Contents

World Stock Markets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2

Global Stock Index. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
United States. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Europe. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Asian-Pacific . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10

Global Interest Rates. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17

The Bond Universe . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
United States. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
European and Asian-Pacific. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18

International Currency Relationships. . . . . . . . . . . . . . . . . . . . 20

Dollar Rates. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Other Rates. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Cryptocurrencies. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26

Metals & Energy. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26

Gold & Silver . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Crude Oil. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Natural Gas. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28

Economic, Monetary and Cultural Trends . . . . . . . . . . . . . . . . 28

Economy & Deflation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Cultural Trends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32

A Capsule Summary of the Wave Principle . . . . . . . . . . . . . . . . . . . . 34

Glossary of Terms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
© August 02, 2019
(data through August 01)

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WORLD STOCK MARKETS

U.S. Markets - Bottom Line Global Stock Index
The Dow Jones Industrial Average rallied to a new high at The action from the December 2018 low counts as wave (5) in
27,398.60 on July 16, in line with our near-term forecast. The progress and should take the index to new all-time highs above
market has now fulfilled the minimum requirements for the
425.67. After a corrective pullback to the late-May low, there has
advance from the 2018 Christmas low. The rally appears
been a five-wave advance to the early-July peak forming the early
exhausted, and this week the index closed below the prior highs
stages of wave 3 of (5). Short term, from the July 5 wave 6 peak,
in January and October 2018. Market volatility has been
a flat correction appears to be unfolding, portending a decline
relatively tame but that should change in the coming months.
below 402.39 to complete wave 7. As long as the index holds
European Markets - Bottom Line above the .618 retracement of wave 8 so far at 389.69, we can
Europe’s main stock indexes remain splintered. The expect a strong wave 3 advance to new highs.
DAX and Euro Stoxx 50 have retraced about 75%
to 80% of their respective declines in 2018, while
the FTSE 100 has rallied to within about 2% of its
May 2018 all-time high at 7,904. The CAC 40,
meanwhile, briefly exceeded its equivalent high at
5,657. As stocks move into late summer, the
behavior of these indexes as they flirt with their
2017/18 price peaks will determine our near-term
stance. In the UK, the higher-beta indexes have
failed to keep pace with broad market, indicating
that the bulls are losing their nerve. The large-cap
averages could make new highs in the coming
months, but waning momentum and fracturing
markets are a bearish sign overall.
Asian-Pacific Markets - Bottom Line
Although most Asian-Pacific stocks continue the
uptrends they began at the start of the year, they are
now pulling back.

2
U.S. Stock Markets
In July, the NYSE Composite Index advanced 16.9 points or just
over 1%. Don't be fooled by the relative quiet. August has a
history of launching new trends in financial markets. And, of
course, it is followed by historically robust months. Over the
past 25 years, the CBOE Volatility Index has had a double-digit
move in either September or October every year except 1996 and
2006. As we have said many times, periods of low volatility
precede periods of high volatility. Last year this observation
proved to be an accurate precursor to a steep decline in equity
prices, as the S&P 500 declined 20% from September to
December. It certainly applies to the current market and the new
month is starting off with a bang. We are on top of it all.

