Month: October 2009

By CountingPips.com

Consumer confidence declined by more than expected in October, one month after reaching a 2009 high point according to the preliminary figures for the October University of Michigan/Reuters consumer confidence survey. The UMichigan/Reuters consumer sentiment index score fell to 69.4 in October, down from a 73.5 score in September which had marked the highest score for the year. The consumer report was worse than economic forecasts that were expecting the report to edge down a bit to a 73.3 score for October.

The current conditions index, which measures present economic sentiment, declined by 1.3 points from September to a 72.1 score in October while the expectations index declined by 5.9 points to a 67.6 score in October. Inflation expectations showed that consumers expect 2.8 percent inflation in one year from now while on a five-year horizon inflation is expected to register 2.9 percent.

The report commented on the consumer sentiment saying that, “While consumers still anticipated gains in the general economy and now think that the unemployment rate is close to its cyclical peak, there has been no improvement in consumers’ dismal assessments of their personal financial situation”.

Foreign Demand for US assets increases in August

Also released today by the Treasury Department was the Treasury International Capital Data for August and showed that foreign demand for long-term US securities grew from July.  Foreign demand for U.S. long-term securities, which includes stocks, bonds and agency debt, advanced by a net total of $28.6 billion in August.

This important data to watch capital flows in and out of the US had totaled $15.3 billion long-term purchases of securities in July. France purchased the most Treasuries in August with a purchase of $10.4 billion and hold a total of $35.0 billion of U.S. Treasuries.  China, who holds the most U.S. Treasuries with $797.1 billion, reduced their holdings by $3.4 billion in August from July.  Japan is the second largest holder of Treasuries with holdings of $731.0 billion through August, up from a total of $724.5 in July.

US Dollar gains in Forex Trading today

The U.S. dollar has been stronger in forex trading today against the other major currencies. The dollar gained today versus the euro, Japanese yen, Swiss franc, Australian dollar, Canadian dollar and New Zealand dollar while falling against the British pound at 3:05 pm EDT.

On a weekly basis, the dollar is down against all of these currencies with the exception of the Japanese yen from the beginning of the week.

Today, the U.S. stock markets have been negative at time of writing with the Dow Jones down by approximately 60 points, the Nasdaq falling by roughly 10 points and the S&P 500 down by approximately 5 points.  Oil has edged up today by $0.95 to trading around the $78.55 mark while gold has edged up by approximately $0.90 today to trade at the $1,050.70 level.

GBP/USD Daily Chart – The British Pound Sterling has gained versus the US Dollar this week in trading. Despite this week’s approximate gain of 500 pips against the Dollar, the Pound is still in its downtrend from the recent high of 1.7043 on August 5th and trading right at its 100-day moving average in red.

By Fast Brokers – The USD/JPY is experiencing profit taking today after flying with U.S. equities and the Cable yesterday.  The USD/JPY ignored the theme of a weaker Dollar, and instead opted to participate in the risk trade.  Thursday’s combination of positive Q3 earnings and a drop in weekly U.S. Unemployment Claims gave investors confidence to put their money back into riskier investment vehicles while sending the S&P futures towards 1100.  An improvement in U.S. unemployment implies an increase in consumption, thereby increasing demand for Japanese exports.  However, Thursday’s risk trade is being undermined today by disappointing earnings from BofA and GE along with weaker than expected Prelim UoM Consumer Sentiment data.  The USD/JPY’s rally has topped out at what is now our 1st tier downtrend line after shying away from a test of 9/23 highs.  The currency pair still faces multiple downtrend lines along with 9/23 and 9/25 highs.  Therefore, quite a few technical barriers remain before the USD/JPY can establish a more substantial uptrend.

On a positive note, the USD/JPY is trading comfortably above 90 and the psychological level may now work in the currency pair’s favor.  Furthermore, the USD/JPY has set higher lows (10/7 and 10/14) while receiving encouraging buy-side volume during yesterday’s session.  The USD/JPY has created a little more breathing room in the form of multiple uptrend lines after dangling over the edge only a week ago.  Despite the improvements in the USD/JPY’s support system, the currency pair still has a lot to prove before to the topside due to the extent of its downturn.  Our 2nd tier downtrend line would be a good place to start since it could extend the USD/JPY’s rally towards 93.

