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Podcast Transcript -- Creating Wealth #79 - Elliott Wave Theory: Predicting the Future

Costa Mesa, CALIF. (May 12, 2009)— During this program, Jason is going to tell you some really exciting things that you probably haven't thought of before and a new slant on investing, fresh new approaches to America's best investment that will enable you to create more wealth and happiness than you ever thought possible.

Jason is a genuine self-made multimillionaire, who not only talks the talk, but walks the walk. He's been a successful investor for 20 years and currently owns properties in 11 states and 17 cities. This program will help you follow in Jason's footsteps on the road to financial freedom. You really can do it. And now, here's your host, Jason Hartman, with the complete solution for real estate investors.

Jason Hartman:

Welcome to another edition of Creating Wealth. This is show 79. This is your host Jason Hartman and I wanted to wish all of our listeners around the world a very happy holiday season.

Today, we will be having a great interview with Bob Prechter, who is the president of Elliott Wave International. I think you'll enjoy that. But before that, let me just mention a couple of things. No. 1, if you are a real estate or mortgage person, be sure you check out our broker coop program where we offer excellent referral fees to brokers and agents and mortgage people in many parts all over the country, and in fact, all over the world. Check out our website dedicated to this concept at www.bonuscommissions.com. That's www.bonuscommissions.com. I think you'll really enjoy that.

And we are also about to launch our certification program for accredited investment property specialists, so stay tuned for more information on that. I think you'll really enjoy some of the benefits offered there.

Anyway, it is my pleasure to welcome Bob Prechter to the show. As I mentioned before, Bob is the president of Elliott Wave International and he has a longstanding career and some excellent insights into markets. The Elliott Wave principle is a form of technical analysis that basically attempts to forecast trends and financial markets and other activities. It was developed in the '30s by Ralph Nelson Elliott and he was an accountant, who basically developed this theory that has a lot of support and a lot of backing to it. I think you'll really enjoy this interview. It's very insightful and what's especially interesting is the stuff where we don't talk about money necessarily, but we talk about socionomics and social trends. So let's listen in and enjoy the interview and we will see you very soon for show No. 80.

Interview with Robert Prechter

Jason Hartman:

I want to welcome Robert Prechter to the show. He's from Elliott Wave and he's from Atlanta, Georgia, and Bob, it's great to have you on the show.

Robert Prechter:

Well, thanks for having me.

Jason Hartman:

Good. Tell us a little bit about your background and then I want to get into Elliott Wave theory and talk about your book.

Robert Prechter:

Well, I started on Wall Street in 1975. I went to work for Bob Farrell, who ran the technical department at Merrill Lynch in New York City. Stayed there three and a half years, was completely itching to get out on my own, but I've learned a lot there. It was a great place to be and particularly New York City because that was the only place that I could find a copy of R.N. Elliott's original writings. He's the guy who originally wrote two books on what he called the Wave Principle and what some other people today call Elliott's Wave Principle.

And they were in the New York Public Library on microfilm and that really got me started because there was so much there that people weren't talking about, so much in the way of detail, and a completely thought out model of how stock markets behave and financial markets in general behave. It was a treasure trove. That got me started and I met a man named A.J. Frost, who is from Canada, and his partner, Hamilton Bolton, had kept the Wave Principle alive in the '50s and '60s.

And in 1978, we wrote a book together. That was back when the Dow was at triple digits if anyone can remember that, and we were saying this is a tremendous buying opportunity. We're finishing a long sideways bear period. We're calling it the Fourth Wave, that four- and five-wave up move, so there's a big bull market coming. And we were very aggressive in calling for the market to get as high as 3,000 or 4,000 and it turned out it actually tripled from there. Who knew?

Jason Hartman:

Wow, that was a very sage prediction. So how?

Robert Prechter:

Well, somewhat, but I have to tell everybody we make mistakes, too. During the '90s, I thought things were way overdone. I got bearish early, but you know what? I'd rather be out early than try to get out too late.

Jason Hartman:

A lot of people are probably echoing that sentiment right now, I would assume, including the person you're talking to actually.

Robert Prechter:

Yeah, well, everybody's experienced some difficulties, I think.

