SARS. Swine Flu. Covid-19. All 3 Were a Screaming "Buy!"

By Elliott Wave International

Let's take a moment to update you on the relationship between COVID-19 and emerging market stocks. Earlier this year, our publications at Elliott Wave International showed that infectious disease epidemics tend to occur toward the end of bear markets. We cited such examples as SARS, swine flu, and COVID-19, which spread toward the end of major declines in the MSEI Emerging Markets Index.

We then used that knowledge to support a bullish outlook following the March 2020 lows. For example, our Global Market Perspective and Asian-Pacific Financial Forecast, monthly Elliott Wave International publications which provides in-depth coverage of 50-plus worldwide financial markets, said that "epidemics tend to occur toward the end of bear markets. Asian-Pacific and emerging market stocks should now embark on a bull market amid the COVID-19 pandemic."

And that forecast has proven spot on as the MSEI Emerging Markets Index has since risen 50% as seen in the chart below.

The question now of course is whether the bull market is near its end or whether it will continue.

You can find the answers to that question written as clearly as our April 2020 forecast for free right now.

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This article was syndicated by Elliott Wave International and was originally published under the headline SARS. Swine Flu. Covid-19. All 3 Were a Screaming "Buy!". EWI is the world's largest market forecasting firm. Its staff of full-time analysts led by Chartered Market Technician Robert Prechter provides 24-hour-a-day market analysis to institutional and private investors around the world.

Global Tipping Point: "Good" Debt Vs. "Bad" Debt (Which is Winning?)

All major U.S. economic depressions were "set off" by this single factor

By Elliott Wave International

Isn't all debt "bad"?

Well, in a word, no.

Broadly speaking, there are two types of debt. One of them actually adds value to the economy if handled in the right way, so you might call this a "good" form of debt. However, there's another type of debt (or credit) which hurts the economy.

A classic quote from an Elliott Wave Theorist provides insight:

Self-liquidating credit is credit that is paid back, with interest, in a moderately short time from production. Production facilitated by the loan generates the financial return that makes repayment possible. It adds value to the economy.

Non-self-liquidating credit is not tied to production and tends to stay in the system. When financial institutions lend for consumer purchases such as cars, boats or homes, or for speculations such as the purchase of stock certificates, no production effort is tied to the loan. Interest payments on such loans stress some other source of income. ... Such lending is almost always counter-productive; it adds costs to the economy, not value.

With that in mind, the December Global Market Perspective, a monthly Elliott Wave International publication which provides in-depth coverage of 50-plus worldwide financial markets, mentions "non-self-liquidating" debt as it shows this chart and says:

Total global debt has risen dramatically this year and [is expected] to exceed an eye-watering $277 trillion by the end of 2020, [which] will equate to around 365% of global Gross Domestic Product, up from 320% at the end of 2019.

[The] increase in private sector debt is not healthy, self-liquidating debt which, for example, would come from borrowing to invest in a new factory, the debt being paid off via the increased production. No, this is unhealthy, non-self-liquidating debt which is being added and the same is true for U.S. households' binge on mortgage debt.

It's important to know about this big surge of non-self-liquidating debt in the global financial system because it strongly suggests that the eventual deflation of this debt will be devastating.

You see, bank credit expert Hamilton Bolton conducted a study of major depressions in the U.S. and said (Conquer the Crash, 2002):

All were set off by a deflation of excess credit. ... Deflation of non-self-liquidating credit usually produces the greater slumps.

And, considering the size of the current debt bubble, the next "slump" may be one for the history books.

Let's return to Conquer the Crash:

The ability of the financial system to sustain increasing levels of credit rests upon a vibrant economy. At some point, a rising debt level requires so much energy to sustain -- in terms of meeting interest payments, monitoring credit ratings, chasing delinquent borrowers and writing off bad loans -- that it slows overall economic performance. A high-debt situation becomes unsustainable when the rate of economic growth falls beneath the prevailing rate of interest on money owed and creditors refuse to underwrite the interest payments with more credit.

