Keep Your (Investment) Feet as the U.S. Economy Keeps Slipping Down the Slope

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By Susan C. Walker
Fri, 22 Jul 2011 18:15:00 ET

Just because many politicians and financial pundits want us to believe that the U.S. economy is recovering doesn't mean we have to believe them. Nor does it make us negative Neds and Nellies if we don't. The best way to see the current economic situation is through the eyes of a realist: "The pessimist complains about the wind; the optimist expects it to change, the realist adjusts the sails." (William Arthur Ward)

In a recent Elliott Wave Theorist, Robert Prechter focuses on a different metaphor from sailing to explain what's happening in the economy. He references the granite slope of Stone Mountain, pictured here for those of you who have never visited Atlanta.

Photo by JT

Excerpted from the June 2011 Elliott Wave Theorist

Investments
Near Atlanta is a mound of granite called Stone Mountain. Over the years, people have fallen to their deaths because they allowed the mountain to fool them. There is no sharp cliff of which to beware. The slope is rounded. So, people sometimes sneak past the protective fence and edge their way down the mountainside, thinking that they have sufficient traction to remain stable. But when they pass the point at which they can hold on, the slope only increases, and they fall to their doom.

This seems to me somewhat analogous to the economic depression that has been developing since the year 2000. It started out slowly, so that people didn’t even realize it was beginning. As the economy deteriorated, they didn’t worry much, because they thought it had plenty of traction. Periods of moderate stability increased their confidence. The quick slide of 2008 wasn’t fatal, because there was a convenient ledge to stop the fall. Today, it seems that 29,900 economists out of the approximately 30,000 in the world are breathing easier, thinking the mountain is safe. But just a few more steps downward in the economy and the slope will be too steep to keep it from going into a death slide.

When [the next] wave carries stock prices back below the 2009 low, the worldwide banking system will face implosion. Most banks will probably close. We have already recommended using independent rating services (see names in Conquer the Crash) to find the safest bank near you for the purpose of bill paying and such. We have recommended keeping the bulk of your assets in cash currency notes, Treasury bills and Swiss money-market claims. ...

As time progresses, opportunities disappear. The safest bank in the U.S. no longer takes out-of-state accounts. The safest annuity program in the world no longer accepts new policies. A major Treasury-bill fund now limits the size of new investments. People who acted when we recommended these opportunities are in an advantageous position. Options are limited for those who waited. Nevertheless, good options remain.

If you agree that the U.S. economy is like a precarious slope, you would probably like to know what some of those good investment options are. Subscribers kept reading the June issue of the Theorist to learn about Prechter's views on where to invest, starting with the short-term debt of two nations. He also describes a better way to purchase T-bills than to use the services of Treasury Direct and how best to deal with funds you hold in an IRA. You can have all this information at your fingertips by subscribing today to The Elliott Wave Theorist as part of The Elliott Wave Financial Forecast.

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Tags: economic depression, recession, Robert Prechter, Treasury bills (T-bills)

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