Jason Hartman:

Yeah, no question about it. Well, tell us how Elliott Wave Theory works and what is so special about it. What does an Elliott Wave theorist do as they're looking at markets?

Robert Prechter:

Well, the Wave Principle is a model. It says that the stock market is, to use a fancy term, an iterated, hierarchical fractal. And what that means is there's an essential pattern or wave structure that appears at all degrees of trend, whether you're watching a daily chart, a weekly, a monthly, a yearly, and so on. The smaller patterns add together to create larger patterns with essentially same basic shape.

We didn't know the word "fractal" when R.N. Elliott came up with this in the late '30s and early '40s, but since then, we've coined that word. Mandelbrot coined that word and wrote a book about it, and apparently, as he has shown, there are fractals throughout nature and we think that this is an engine of social behavior in human beings. When human beings interact with each other, they share their emotional states. We call it social mood. It seems to go through stages from extreme pessimism to optimism and back again. And those show up as buying and selling on the New York Stock Exchange.

They also show up in other areas, such as what clothes people choose to wear and how high women's hemlines are and how much production is going on in the economy. So it just affects everything.

Jason Hartman:

Yeah, I've heard the jokes about that. When the dresses get shorter, that means a bull market is coming. When the dresses get longer, a bear market is coming.

Robert Prechter:

Well, actually, it's a coincident indicator, so the higher the market goes, generally, the higher the hemlines, and the lower it goes, the lower the hemlines. So when they get to extreme levels, that's when you start saying, well, that's a useful indicator. We must be near a bottom or a top. It's sort of frivolous, but there's some truth to why that happens.

Jason Hartman:

Really? That's amazing. Okay, good. Very interesting. So how does it differ from other theories? There are so many theories on markets and especially the stock market, technical analysis, fundamental analysis, charting. I mean this is all along the sort of charting lines. Is that correct?

Robert Prechter:

Well, it differs from all other theories because it's the only form based model theory of the stock market. There aren't any other. Among academics, there are some currently popular models that evolve from the random walk model. Now, that was the only other one that was a form-based model. It says basically, there is no form. Prices just wander around.

And since then, there have been statistical studies showing that, in fact, the stock market does have what are called stylized statistical facts, which means, for example, big moves happen more often than they would in a bell curve. They call these "fat tails."

There's also volatility tends to cluster. When the market gets volatile, it tends to stay that way for a while, and when it gets calm, it tends to stay that way for a while. Random walks don't do that.

So what they are doing now is trying to use statistics to modify the random walk and say, well, it's not completely random. We found these events. But those are statistical models. They're not form models. And the Wave Principle model actually has all the same statistics that the stock market does when you apply or when you test them for these various statistical facts. That's a very cool thing because it tells us that our model is very close to what's really going on in the stock market.

Jason Hartman:

So what is the model telling us now?

Robert Prechter:

Well, one of the interesting things about the Wave Principle model is even in discussing it, you almost cannot help, but put out a forecast because when you're explaining the form, you show it and it's rarely complete on that day. It's usually in progress somewhere. And that's what we did in our 1978 book, Elliot Wave Principle, and we said we were finishing the fourth wave and we were going to have a giant fifth wave on the upside.

Well, I wrote this book, Conquer the Crash, in 2002 because that fifth wave finally ended in the first quarter of 2000 and we've been in a bear market ever since. We had the first wave down, which we call the "A" Wave, ending in late 2002. That was a 50 percent hit in S&P prices. Then there was a big recovery in the middle. Sometimes those recoveries are small; sometimes they can actually carry nominal prices to new highs.

Now, real prices got nowhere near new highs. It's been a bear market ever since 1999 in real value, stock shares. But now we're in the difficult part, the part where there's no place to hide but cash, and that's called Wave "C," and it's not over yet.

Jason Hartman:

So how long is that wave going to persist? I do believe that we're in a deflationary segment now, although I think we're going to disagree on this. I do believe we're going to see inflation coming in the next couple of years. It's going to be fairly significant. Like, I just finished interviewing Chris Martinson, who you may or may not know. He has a very popular course on the internet, called the Crash Course. And it's every guest I talk to on this show is talking about the creation of money that is just – you look at the adjusted monetary base, the stats that the Fed puts out, and this has never before happened in history.