Meanwhile, the BoJ will kick off the week by releasing its monetary policy meeting minutes combined with tertiary industry activity data early Monday (late Sunday EST).  Investors will also receive public addresses from Fed Chairman Bernanke and BoE Governor King along with key China data on Wednesday.  Therefore, volatility should remain at a heightened level through next week while investors continue to digest Q3 results.

Present Price: 90.70

Resistances: 90.99, 91.27, 91.44, 91.62, 91.85, 92.17

Supports:  90.70, 90.40, 90.15, 89.94, 89.69, 89.37

Psychological: 90

Market Commentary provided by Fast Brokers.

Disclaimer: FastBrokers’ market commentary is provided for information purposes only and under no circumstances should be regardedneither as an investment advice nor as a solicitation or an offer to sell/buy any financial product. FastBrokers assumes no responsibility or liability from gains or losses incurred by the information herein contained.

Risk Disclosure: There is a substantial risk of loss in trading futures and foreign exchange. Please carefully review all risk disclosure documents before opening an account as these financial instruments are not appropriate for all investors.

By Fast Brokers – The EUR/USD’s upswing continued yesterday, yet hit a will just beneath the highly psychological 1.50 level as anticipated.  The EUR/USD failed to fully participate in the equity rally and has formed a double top with a pop in volume on a 4 hour down-bar.  We notice similar weakness in gold while the EUR/GBP has been hit with huge losses over the past 24 hours.  The best explanation for the Euro’s present weakness is overbought conditions combined with headwinds at 1.50.  As we mentioned previously, 1.50 serves as the last noteworthy technical barrier separating the EUR/USD from accelerated near-term gains towards 1.55.  On a positive note, the EUR/USD is still trading above September highs and has multiple uptrend lines to break its fall.  Therefore, there are far fewer obstacles separating the EUR/USD from the topside than the downside.  We’ve attached a few makeshift downtrend lines running through weekly highs to give investors an idea of immediate technical barriers separating present price from intraday highs and 1.50.

Meanwhile, Q3 earnings and U.S. data are ending the week on a sour note with BofA and GE reporting weaker than expected revenue figures.  Furthermore, IBM is selling on the news despite reporting better than forecast.  The S&P futures are trading off by nearly 1% in reaction after failing to test their own psychological 1100 level.  Therefore, it seems the EUR/USD’s stronger positive correlations are facing psychological headwinds as well.  Regardless, the currency pair made some very bullish moves earlier this week, and there is presently insufficient evidence to contradict this observation.  On the other hand, the ECB is increasing its chatter concerning the importance of a stronger Dollar since EU exporters are having trouble shipping products with an appreciated Euro.  Hence, if the Dollar were to continue its broad-based devaluation the ECB may be inclined to keep the gates of liquidity open for longer.  However, we’re not at that point yet, so investors should keep their attention centered on technicals and fundamentals.

The EU will be relatively quiet on the data front until late next week, particularly when the union releases Flash PMI data numbers along with Ifo Business Climate data.  Until then focus should remain on Q3 earnings and U.S. econ data along with China’s data flow on Wednesday.  China has been an engine in the global economic recovery, so Wednesday’s GDP and Industrial Production data could make or break the current risk trade.  We believe China’s data will meet or beat and should provide a positive catalyst to global markets.  As for the time being, investors should keep an eye on U.S. equities and gold.  Further weakness in the S&P futures could apply downward pressure on the EUR/USD until we get more data.

Present Price: 1.4878

Resistances: 1.4905, 1.4946, 1.4981, 1.5013, 1.5052

Supports: 1.4875, 1.4845, 1.4830, 1.4800, 1.4758, 1.4722

Psychological: 1.50

Market Commentary provided by Fast Brokers.

Disclaimer: FastBrokers’ market commentary is provided for information purposes only and under no circumstances should be regardedneither as an investment advice nor as a solicitation or an offer to sell/buy any financial product. FastBrokers assumes no responsibility or liability from gains or losses incurred by the information herein contained.

Risk Disclosure: There is a substantial risk of loss in trading futures and foreign exchange. Please carefully review all risk disclosure documents before opening an account as these financial instruments are not appropriate for all investors.

