Will the Market Crash, and Should I Put my Cash in CDs?

Robert Prechter, one of the leading technical gurus of the stock market and owner of Elliott Wave International, a stock market forecasting firm, is currently calling for a epic downswing in the stock market. Using a theory of market movement called “Elliott Wave Theory” developed by Ralph Nelson Elliott (which allow you to predict stock price movements in advance), he suggests that a double dip recession and worse is under way. One of the first to rightly say we will experience debt deflation, Prechter says the worst is yet to come as the government will fail in its strategy of trying to use more debt to solve a problem of too much debt.

What does he suggest for investment advice? Prechter feels that individual investors should get out of stocks entirely and hold cash and cash equivalents, like Treasury bills and safe certificates of deposit. He expects this to be the best strategy for years to come, even though Treasury bill rates and CD rates may be low. Keeping your cash is better than losing it.

This past decade has seen a positive return from interest rate investments, even with low yields, because stock returns have been net negative for the decade. Prechter feels the trend will continue. While there will be wild ups and downs in the market, Prechter feels that buy-and-hold stock investors will be devastated in a coming crash worse than the declines of 2008, 2009 or the worst years of the Great Depression.

The cause of the crash? A confluence of too much debt, a housing crisis, commercial property crisis, unemployment due to offshored manufacturing, budget deficit, municipal funding crisis and more.

The Chinese say that when things reach an extreme it’s time to turn, and that’s what Prechter expects in the near future, which is why government stimulus no longer works. The government has shot all its bullets, and what once worked in the past cannot work in the future because we are at the extreme.