Now credit is contracted and so I think that's why we're seeing deflation right now, but when credit comes back, as I think it will slowly and cautiously, and I think that's a good thing because it was obviously stupid before how it was so rampant. Aren't we going to have inflation? You put money supply with credit supply and those two equal inflation or deflation. And right now, we've got massive increase in money supply, contraction in credit supply, and so the net effect there, the aggregate of the two is deflation.

Robert Prechter:

Well, you're the first person to interview me that understands that.

Jason Hartman:

Oh, really. Wow.

Robert Prechter:

Absolutely.

Jason Hartman:

I'm not even an economist, but then again, Al Gore is not a scientist either.

Robert Prechter:

That's right and if you're not an economist, you don't have to unlearn so much material.

Jason Hartman:

Okay, fair enough. I don't have any bad habits yet. How about that?

Robert Prechter:

That's exactly right. We agree on some things, but there are nuances that I think are crucial here. In Conquer the Crash, I said they're going to try to fight this with inflationary measures. We already knew that from Bernanke and I said it's going to fail. And so far, it's failing in spades.

Jason Hartman:

Oh, it's miserable, yeah.

Robert Prechter:

Stocks are down 45 percent. Commodities are down 60 percent. Property is down 40 percent. In some areas, it's even worse. The liquidity is drying up. The oversupply is huge. And as you say, the Fed is doing everything it can to monetize crummy debt, like mortgages and stuff like that. They've doubled their balance sheet.

But the Fed alone can't do it because once people realize that the balance sheet stinks, their credibility and their own credit is going to be really going downhill. What Bernanke has managed to do, which goes further along your point, he's gone to Congress to get Congress to print even more fresh Treasury bills so they can monetize even more debt. And he wants them to shore up $700 billion worth of this and $500 billion worth of that.

There are people on the web that have looked at all of the spending that's already occurred from the FDIC, the Federal Reserve, and the Treasury, and it now tops $3 trillion and the total amount pledged is $8.7 trillion. So we're only one-third of the pledged spending has been done.

But here's the problem. When the Fed takes mortgages from a bank, it still expects that bank eventually to take the mortgages back. Some people say, well, it never needs to do that and that's true technically, but the Fed really doesn't want to get stuck with all this stuff. They keep telling us that the government's going to make money on their stock purchases, which is a joke. They're already down a third on average on all those stock shares they bought. The Fed's not going to make any money on this, and, at some point, people are going to realize that.

But the bottom line is so far, as you pointed out, as fast as they're trying to create new money, the credit is collapsing faster than that and we have so much credit. The whole system is saturated with credit. Banks have loaned out every dime of their deposits. It's all owed. Almost everything that's considered an asset today is an IOU and I don't think the Congress ultimately has the backbone to inflate. And as I explained in the book, even if it does and even if the Fed said we're going to literally turn on the press and have greenbacks pouring out the other end, what would happen to the bond market? It would crash, as everybody says okay, they're going to pull a Germany on us and go into currency hyperinflation.

Jason Hartman:

So you're referring to Weimar Republic, just for those listeners.

Robert Prechter:

Yep, sorry, in 1923. If they took that route, all of the credit instruments would instantly collapse. You'd still end up with deflation and, to date, they have not done that. They have not turned on the greenback printing press. So it's a fascinating time in history. It's never been done before to this degree, but so far, everything we've said is happening. They have had no net results on the stock market or the real estate market at all. I agree with you. Just one last comment, I do agree that when we've gotten rid of the entire market for credit and the debts are all wiped out, I think they'll probably turn to hyperinflationary policy.

Jason Hartman:

Any particular timeframe?

Robert Prechter:

Yeah, the earliest I think the collapse could be done would be about two years from today. That's based on looking at the 1929 – 1932 experiences, which is a little less than three years, and the post-South Sea bubble collapse, which was a little over two years. That was in 1720 – 1722.

However, just as this happened in Japan, the government is trying to get in the way of the collapse. And in doing so, all they're doing is prolonging it and ultimately making it worse because that's what they do.

Jason Hartman:

I couldn't agree more, by the way, with that. I think the government, if they would just get out of the way, we'd take our medicine. It would taste bad and we'd get through it a lot faster. But they're just prolonging. It's going to be a long, achy, prolonged mess if the government doesn't get out of the way, which they're not going to get out of the way.