By Fast Brokers – The Cable pulled a rally out of left field yesterday and exploded for nearly 400 basis points since our previous commentary.  The psychological 1.60 level ended up having a marginal impact and has been left in the dust.  Once the Cable got above our previous 3rd tier uptrend line, now our 1st tier, the currency pair took off as the S&P futures rallied towards 1100.  The GBP/USD’s surge comes with little data besides a decline in the CCC.  In fact, CPI came in weaker than expected this week and could be a cause for concern for the BoE unless they expect prices to rise with an improvement in unemployment.  We attribute the Pound’s breakout to a massive short squeeze and somewhat encouraging earnings from financials.  Financial services comprise a large portion of Britain’s GDP, so an improvement in earnings bodes well for Britain’s overall economy and causes investors to speculate a pause in BoE QE.  Either way, the evidence behind the Pound’s surge is inconclusive and the Sterling’s breakout caught us by surprise.  We don’t like to be party crashers, but we’re not entirely sold on the longevity of the Cable’s new uptrend.  However, the Cable’s breakout does give us another glimpse of the future when all central banks start to tighten liquidity.  For the time being, we will need further confirmation fundamentally, technically, and psychologically.

Psychologically speaking, investors will receive a stream of public address from central bank heads to kick off next week, including Bernanke on Monday and King on Tuesday.  We’ve seen how large of an impact King’s comments can have on the Pound, so we expect volatility to remain at a heightened state.  On a cautionary note, it’s unknown how Governor King will address this week’s breakout in the Pound.  If he were to alter his dovish monetary stance, then the GBP/USD’s near-term gains could really accelerate.  However, we believe King will try to keep investors in check and tame gains in the Pound in order to keep British goods and services attractively priced for exportation.  British econ data will be scattered throughout the week, yet fundamental focus will likely square on China’s important data flow on Wednesday.  China has been at the forefront of the global economic recovery, so investors will be paying particularly close attention to China’s GDP and Industrial Production figures late Wednesday EST.

In terms of technicals, the Cable has a few medium-term barriers to overcome in order to make believers out of us.  These include our new 4th tier downtrend trend line, the psychological 1.65 level, and 9/11 highs.  Our 4th tier seems to be the most important of the three since a failure would imply a retest of September highs since it runs through 9/11.  As for the downside, the Cable has clearly created a new comfort zone over the past 24 hours.  The currency pair now has multiple uptrend lines, 9/21 lows, and the psychological 1.60 level working in its favor.  Therefore, the Cable has placed itself in an opportune position to breakout  into a more lasting uptrend should psychological and fundamentals fall into line.

Present Price: 1.6340

Resistances: 1.6342, 1.6372, 1.6395, 1.6413, 1.6446, 1.6470

Supports: 1.6305. 1.6271, 1.6246, 1.6205, 1.6167, 1.6130

Psychological: 1.65, 1.60, September highs

Market Commentary provided by Fast Brokers.

Disclaimer: FastBrokers’ market commentary is provided for information purposes only and under no circumstances should be regardedneither as an investment advice nor as a solicitation or an offer to sell/buy any financial product. FastBrokers assumes no responsibility or liability from gains or losses incurred by the information herein contained.

Risk Disclosure: There is a substantial risk of loss in trading futures and foreign exchange. Please carefully review all risk disclosure documents before opening an account as these financial instruments are not appropriate for all investors.

By Adam Hewison – There is a saying which has been attributed to a fictional Chinese storyteller named Kai Lung and it goes like this, “May you live in interesting times”.

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By Rita Ruvinski

EUR vs. Majors:

The European currency edged higher against the Japanese yen Friday as firm Asian equity markets and commodity prices prompted speculators to dump the safe-haven Japanese currency in favor of higher-risk units.

The EUR rose to 136.03 vs. the Yen during the morning session, its highest level since August 24, after closing at 135.51 in late Thursday. Against the U.S dollar, the EUR traded around $1.4870, as players took profits on its rise to a 14-month high of 1.4967 Thursday. The currency’s late Thursday level was at $1.4956.

