Robert Prechter

Predicting Wars With Charts


Robert R. Prechter, Jr., Executive Director of the Socionomics Institute, discusses how Elliott Wave market trend analysis is predictive not only of stock markets but also human social behavior, the societal mood as a leading indicator of economic trends and warfare, the correlation between bull markets and bright mini skirts and how the bailouts encourage recklessness on Wall St. by encouraging moral hazard.

MP3 here. (34:08)

Robert R. Prechter, Jr. is president of Elliott Wave International, which publishes analysis of global stock, bond, currency, metals and energy markets. He is also Executive Director of the Socionomics Institute. Mr. Prechter is author, co-author and/or editor of 13 books, including Elliott Wave Principle – Key to Market Behavior , Socionomics: The Science of History and Social Prediction, and Conquer the Crash.

11 thoughts on “Robert Prechter”

  1. Nonsense. There’s a grain of truth in it, but fundamentally it’s nonsense.

    I’m very sympathetic to the idea of trying to explain observable macro events (wars, for example) as the outcome of observable and quantifiable behaviours.

    But when Mr. Prechter attempts to do so, you can see how thin his theory is.

    What he says is that, according to some “mood index” — which corresponds to the S&P 500, for some reason — the invasion of Iraq corresponded to the low point of the “mood index”. However, the decision to start the war occurred well before that “low point”, as has amply documented.

    He also makes some funny points:

    “money-based system” vs. “IOU based system”: definitions, please. Explain what the difference is between “money” and “IOU”. Money is nothing but a complex set of property rights, i.e. an IOU. Ayn Rand Kool-Aid drinkers think that there’s something magical about gold, but they are mistaken…like paper money, gold is only worth something because people think it is. And the value of gold depends — also — on how easy or hard it is to mine, based on the technology of the time. How does that make it a metric of “real value”?

    Low point in mood = 1932, corresponding to the high point of Hitler’s popularity…hang on, if Hitler had a high approval rating, shouldn’t that correspond to a *high* point in mood? In the USA, low mood = low approval rating, in Europe, low mood = high approval rating? Does the mood metric switch polarities in the mid-Atlantic? Is that why Icelanders are so even-tempered?

    Like I said, nonsense.

    But what he’s saying — as far as I can tell — is not falsifiable, and therefore not really a theory that has any explanatory power.

    BTW, the South Sea bubble is a fascinating and instructive story…

  2. Phillip B:
    Sorry you feel that way, but I don’t think you understood his explanation. He never said that this system can predict a crash or a war. It predicts the general mood of the country. The mood is what makes a country more or less inclined to make rash/sober financial or poltical decisions. A wise person who sees these trends will react/invest accordingly. It is not a preordained inevitability. We all make choices (individually and collectively). He also said these moods could be regional or specific to a country.
    My original degree was is music history (I have had a better education since). But that history taught me was that there were motivational trends in society. WWI wasn’t started only because a prince was shot, not only because of a military buildup like the world hadn’t seen before), nor only because of a collection of bad alliances that brought every European country down once one country went down the rabbit hole. Europe had gone through a long period of nationalistic fervor (as reflected in the music and other artistic expressions of the time) called the Romantic period. This nationalistic pride made for a tribal mentality throughout Europe. I’m not saying that Beethoven caused WWI, but the music that he inspired helped set the table for all the other things mentioned before that led to WWI. Many bad decisions were made that led to WWI, but the mood of the people and their leaders played a role as well.

    I do agree with you on the monetary system (gold vs. paper arguement). Bartering is better (the trick is agreeing on the value of one thing or another).

  3. Robert Precter has some interesting observations, clearly there are long term (wave) movements in the economy and in society – how well the elliott wave really does fit these trends is another questions – I have looked at some of the financial analysis over time and would have to say that the analysis seems to be flexible enough to fit the data -so the concept may have some merit, but it is not clear that its predictive value is high or consistent – have there been any serious statistical analysis of past predictions to measure the accuracy>

    On money, there is a fundamental difference between a gold based system and a fiat money (debt) based system. Gold represents a physical store of value rather than a notional value of trust. Sure, even a gold based system is not perfect but it represents an external discipline in the system – the banksters cannot simply print gold – there is real effort required as well as real demand / supply factors which will be reflected in the agreed value. The fact that the British gold based sterling system survived from 200 years with stable prices and trust in the money, suggests that it has real merit – sure there were booms and busts in the market but not in the real money supply.

  4. Money and Debt (IOU) vs. Gold (real money) explained:
    The reason that gold is quote “real” money, is that earth has a presumably finite amount of it, and it has throughout ALL of recorded history been given a measurable value by the amount of goods or services it can buy – a value that cannot be manipulated by governments (as long as its traded freely).
    Paper money, debt and IOUs – basically the same stuff – are infinite resources, therefore, man can create and create, print and print it infinitely. This system, combined with humans’ inherent greedy nature, creates price bubbles.
    Therefore, the fiat currency system is doomed to fail, and in virtually every recorded society, it ultimately has.
    Here’s an excellent and more detailed video explanation of fiat money:

  5. Robert Prechter is a great social theorist and financial forecaster. He has an amazing abiltiy to see the big picture. Fantastic interview, hope you have him back in 6 months. He is a true independent thinker and very humble about his important contribtions to sociology/economics.

  6. The Elliott Wave is the best tool I have seen and PRECHTER is Dead Wrong using the EW. From 1982-2000 was a third wave(the biggest of the motive impulsive 5 wave structure not the 5th and final wave as he says. I can prove hime wrong by using the Elliott Wave Rules that he violates over and over again.

    I have tried to post over and over my comment as a member of Elliottwave Internation and they will not post any of my comments. I thought they would welcome contrary comments and open debate but they have not.

  7. Prechter has a good grasp of how the economy works and is worth reading for that – but don’t pay any attention to his predictions. He’s in the predicting business because it’s a living, not because there’s any merit to it.

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