Robert Prechter:

Which they won't.

Jason Hartman:

Yeah, I know that.

Robert Prechter:

Every week is another grandiose plan for more inflation and meddling and, not only that, they're talking about appointing, for example, a car czar. I mean give me a break. If General Motors can't make it building cars and trying to follow the consumer taste, I certainly can't imagine some government appointee figuring it all out and making all three of those car companies profitable. It's just a joke.

Jason Hartman:

You're absolutely right. I was listening to Rush Limbaugh this morning. I happened to catch him and he was talking about how the people in the government that are trying to solve all the problems have never produced a car, most of them have never run a business, they've never drilled and found a drop of oil. They've never done anything.

Robert Prechter:

They've printed money, so I guess they're going to throw dollars at that, taxpayer dollars, or saver's value. That's still a sad thing.

Jason Hartman:

All they know how to do is make laws. They know how to legislate. They know how to regulate. And they don't know economics. They don't know business. I mean there are exceptions, of course, but I'm just making a generalization. It's just unbelievable.

Robert Prechter:

We all have to be humble in that regard. I recently was one of I think about a dozen speakers talking to the Georgia legislature, one of their subcommittees, about the real estate problems, and one of the things I said was when you let the free market go, nobody here, including myself, is smart enough to how it's going to do what it's going to do. Now, for example, when Judge Green took away the AT&T monopoly in 1985, did anybody know in advance that we would have cell phones; that you could download movies onto your phone; that you could be on the top of a mountain in Chile and talk to some friend of yours 2,000 miles away? Or have the internet and all of the wonderfulness that that's brought and the fact that you can go in there and get the knowledge of the world at your fingertips in seconds.

Jason Hartman:

For free most of the time.

Robert Prechter:

So letting the car companies go down is a great thing because if the free market is allowed to operate with better cars made by smarter people, that get 100 miles to the gallon or use some alternative energy, you just don't know. But we do know that trying to bail them out is a terrible idea.

Jason Hartman:

Well, to state my side, I do agree with you. My only proviso on that is that I hate to see sort of the last fraction of American manufacturing go away.

Robert Prechter:

Yeah, I totally agree, but you know one reason it's gone? Because they bailed out Chrysler in 1979.

Jason Hartman:

How's that?

Robert Prechter:

Had they let Chrysler go under, it would have only been GM and Ford, and they would have shared the marketplace and had that much better income and a better base from which to try and compete with Japan. I mean maybe one of them would have survived this.

Jason Hartman:

Okay, interesting. Well, tell us about the book, Conquer the Crash. I just ordered it as I was talking to you here and I'm sorry to say I'm not up on your book, but what is it telling people to do? What is your advice and what are your predictions?

Robert Prechter:

Well, first of all, a year ago, you could have gotten it for about $2.00 used on Amazon.

Jason Hartman:

But the supply has dwindled because of the state of the economy?

Robert Prechter:

Yeah, because we're in the middle of a bull market now, it's a little more expensive. But it's still worth it. I think you can buy one for $10.00. I don't even get the money, but that's good.

Jason Hartman:

Supply and demand.

Robert Prechter:

Yeah, that's true. Well, I think the book is unique. It's the only bearish book that didn't say put all of your money in platinum and silver and gold, and foreign stocks and foreign currencies because I said very clearly what you want. You don't want to buy any investments, no real estate, no corporate bonds, no municipal bonds, no stocks, and no commodities. You want to hold onto your cash. I was a little bit early, but that's all coming true now.

Jason Hartman:

So your favorite investment vehicle then is cash?

Robert Prechter:

Yeah, cash. Now, that's a slippery word. Some people think that money market funds hold cash and they don't. They hold a lot of IOUs and are those IOUs any good. The closest thing to cash we have in our fiat money system besides actual greenbacks, and I do favor you having some of those in the house in case your bank closes, but the second best thing to own or the closest thing to cash are U.S. government treasury bills. They returned a nice return in the last couple of years. Of course, now they return absolute zero.

Jason Hartman:

Because there's so much demand for them as people are afraid to be in anything else. Is that why?