Despite EUR declines against the USD, Friday market sentiment towards the U.S currency remained negative. The greenback strengthened as some investors bet that the currency’s decline was overstated, given signs of a U.S. economic recovery. From a technical standpoint, the EUR remains slightly overbought versus the dollar which had prompted investors to adjust their positions, buying back the U.S currency.

However, the EUR is still headed for its 2nd weekly gain against the Dollar as European Central Bank officials are starting to signal a withdrawal of unconventional policy measures intended to combat the recession. Market players have taken that as a positive sign, benefiting higher-yielding currencies such as the EUR. Analysts said the EUR may rise further against the Yen and the USD if U.S. economic data and corporate earnings come in stronger than expected, increasing risk appetite for high-yielding currencies. The European currency’s next upside targets are at $1.5000 and 136.50 Yen, according to analysts.

Forex Market Analysis provided by Forex Yard.

© 2006 by FxYard Ltd

Disclaimer: Trading Foreign Exchange carries a high level of risk and may not be suitable for all investors. There is a possibility that you could sustain a loss of all of your investment and therefore you should not invest money that you cannot afford to lose. You should be aware of all the risks associated with Foreign Exchange trading.

Source: ForexYard

The movement in the forex market today is set to be driven by the release of crucial U.S. data. Amongst the most important of these publications are the TIC Long-Term Purchases, Industrial Production and Prelim UoM Consumer Sentiment. Better than forecast data may push-down the USD, and push-up demand for higher-yielding assets, such as the crude Oil Gold and the GBP. In the meantime, you should enter the forex market now to take advantage of the current trends.

Economic News

USD – Dollar Plummets to a Near 4-Week Low vs. the Pound

The Dollar dropped to a near 4-week low vs. the British Pound, but went higher against the Japanese Yen at the end of a volatile trading day Thursday. All of this was after the release of mixed U.S. economic data. The Dollar index traded at 75.470 yesterday, compared to 75.513 Wednesday. This was despite rising to as high as 75.765 at one point on Thursday.

The number of people filing for state unemployment benefits fell by 10,000 to a seasonally adjusted 514,000 the previous week, better than the expected 524,000. The U.S. Consumer Price Index (CPI) rose a seasonally adjusted 0.2% in September, which was also a better than expected result. On the other hand, manufacturing activity in the Philadelphia Federal Manufacturing Index expanded at a weaker than expected pace in October. The index declined to 11.5 this month from 14.1 in September. Overall the data had a slightly negative affect on the Dollar, and the bleak Dollar sentiment remains with the EUR/USD pair currently trading around $1.4925.

Looking ahead to today, the release of the TIC Long Term Purchases at 13:00 GMT, the Industrial Production report at 13:15 GMT and the Prelim UoM Consumer Sentiment at 13:55 GMT will likely provide great volatility to the USD, possibly pushing the EUR/USD beyond the $1.5000 level.

EUR – Pound Soars versus the USD and EUR

The British Pound climbed 1.8% versus the Dollar on Thursday, as the cross jumped to $1.6398 from $1.5975 late Wednesday. The Pound also jumped versus the EUR, sending the shared currency down 1.8% by yesterday’s close.

The Pound experienced its first weekly gain in a month versus the USD on optimism that the Bank of England (BOE) will suspend the asset purchases program, after Paul Fisher, an official with the Bank of England, signaled satisfaction with the impact of the central bank’s money creating quantitative easing program. Since this program is essentially flooding the market with Pound Sterling by printing currency, the program has weighed on the GBP. The anticipated ceasing of the program in the coming months is likely to boost demand for the Pound.

The EUR dipped against the Dollar on Thursday, despite speculations that the European Central Bank (ECB) officials will signal today that the bank may begin withdrawing unconventional policy measures, which will boost demand for higher-yielding assets. With Trade Balance data being the only release expected from the Euro-Zone today at 09:00 GMT, the EUR’s movements will likely be affected by the data releases coming from the U.S.

JPY – Yen Continues its Decline against the Majors

The Yen continued its decline against the EUR and GBP, on speculation Asian stocks will extend a global rally and before a U.S. report forecast to show industrial production expanded for a third month, boosting demand for higher-yielding assets. The Japanese currency also depreciated against the USD. The Yen touched 136.03 per EUR, its lowest level since August 24, and is currently trading at 135.54 per EUR, from 135.35 in New York yesterday.

