Research & Commentary

Deflation: “Make No Mistake … It’s a Global Story”

From high-risk homeowners to high-risk companies

The New York Times says “Wall Street loves these risky loans.” What is the NYT talking about? Think collateralized debt obligations (CDOs) with a twist. Here’s what Elliott Wave International anticipates next.

Get our free report: What You Need to Know Now About Protecting Yourself from Deflation.

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[Editor’s note: The text version of this video is below.]

Wherever you live, Elliott Wave International analysts strongly suggest that you prepare for deflation, which Webster’s defines as “a contraction in the volume of money and credit relative to available goods.”

As Robert Prechter’s Conquer the Crash warned:

Make no mistake about it: It’s a global story.

Realize that by key measures, today’s credit situation is even more precarious than it was at the onset of the 2007-2009 financial crisis.

Speaking of which, one of the main culprits of that crisis — collateralized debt obligations — was discussed by Bloomberg four months before the October 2007 stock market top:

Worldwide sales of CDOs—which are packages of securities backed by bonds, mortgages and other loans—have soared since 2003, reaching $503 billion last year, a fivefold increase in three years.

As we now know, these financial instruments resulted in big losses for many. The 2007-2009 financial crisis was the world’s biggest dose of deflation since the Great Depression of the early 1930s.

Today, a similar setup appears in place. But, this time, think “CLO” instead of “CDO.” The New York Times explains (Oct. 19, 2018):

The investments at play now are C.L.O.s, for collateralized loan obligations. But this time, the underlying loans aren’t going to high-risk homeowners. They’re going to high-risk companies. … Such loans to companies with junk-level credit ratings hit a record of more than $550 billion last year, eclipsing levels in the last years before the financial panic.

Today, CLOs are one of the most popular investments on Wall Street, just like CDOs were more than 10 years ago.

But, when optimism shifts to pessimism, as reflected in the trend of the stock market, Elliott Wave International expects another debt implosion.

The jump in global stock market volatility suggests that this shift may already be underway.

Remember, the worst part of the debt implosion from 2007 to 2009 followed the downturn in the stock market. The same thing happened in the late ’20s and early ’30s.

Indeed, the October issue of the Elliott Wave Theorist, a monthly publication written by EWI founder Robert Prechter since 1979, surveyed the big financial picture and said we face a juncture that is “historically risky.”

You are encouraged to read the free report, “What You Need to Know Now About Protecting Yourself from Deflation.”

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