Robert Prechter:

Precisely right. And I also recommended the short-term bills of some other governments and they worked well up until recent months, and that was Swiss money market claims and that of the New Zealand government and Singapore. Those, we think, are pretty strong, relatively speaking; that is, compared to the rest of the world. So a little bit of diversification in those cash equivalents and you could just wait because you're going to be able to buy ten times the stock shares, ten times the property, and all the defaulted bond paper you want in about – somewhere in this decade.

Jason Hartman:

The interesting thing about that strategy is I'm definitely bearish on the U.S. dollar and bearish on cash, so we're going to have our differences of opinion there. But right now, at this moment, I am bullish on it and I never, ever thought I would say this, Bob, that I have a friend who is just this ultra conservative guy. He's a doctor. His name is John. He was always, years ago, looking for the best deal on CDs and what CD paid the highest rates. And I tell you, if I could get 3 percent on my money this last year – other than my property investments, which are leveraged, and those have a whole different set of dynamics that I've gone into on the show, but they're too long to talk about here right now – I would be jumping for joy.

And I've heard Doug Fabien talk about it. He says, just like you, don't forget that cash, a CD, or money market is actually an investment. And right now, in the past year, you're right and maybe for the next year or so, I'm pretty sure you're going to be right, too. But beyond that, I'm really bearish on the dollar and I think anything denominated in dollars is really going to be destroyed in value. You talk me out of that, if you would.

Robert Prechter:

Well, here's the irony. The reason the dollar is going up and will probably continue to go up for at least a couple more years is that it's so pitiful. Now, let me explain what I mean by that. The dollar is the most credit-inflated currency on the face of the Earth.

Jason Hartman:

It is disgusting.

Robert Prechter:

And as we know, it has been deflated to about $.04 relative to its value prior to the creation of the Federal Reserve.

Jason Hartman:

So 1913 to now, a dollar in 1913 is worth $.04 today?

Robert Prechter:

Exactly. Now, that's mostly due to credit creation. So we have the biggest sea of IOUs in the world that are denominated in dollars and IOUs are what are collapsing. So the reason the dollar is strong is because we've been so profligate in creating all these dollar-based IOUs, it's deflating more than any other currency. And that's going to continue because of the ocean of dollar-denominated debt.

I think we're going to take back a lot of that inflation because most of it was credit. Now, the Fed, as you pointed out, is feverishly working to counter that, but at some point, I think it's going to be politically unfeasible and that the voters are going to tell them to stop bailing people out. That's the thing they never count on. It's like when we went into Iraq and we said, oh, don't worry; everybody will cheer and it'll be over in three days. They never think about actual human behavior and what their actions are going to create in terms of blowback.

Well, here, we have a period that we're in of increasingly negative social mood and that makes people angry, it makes them fearful, makes them more conservative with their money, and they're not going to put up with the government bailing everybody on the face of the Earth out. Pretty soon, they're going to hear from the voters and the Congressmen are finally going to be in session, telling each other we can't do this or I won't get re-elected.

So the pressures are just huge and I think deflation is going to win no matter what they do.

Jason Hartman:

Conceptually, I understand what you're saying, and if the equation for deflation or inflation is money supply plus credit supply, then you can measure – well, they've made that much tougher and manipulated that, too, but we used to have M3. You can try to measure the money supply, so for what it's –

Robert Prechter:

Try is the key word. Nobody can define money because we don't have any money in our system. It's all debt, including the Federal Reserve notes. Even the cash in your wallet is an IOU. It's an IOU nothing. We actually have no money in the system and that's why we have so many amps because people have to argue about which debt should we call money. It's hilarious.

Jason Hartman:

Right, right. So if we have money in the system, if that were different, then what do you mean? What would we have? Would we have gold and silver?

Robert Prechter:

Well, gold would be – yeah, absolutely.

Jason Hartman:

So just out of curiosity, do you believe in a Gold Standard?

Robert Prechter:

No. No, let's be very clear. I believe in gold. Gold is money, and someday, perhaps a thousand years from now or maybe even fewer, maybe 50 years from now, there will be a different – the free market might choose a different sort of money, where people can have some sort of register that says I've done this amount of work, and I'm registering this amount of work as a future buying ability. Who knows what the creative human mind will come up with?