The currency slid to as low as 90.99 per USD, the weakest since September 25, and is currently at 90.90 from 89.46 yesterday. With no economic data expected from Japan today, the Yen’s strength will likely be determined by movements in global equities. Therefore, it is highly recommended that you open JPY positions as soon as possible.

OIL – Crude Jumps above $78 a barrel

Crude Oil rose for a fourth day to $78 a barrel after jumping more than 3% yesterday on an unexpected drop in U.S. gasoline and distillate stocks. This helped Oil reach its third weekly gain, along with increasing optimism from the leading economies. It is right to day that the recent global equity rally and the weak USD have helped Crude Oil benefit greatly.

The second consecutive week of drops in stockpiles yesterday may help push prices to the $80 level, and the rise in Oil prices will likely continue throughout next week as well. Watch out for fluctuations in the USD and the strength of the global economy today, as these factors will directly impact the price of Crude Oil.

Technical News

EUR/USD

There is a fresh bearish cross forming on the daily chart’s Slow Stochastic indicating a bearish correction might take place in the nearest future. The downward direction on the 4-hour chart’s Momentum oscillator also supports this notion. When the downward breach occurs, going short with tight stops appears to be preferable strategy.

GBP/USD

The GBP/USD cross has experienced a bullish trend for the past 3 days. However, it seems that this trend may be coming to an end. The RSI of the 4-hour chart shows the pair floating in the overbought territory, indicating that a downward correction will happen anytime soon. Going short with tight stops might be a wise choice.

USD/JPY

According to the 4-hour chart, the pair has shown considerable bullish strength in its attempt to breach the 91.00 resistance level. However, the chart’s Relative Strength Index shows the pair is trading in the overbought zone, indicating the potential for a downward correction. Traders may look for the correction to begin and go short.

USD/CHF

The daily chart is showing strong bullish signals. The Slow Stochastic Oscillator displays a bullish cross has formed, indicating the potential for an upward price move. This is supported by the pair’s RSI floating in the oversold region, representing the opportunity for the pair to appreciate. These two indicators may give traders the incentive to be long on this pair today.

The Wild Card – Crude Oil

Oil prices rose significantly in the last two weeks and peaked at 78.36 per barrel. However, the daily chart’s RSI is floating in an overbought territory suggesting that a recent upwards trend is loosing steam and a bearish correction is impending. This might be a good opportunity for forex traders to enter the trend at a very early stage.

Forex Market Analysis provided by Forex Yard.

© 2006 by FxYard Ltd

Disclaimer: Trading Foreign Exchange carries a high level of risk and may not be suitable for all investors. There is a possibility that you could sustain a loss of all of your investment and therefore you should not invest money that you cannot afford to lose. You should be aware of all the risks associated with Foreign Exchange trading.