When the burden becomes too great for the economy to support and the trend reverses, reductions in lending, borrowing, investing, producing and spending cause debtors to earn less money with which to pay off their debts, so defaults rise. Default and fear of default prompt creditors to reduce lending further. The resulting cascade of debt liquidation is a deflationary crash.

As we wrap up 2020 and head into 2021, you are encouraged to prepare for a global "financial earthquake" that may very well rival the 2007-2009 financial crisis.

Get the actionable insights that you and your family need to know from Elliott Wave International's special free report: What You Need to Know Now About Protecting Yourself from Deflation.

This article was syndicated by Elliott Wave International and was originally published under the headline Global Tipping Point: "Good" Debt Vs. "Bad" Debt (Which is Winning?). EWI is the world's largest market forecasting firm. Its staff of full-time analysts led by Chartered Market Technician Robert Prechter provides 24-hour-a-day market analysis to institutional and private investors around the world.

Why Most Investors Miss Major Stock Market Turns

Will the Dow Industrials hit 100,000 in the next decade?

By Elliott Wave International

Well, the answer posed by the question in the title is a resounding "yes!" -- according to the British financial magazine, MoneyWeek.

The cover of the Dec. 4 issue of the magazine is titled "The Roaring 2020s, Prepare Your Portfolio for a Boom." An image of Janet Yellen is front and center. Of course, she's the former Federal Reserve chair and the reported pick for Treasury Secretary in a new administration. She's dressed in a 1920s party outfit and looks very festive.

Yet, stock market valuations are different when you compare the start of the 1920s with the 2020s in the U.S. Here’s a quote from the December Elliott Wave Financial Forecast, a monthly publication which provides analysis of major U.S. financial markets:

As the bull market began in August 1921, the S&P 500 price-to-earnings ratio was 14. In September 1926, three years before the 1929 peak, the market's p/e ratio was 10.72, even more subdued than in 1921. By the time that September 1929 arrived, the market's p/e ratio had jumped to 20.17. At the February high this year, the S&P 500's p/e ratio was 25.43. By December 1, it was an even higher 36.67. Other market valuation measures are just as extreme.

Even so, the extreme optimism conveyed on the MoneyWeek cover is also reflected in a recent survey of market strategists. Here's a quote from a Dec. 8 CNBC article:

A majority of analysts surveyed by CNBC expect [an] 8%-22% upside for the S&P 500 in 2021.

There are other signs of extreme bullish sentiment.

Here's just one of them as we return to the December Elliott Wave Financial Forecast with this chart and commentary:

The option markets offer further evidence of intense speculation. The 8-day CBOE equity put/call ratio declined to .40 on Wednesday, the most extreme level of call buying to put buying in over 20 years. The last time the 8-day p/c ratio was lower was July 18, 2000, at the top of the initial rebound in the NASDAQ's bear market from March 2000 to October 2002.

The December Elliott Wave Financial Forecast also provides Elliott wave analysis of the U.S. stock market.

Elliott wave analysis will help you to stay ahead of the market’s next big turn.

As the Wall Street classic book, Elliott Wave Principle: Key to Market Behavior, by Frost & Prechter, says:

Learn about the rules and guidelines of the Elliott wave method for analyzing and forecast financial markets by reading entirety of the online version of Elliott Wave Principle: Key to Market for free.

Free access to the book is granted upon joining Club EWI, the world’s largest Elliott Wave educational community. Club EWI membership is free and allows you to tap into valuable trading and investing insights from an Elliott wave perspective.

It is a thrilling experience to pinpoint a turn, and the Wave Principle is the only approach that can occasionally provide the opportunity to do so.

Get started by following this link now: Elliott Wave Principle: Key to Market Behavior– free and unlimited access.

This article was syndicated by Elliott Wave International and was originally published under the headline Why Most Investors Miss Major Stock Market Turns. EWI is the world's largest market forecasting firm. Its staff of full-time analysts led by Chartered Market Technician Robert Prechter provides 24-hour-a-day market analysis to institutional and private investors around the world.