But a Gold Standard means I want the government to run the money and tell me it's worth so many grains of gold, for example. Well, we've already done that. The dollar started out defined, not as equal to gold; the dollar meant a certain physical amount of gold. And the pound, as we all know, started out as a pound of silver. But did either of those hold their value?

So a Gold Standard, a Silver Standard, the government will ruin any standard. If we return to a Gold Standard, it would just be another base from which they could rip off everybody, and that's always the way it works.

Jason Hartman:

But not if it were 100 percent Gold Standard or 100 percent Silver Standard, right?

Robert Prechter:

No, we had 100 percent Gold Standard in the United States up to 1933.

Jason Hartman:

We didn't have very much inflation either. I mean that was pretty steady.

Robert Prechter:

Well, you wouldn't with a Gold Standard because the only way to inflate is to discover and dig up more gold.

Jason Hartman:

Precisely, so isn't that a good thing?

Robert Prechter:

No because governments always renege. They always renege on the standard.

Jason Hartman:

That's because they can't spend, they can't discipline themselves, and the Gold Standard forces discipline.

Robert Prechter:

No, it doesn't.

Jason Hartman:

No?

Robert Prechter:

No, it doesn't. No because all they have to do is abandon it. In 1913, they created the Fed, and we had a Gold Standard, and they said, well, no, thanks. So my answer is get the government out of the money business. They have no business having anything to do with it. They can collect it in taxes, but money is simply a good and a service. It should be provided as everything that really matters to human beings should be provided, by entrepreneurs and the free market, and all the bad money would go away and there would be amazing ways to save and to spend real money.

Jason Hartman:

It would reduce speculation and these stupid schemes that Wall Street invents and were invented in the market. But how do you do that? I don't understand how you do that. Certainly, I don't think the Fed should be controlling the money supply.

Robert Prechter:

Oh, no, they should be abolished.

Jason Hartman:

I don't like the government being able to print fiat money either, but then you say, in the same breath, no Gold Standard. I don't understand.

Robert Prechter:

If we let people provide a service of money so that you can have your money stored in a warehouse and you'd get receipts for that, and of course, you would trade with actual pieces of paper that says this is worth so much gold. But it's provided by the market place and there may be different ways that people would denominate these things.

There is actually a prototype already in place. Have you ever heard of gold money?

Jason Hartman:

Yes, I have. That's a website, yes, Gold Money.

Robert Prechter:

Well, they have actual gold. It's for real. It's in a vault and you can't trade with your neighbor unless you have money that is gold in his system. But the government has nothing to do with it and, therefore, I trust Jim Turk. I don't trust Congress.

Jason Hartman:

I agree with you, but the government is attacking them. I mean I have heard that the government has attacked all sorts of websites like this, haven't they?

Robert Prechter:

No, they attacked another one, but not Gold Money. Gold Money is run too well for that. Now, it could be that they will attack it anyway, so that's not an excuse for a Gold Standard. That's an excuse for the government to leave people alone, who are trying to provide a true money service.

Jason Hartman:

The legal tender laws make it difficult to do that, right?

Robert Prechter:

No, they make it impossible. We need to repeal those, repeal the legal tender laws and get the government out of the money business. Just like we should get them out of the educational business and get them out of healthcare. They're ruining – everywhere they step, they're ruining it. That's certainly true with money.

Jason Hartman:

I know, but unfortunately, I don't think either of us will get our wish.

Robert Prechter:

Oh, no, I agree. Not in our lifetime.

Jason Hartman:

No, it's just the drift of politics is always to the left, it's toward more government, it's toward bigger intervention, and that's just the way things go until you have a revolution and things just fall apart and start over again. That sort of seems like the only way to correct.

Robert Prechter:

That's true. Even in Russia, which was a total disaster for 70 years, it was total and complete ruin in bankruptcy that finally made the central planners go out.

Jason Hartman:

Yeah, that's for sure. Before we wrap up here, Bob, I want to go back to that point you made about the Elliott Wave and its social interpretations, and the long skirts and the short skirts, and the emotions and how people talk to each other, and the way that influences social life and markets. You mentioned that earlier, right when we started today, and I found it very interesting. I'd love for you to just circle back on that, if you would.