Market Movers of the Day

Asia-Pacific

Australian Consumer Inflation Expectation at 3.5%

RBA Foreign exchange transaction at 830M

Japanese Industrial Production falling -19% YoY in line with expectations

Japanese capacity utilization at 2.3

Europe

EU CPI at 0% MoM

Swiss ZEW survey expectations at 65 versus 58 expected

Americas

US CPI rise 0.2% MoM versus 0.1% expected

Initial Jobless claims at 514K surprising for the better

NY Empire State Manufacturing Index at 34.6 surprising for the better

Philadelphia Fed Manufacturing Survey disappoints

EIA crude oil stocks change at 0.4M versus 1M expected

Canadian Manufacturing shipments in line with expectations

The Overall Sentiment

While sentiment in Europe was slightly negative in the US Bullish sentiment remained firm mainly attributed to a weak Dollar and high oil prices which moved US energy stocks to end higher and push indexes to the Green. The  S&P closed at 1096.56 and the DOW still above 10K with both gaining close to  0.5%  .The Dollar remained weak against it’s higher risk peers trading around 1.495 Dollar per Euro and falling sharply against the Sterling as looming expansion of quantitative easing by the Bank of England slightly faded. The Sterling traded above the 1.61$ resistance and closed the day near 1.64$ posting a strong gain of almost 4.5% in three days. CPI figures in the US and the Euro zone were in line with expectations with US CPI reading almost flat and EU inflation MoM at flat zero, suggesting rate hikes in both economies are still remote.US manufacturing surprised for the better and although Philadelphia Fed manufacturing survey disappointed the NY Empire state manufacturing index rose to a level not seen in more than 2 Years showing expansion in US manufacturing sector. In the Commodities arena Oil trade was at the centre, rising in reaction to tighter supplies than previously anticipated, trading around 78$ a barrel and just 2$ shy of the 80$ mark. Natural Gas settled at 4.5$ and in the Metal space Gold retreated lower to the 1050 zone and silver settled at the low end of the 17$.As both metals and petroleum are seen as hedge against rising prices and a falling Dollar it seems that whenever petroleum outlook improves investors tend to favor petroleum over Metals.

The Day Ahead

Earning releases will continue to be at the spotlight with earnings of Bofa(Bank Of America) and GE due during the Day.EU Trade balance is also due with investors surveys pointing investors are expecting the trade balance to rise nevertheless any downside surprise could suggest the strong Euro is weighing on the region’s exports. Later in the day US-TIC flows will reflect on capital inflows to the US and the highly watched customer confidence will reflect on consumer trends with investors expecting a flat reading MoM. All in all earnings releases will again be the driving force behind market sentiment with potential profit taking in equities in case earning fail to surprise for the upside.

Technical Analysis

EUR/GBP

After reaching the 0.94 level the pair has encountered strong resistance retreating to as low as the 0.91 level. However the main bullish trend remains firm and thus poses a good opportunity for the Euro bulls to buy into the pair on dips. The pair is currently heading towards the 0.9 support which is in line with the Fibonacci retracement although not a major one. The 0.89 on the other hand poses an excellent contender to catalyze resumption to the major trend and it is in line the strong 61.8% Fibonacci retracement. A break of that support could question the major trend but would not rule out a resumption of the bullish momentum with the 0.95 as the target.

Market Analysis provided by eToro

Disclaimer: Trading in the Foreign Exchange market might carry potential rewards, but also potential risks. You must be aware of the risks and are willing to accept them in order to trade in the foreign exchange market. Don’t trade with money you can’t afford to lose.

© 2009 eToro Blog.

By CountingPips.com

A major story of the day in forex trading has been the British pound sterling and its ascent against the other major currencies. The pound has surged on the comments that the bank’s quantitative easing program has been working and has led to speculation that there could be in end in sight for the QE program. The BOE’s quantitative easing program was first implemented in March and later increased in June to a total of £175 billion and was intended to pump money into the U.K. economy through the buying of bonds. The BOE announced with its latest interest rate decision last week that the program is expected to expire in November and has not commented whether there will be an extension.

Bank of England commitee member Paul Fisher told the Financial Times today that he felt the QE program was “having the scale and speed of impact that we would have hoped for when we started” and that “People obviously are expecting us to stop at some stage, and so to a degree it will be priced into the market. Whether we’ll (stop) in November or at some later date may be uncertain.”  BOE governor Charles Bean also said on Tuesday that a gradual pullback of the program may be needed as the economy starts back on a positive path.

The pound sterling responded by gaining by over 130 pips against the euro today while jumping over 150 pips versus the dollar.  The pound has also advanced sharply versus the Japanese yen by over 300 pips, the Swiss franc by over 250 pips and the Canadian dollar by 400 pips today in the fx markets.

GBP/JPY Chart – The pound breaking out of its recent price channel today versus the Japanese yen in forex trading to trade at its highest level since September 24th.

By Susan C. Walker

Bob Prechter first released Conquer the Crash: You Can Survive and Prosper in a Deflationary Depression during a stock-market high in 2002, and it quickly became a New York Times–bestseller. Now he has updated the book with 188 new pages for a second edition, and it looks like it, too, will be published near a stock-market high. John Wiley & Sons plans to publish the new edition in late October. Visit Elliott Wave International for information on how to pre-order the new edition from major online retailers.

