion about the Elliott Wave Theory (EWT).

I personally don’t follow it, because I try to focus mainly on the major trends. However, there are some lessons to be learned in terms of where we might be at in the big picture. While my trend tracking approach tells us whether we are in bull or bear market territory, EWT attempts to define more closely at which point in either scenario we might be at.

Mish at Global Economics posted another worthwhile update on the current wave 4 that we’re in. He also had some interesting comments in “Bear Market Rallies Frequently End On Good News:”

The market may rally in a sloppy choppy fashion until Obama is inaugurated and signs the bill Nancy Pelosi has waiting, with an overshoot of 1-3 days, culminating in a big gap and crap event.

This theory may or may not happen, but the key now is that regardless of “why”, and until proven otherwise, we are still in a choppy overlapping wave 4 up. Either catch the wave or stand aside. Swimming against the tide is simply no fun.

My view is similar in that I expect the current rally to end; I am just not sure when that moment will arrive. It makes sense that reality will strike the markets after the inauguration and the signing of whatever stimulus bill will be promoted to be the savior.

I’ve touched on the potential failure of government bailouts on several occasions. Minyanville examined that issue again in a recent post called “Automakers, Banks Ignore Elephant in the Room:”

So there you have it. The U.S. Treasury this morning said it has committed $6 billion in support of GMAC LLC, the desperately wounded financing arm of General Motors (GM). The move might keep GM out of bankruptcy, and hey, what’s another $6 billion among friends anyway?

Make no mistake, the inevitable outcome will be failure. What is taking place is the extension of that failure to a decade or more. That is what the government is purchasing with the bailout monies; an extension, life support, even though death is inevitable. Why? Why would government do this? Because those who are demanding the monies and the extensions have more political clout than you do.

I have referred to this as postponing economic pain. Propping up failed businesses and turning them into zombie corporations reminds me very much of the former communistic East Germany, where I grew up. Companies were kept alive via government intervention for many years until the system eventually collapsed.

Instead of letting the free market function on its own, and taking the pain right now, we are mortgaging future generations in the hope that this current crisis can be solved by simply throwing money at it. As the above article pointed out, the inevitable outcome will be failure; we just don’t know the timing of it.

Reader Mike pointed to an excellent article written a few days ago in Minyanville titled “Don’t believe the hype.” Let’s look at some highlights:

Yesterday, for the third time in as many weeks, the US Government sold Treasuries at a yield of zero, as investors sought no interest in exchange for getting their money back in 4 weeks’ time. And as a consequence, I can already hear unscrupulous financial advisors around the country rehearsing their scripts:

Once again, I’d offer the same quote Will Rogers did during the Great Depression – that “the return of principal is far more important than the return on principal.” Until further notice, cash remains king.

[Emphasis added]

This has been my point all along. We are in the midst of the bursting of the greatest credit bubble ever created and to think that I might take only six month or so until a turnaround generates a “V” type of recovery is just not being realistic.

Certainly, my preference too would be to see a solid bull market again, and in due time we will, but for right now being cautious is the smart approach. Of course, Wall Street’s army of commissioned salespeople will be unleashed on the investing public right after the first of the year with the same old argument that this is a good time to buy.

If their speech sounds convincing to you, remember these are the same people that caused much hardship in 2008 by advising the masses to hold on and stay put with their investments in the face of an approaching bear market. If you made that mistake once, learn from it and don’t do it twice.

My latest No Load Fund/ETF Tracker has been posted at:

http://www.successful-investment.com/newsletter-archive.php

The bulls greeted 2009 with a bang, and all major indexes closed higher.

Our Trend Tracking Index (TTI) for domestic funds/ETFs remains below its trend line (red) by -7.28% thereby confirming the current bear market trend.



The international index now remains -17.77% below its own trend line, keeping us on the sidelines.

Many investors and Wall Street professionals alike are glad to see this year come to an end. The markets had their worst showing since 1931 and, unfortunately, many were caught in this downdraft without adequate portfolio protection. That’s simply a nice way of saying that they had no exit strategy and now have to live with the unenviable task of having to spend many years trying to make up losses.

Additionally, we all got well acquainted with fraud and deception as well as the ineptitude of government to deal with a crisis via senseless bailout attempts, the final result which will be still forthcoming. Desperately throwing good money after bad has never brought the desired results.

In light of the current financial crisis, reader Terri sent me this quote from Thomas Jefferson, which originated in 1802:

‘I believe that banking institutions are more dangerous to our liberties than standing armies. If the American people ever allow private banks to control the issue of their currency, first by inflation, then by deflation, the banks and corporations that will grow up around the banks will deprive the people of all property until their children wake-up homeless on the continent their fathers conquered.’

I am continuously amazed by the clarity of thinking of our forefathers. Maybe the simpler life which they lived with no TV, or other useless entertainment, caused people to actually sit together and have meaningful conversations with different viewpoints and without the negative impact of having to be being politically correct.

What do you think?

Many readers have asked as to what might be in store for the markets in 2009. Since I follow trends and don’t make predictions, let’s look at how others view the markets over the next 12 months. The WSJ featured a story titled “Looking Ahead to 2009:”

Heading into 2009, expectations for the market run the gamut, and after a year like this, it isn’t surprising to see that forecasters are all over the map with their expectations for the coming year.

However, one of the pessimists, author Michael Panzner, expects the S&P; to rise by 25% to 30% in the first half, but sees everything falling apart in the second half due to increasing protectionism, declining profits, and a loss of confidence in U.S. assets by foreigners.

There you have it. The forecasts for the S&P; 500 a year from now range from 600 to 1,250. In other words, these futile attempts at predicting the future are totally useless for an investor. As always, there are too many variables when looking at the fundamentals for anyone to use as a basis for making an intelligent decision. For that reason, I will stick to my “no forecast” policy and will simply continue to watch the trends for a directional signal.

If I had to adopt someone’s forecast from the above list, I would pick Peter Schiff’s, who accurately predicted the entire real estate/credit disaster way before the jokers on CNBC even had a clue that a downturn was on the horizon. Whether Peter will be accurate again remains to be seen.