Robert Prechter:

Yeah, I'd love to talk about that just for a moment. If anyone is interested in this idea, I have a two-book set. It's available on Amazon. It's called Socionomics.

Jason Hartman:

Socionomics. I'm going to look it up right now.

Robert Prechter:

And a colleague of mine, Dr. Wayne Parker, and I wrote a paper that was published in the Journal of Behavioral Finance, where we discussed some of the fundamental psychological differences between finance and economics. That's one of the legs of this whole idea.

But in essence, my hypothesis is that social mood is regulated according to the Wave Principle and is therefore independent of outside events. Outside events can make people emotional for brief periods, but it doesn't change the underlying fact that social mood is endogenously regulated. That means it's got a life of its own. It's the way people interact with each other.

So we have these long waves. Some people call them cycles, but I think waves is a much more accurate term. For example, up trends. When social mood is becoming more and more positive, many things happen as a result. People get more confidence, so they buy more stocks and you start to see the stock market go up. They also get more confident in business. So a few months after the stock market turns up, you see the business numbers starting to improve.

Politics tend to be less drastic, more encompassing, and more middle-of-the-road as people cooperate with each other in this period of feeling better. Peace treaties tend to come out well after a long-term up-trend of many years or even decades.

When the trend turns downward and mood tends to get more negative, people get angrier and they get more fearful, they get more conservative, they get less tolerant of each other, and you get real consequences from this change in mood. You get people selling stocks and, as you know, from atop, there's never a reason the market's going down. People scratch their heads. Why is this happening? That's because it's a mood they're not aware of consciously and there's just a few people on the margin that begin to sell their stocks. There are other people that start contracting their business plans or maybe contracting their borrowing or their lending. All of these actions have consequences.

It also shows up in the taste for music. Popular music tends to be very happy and upbeat when the trend is up, and when it's negative, you tend to get depressing balance, noisy, atonal music that's popular and that sort of thing. It permeates every aspect of our lives, from economics to politics to pop culture.

Jason Hartman:

What does it do to romance and marriage? I remember seeing all of the reports post-9/11, that marriages were spiking and everybody was kind of coupling up and getting married after 9/11. At the time, I had a pretty serious girlfriend. We didn't end up getting married, but I remember seeing that all over the news. That was a really rather big trend I think. I mean I don't know the numbers, but I heard about it a lot.

Robert Prechter:

One of the trends that we've actually done the data search on, going back 90 years, is the rate of births, as a percentage of the population and also in eremitic terms, tends to ebb and flow with the stock market. But oddly, it's off by about a year where we have annual data. We finally looked at it and realized all these lows coincide together if we just move it back a year, and then I realized, well, of course. What's being regulated here with social mood trends is the rate of conceptions.

Jason Hartman:

So you've got a nine-month lag there obviously.

Robert Prechter:

Yeah, exactly, and what happens is a rising mood, people tend to have more babies, and in a falling mood, they tend to have fewer. This goes back as far as we have the data. And so people will say demographics will move the stock market, and of course, we'd just like to choke them because we know the stock market moves demographics. In other words, the social mood is making the stock market go up and down at the same time that it regulates how many children people will decide to have.

So it does really permeate every aspect of human interaction, but it's happening at the unconscious level. People don't know why they're being impelled to do these things and feel these ways, but they do and we think the Wave Principle tracks that. So when you learn the patterns of the Wave Principle, you have a pretty good handle on prediction and Conquer the Crash and the previous book from 1978 are probably the two best examples I can give where we were way ahead of a multi-decade move each direction I think because this one is still young, in areas that other people just can't even conceive because you have to study 300 years of history to see what's about to happen.

Jason Hartman:

That is really fascinating. So this book of yours, or this two-book set, is called Socionomics: The Science and History of Social Prediction, which, by the way, Bob, is out of stock on Amazon. There's three new ones from different vendors and one collectible version. I suppose you autographed that one probably, right?

Robert Prechter:

I don't know. Maybe.

Jason Hartman:

And so that's on there. So just take on the socionomics aspect this point in history where we are now, the snapshot in time. People are obviously – there's a downbeat mood, so what's happening? Are marriages increasing? Are babies decreasing? Are you saying, though, on that thing there are more births during optimistic times? Is that the trend? Okay.