As was widely reported in the dark days of late February and early March 2009, Prechter called for the start of the biggest stock market rally since the 2007 high. Since then, the S&P has soared more than 60 percent in just six months to reach his target zone of 1000-1100. This is one reason why he decided to release his second edition now.

The first edition, which was published in early 2002, was “on the mark” with regard to our current economic environment — so much so that it’s uncanny. Prechter’s message has been good for investors who kept their money safe and for speculators who profited from declines. And he still expects a great buying opportunity ahead for those who can keep their money safe until it arrives. Here is a short list of some of the accurate predictions he made in 2002 that have come to fruition:

Credit Deflation

“Usually the culprit behind [simultaneous stock and real estate] declines is a credit deflation. If there were ever a time we were poised for such a decline, it is now.” Chapter 16

Bailout Schemes

“If [governments] leap unwisely into bailout schemes, they will risk damaging the integrity of their own debt, triggering a fall in its price. Either way … deflation will put the brakes on their actions.” Chapter 32

Banking and Insurance Stocks

“We will see stocks going down 90 percent and more … [and] bank and insurance company failures….” Chapter 14

Collateralized Securities

“Banks and mortgage companies … have issued $6 trillion worth of [securitized loans]….  In a major economic downturn, this credit structure will implode.” Chapter 19

Derivatives

“Leveraged derivatives pose one of the greatest risks to banks….” Chapter 19

Mortgage-Backed Securities

“Major financial institutions actually invest in huge packages of … mortgages, an investment that they and their clients (which may include you) will surely regret…. Chapter 16

Fannie Mae and Freddie Mac

“Investors in these companies’ stocks and bonds will be just as surprised when [Fannie and Freddie’s] stock prices and bond ratings collapse.” Chapter 25

Banks

“Banks are not just lent to the hilt, they’re past it. In a fearful market, liquidity even on these so called ‘securities’ [corporate, municipal, and mortgage-backed bonds] will dry up.”… One expert advises, ‘The larger, more diversified banks at this point are the safer place to be.’ That assertion will surely be severely tested….” Chapter 19

Insurance Companies
“The values of insurance company holdings, from stocks to bonds to real estate (and probably including junk bonds as well), will be falling precipitously…. As the values of most investments fall, the value of insurance companies’ portfolios will fall…. When insurance companies implode, they file for bankruptcy….” Chapters 15, 24

Real Estate

“What screams ‘bubble’ – giant, historic bubble – in real estate today is the system-wide extension of massive amounts of credit to finance property purchases…. [People] have been taking out home equity loans so they can buy stocks and TVs and cars…. This widespread practice is brewing a terrible disaster.” Chapter 16

Rating Services

“Most rating services will not see it coming.” Chapter 25

Political Leaders
“A leader does not control his country’s economy, but the economy mightily controls his image.” Chapter 27

Short-Selling Ban

“In a bear market, bullish investors always come to believe that short sellers are ‘driving the market down’…. Sometimes authorities outlaw short selling. In doing so, they remove the one class of investors that must buy.” Chapter 20

Psychological Change
“When the social mood trend changes from optimism to pessimism, creditors, debtors, producers and consumers change their primary orientation from expansion to conservation….” Chapter 9

Confidence

“Confidence has probably reached its limit. A multi-decade deceleration in the U.S. economy … will soon stress debtors’ ability to pay…. Total credit will contract, so bank deposits will contract, so the supply of money will contract….” Chapter 11

Falling Tax Receipts
“Governments … spend and borrow throughout the good times and find themselves strapped in bad times, when tax receipts fall.” Chapter 32

“Retirement programs such as Social Security in the U.S. are wealth-transfer schemes, not funded insurance, so they rely upon the government’s tax receipts. Likewise, Medicaid is a federally subsidized state-funded health insurance program, and as such, it relies upon transfers of states’ tax receipts. When people’s earnings collapse in a depression, so does the amount of taxes paid, which forces the value of wealth transfers downward.” Chapter 32

“The tax receipts that pay for roads, police and jails, fire departments, trash pickup, emergency (911) monitoring, water systems and so on will fall to such low levels that services will be restricted.” Chapter 32

For more information on the new second edition of Conquer the Crash, visit Elliott Wave International. Bob Prechter has added 188 new pages of critical information to his New York Times bestseller.