Robert Prechter:

Well, it actually follows. Even from the low of pessimistic times, it will rise along with the change in attitudes, yes, and then begin to fall as the market is heading into a peak.

Jason Hartman:

So I'm just trying to say, like, know what's going on now, if this theory is true, which it has been.

Robert Prechter:

Well, if the theory is right, we'll see a decline in the birthrate.

Jason Hartman:

So now, does this impact the fact that you got longer skirts? So maybe there's not as much pursuit going on.

Robert Prechter:

There may be a connection, but every time, people try to say, oh, well, it's due to this sort of mechanical cause. We always step back and say no. It's mood causing both. It's causing the skirts to go down. Men are part of that decision, too, whether or not to have a child and they just probably feel like, well, I really don't feel like having a kid. I just don't feel good enough. I don't want one. I don't think they can explain it rationally. As we all know, having children isn't a rational decision. We don't sit around and say, well, the benefits of having a child are as follows. We just one day wake up and say it's time. Let's have a kid.

Jason Hartman:

Sure. That is really fascinating. I did not know we would diverge into the socionomics aspect of this when we're talking about Elliott Wave, but that really gives it a lot more color and flavor, so that's very interesting. So anything you want to say in closing? We want to have all of our listeners go get your books and so forth, but kind of sum this all up for us, if you would.

Robert Prechter:

Yeah, what I tell people is to get the full benefit of all the ideas that we have here at Elliott Wave International, you really don't even have to spend any money. Maybe buy one, two, or three books, the two we talked about. Conquer the Crash actually has a couple pages in there about the Wave Principle. It explains it very concisely and talks for a page or two about the socionomic aspects of it. So even that one book can teach people a lot.

But we also have a lot of free content on our website where we talk about the current news and how it fits into what we think. Only the people that really want to follow the markets closely have to pay for the services that we provide to serious investors and traders and that sort of thing. So just come to www.elliottwave.com, and that's Elliott with two Ls and two Ts; wave, as on the ocean, dot com.

Jason Hartman:

Good stuff. Well, Bob Prechter, thank you so much for being on the show. We appreciate having you.

Robert Prechter:

It was a great interview and I really enjoyed taking the time.

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[End of Audio]

Duration: 44 minutes

About the host, Jason Hartman:

Jason Hartman is the Founder and CEO of Platinum Properties Investor Network, The Hartman Media Company and The Jason Hartman Foundation. Starting with very little, Jason, as a 19 year old college student, embarked on a career in real estate while promoting his unique Personal Branding methodology through which Jason says "virtually anyone can achieve wealth, notoriety and a high level of personal satisfaction." Through creativity, persistence and hard work, he soon joined the ranks of the top one-percent of Realtors in the U.S. and in quick succession; earned a number of prestigious industry awards.

By 1997, Jason realized his first entrepreneurial dream when he acquired an Irvine, California real estate brokerage firm. He combined his dedication and business talents to become a successful entrepreneur, public speaker, author and media personality as a guest on hundreds of radio and television shows. Jason's latest accomplishment is the celebration of his first company's 11 year anniversary. Over the last 20 years he developed his Complete Solution for Real Estate Investors™ where his innovative firm educates and assists investors in acquiring prudent investments for their portfolios in 39 markets nationwide. Jason's highly sought after educational events, speaking engagements and his ultra-hot "Creating Wealth Podcast" inspire and empower hundreds of thousands of listeners in 26 countries worldwide.

While running his successful real estate and media businesses, Jason also believes that giving back to the community plays an important role in building strong personal relationships. He established The Jason Hartman Foundation in 2005 with $200,000 of his own money to provide financial literacy education to young adults so they can utilize the all important real world skills not taught in school which are the key to the financial stability and success of future generations. We're in a global monetary crisis caused by decades of misguided policies and the cycle of financial dependence has to be broken, literacy and self-reliance are a good start.

Jason Hartman is available to speak at events ranging from radio and television interviews to keynote speeches and full day seminars. He presents his Complete Solution™ in a style that is entertaining, empowering and actionable. Visit www.JasonHartman.com for details. To book Jason TODAY please contact Brittney McKaig at 714/ 820-4267 or via Media@JasonHartman.com.