Elliott Wave Analysis

The Dow Jones Industrial Average fulfilled our late June forecast
for a new all-time high, pushing to 27,398.60 on July 16.
Investor bullishness has increased in conjunction with the
market’s rise, as shown by the 21-day Daily Sentiment Index
(trade-futures.com) on the chart below. The new Dow high
means that Minor wave D of Intermediate wave (4) has satisfied
the minimum objective. Since the July 16 high, the S&P 500 and
NASDAQ 100 index each made two new all-time highs, both of
them unconfirmed by the Dow. The NYSE Composite index
peaked back in January 2018, the NYSE FANG+ index topped in
June 2018, the Dow Jones Transportation Average is still below
its September 2018 high while the S&P 600 SmallCap index and
S&P 400 MidCap index continue to lag the blue-chip rally. The
chart on page 2 in last month’s issue shows long-term peaks in
major global stock indexes. The widely-fractured stock market is
consistent with the late stages of an advance within a high-level
correction, or the late stages of the entire bull market. In the
former case, the next major wave will be Minor wave E, a
decline that draws the Dow below the 2018 Christmas low. In the
latter scenario, the next major wave will be the initial decline of a
long-term bear market.
Investor Psychology
As the 21-day DSI attests (see chart), Minor wave D
accomplished its purpose, hitting new highs in an environment of
investor optimism and complacency. USA Today says, "Now's a
Great Time to Pick Up Some Stocks." According to a July 16
Bloomberg story on the day of the Dow's high, "Another Bull
Market Domino is Falling Into Place." Late July headlines called
the S&P's record high "Bullet-Proof" and stated, "There Are
Green Lights All Over the Place for U.S. Stock Bulls."
As the July issue of EWT explained, beneath the stock market's
calm exterior lies "an all-encompassing financial-market
bubble." The chart of Special Purpose Acquisition Company
offerings shows just how deeply entrenched the mania for
financial assets is at this extreme juncture. A SPAC is a blind
pool or "blank check" offering in which investors hand over their
money without knowing what it will be used for. Generally, the
management team that is entrusted with the funds has 24 months
to identify and complete an acquisition. Such offerings recall the
South Sea Bubble of 1720, when Charles Mackay in his seminal
book Extraordinary Popular Delusions and the Madness of
Crowds, said that promoters issued shares in a "company for
carrying out an undertaking of great advantage, but nobody is to
know what it is." The difference is that Mackay identified just
one such firm as the "most preposterous" of all the South Sea
Bubble's wild promises. The chart shows that the volume of
SPAC offerings has been building since 2010. In just the first
seven months of 2019, close to $14 billion has been raised, a one-
year record. The chart below shows that SPACs account for over
23% of all 2019 IPOs. So, nearly one-in-four U.S. IPOs have no
known objective. It's a stunning display of Grand Supercycle-
degree confidence.

3
One particular offering puts a Grand Supercycle exclamation
point on the latest rally. In July, Social Capital Hedosophia, a
Silicon Valley SPAC, announced that it had agreed to combine
with "Richard Branson's Virgin Galactica to create the first
publicly traded company dedicated to space flight." According to
the press release, Social Capital will make an $800 million
commitment. Virgin Galactica claims it "already has $120 Economist is convinced that a "New Age of Space Exploration Is
million of potential revenue" from more than 600 customer Beginning." Socionomics says the opposite; the desire to explore
reservations in 60 countries. What could go wrong, right? "By the great beyond is a peak manifestation of a high-level of
embarking on this new chapter, at this advanced point in Virgin optimism. As a negative mood trend intensifies, the urge that
Galactica's development, we can open space to more investors Time magazine calls the "primal power" of space flight will
and in doing so, open space to thousands of new astronauts," said dissipate just as it did in the 1970s.
Branson. The June Socionomist explains, "Positive mood
encourages space exploration." Recent issues have explored some
of the ways that the latest space race resembles that of the late Risk Exits the System
1960s. GMP also discussed the "parallel to the social mood peak
The July issues of both EWT and GMP focused on the
of December 1968" in our February and March issues. Time
"underlying exhaustion" within the financial markets, and the
magazine's July 22 cover shows the striking vibrancy of this
evidence of fatigue continues to mount. In addition to the long-
comparison; it is nearly identical to that of the December 6, 1968
term divergence between the performance of U.S. stocks versus
cover. That was two days after the speculative peak of Cycle
those of China, Europe, Japan and emerging markets (see July
wave III. The top chart shows the market's behavior that
issue, p.2), the Russell 2000 index peaked 11 months ago and
followed, a 36% decline in the Dow to May 1970. At the time,
remains nearly 11% below this high (see June issue, p.3). The
the space program was also waning as NASA funding actually
KBW Bank Index remains 16% below a countertrend rally high
peaked in 1966. With Space X, Blue Origin, NASA, China,
that occurred in January 2018. Its all-time peak dates back even
Russia and others targeting various space objectives, The
further, to February 2007. In January 2008, GMP said that the

4
 index's underperformance confirmed the presence of a "big turn
from a full-steam-ahead, collective embrace of risk to a new
mood of fear and risk aversion." NYSE margin debt is another
tried-and-true measure of risk tolerance. This measure generally
waxes and wanes with the trend in stock prices. Although, as The
Elliott Wave Theorist noted in 1980, declines in monthly margin
debt in conjunction with an advancing market can be the "kiss of
death" to a bull trend. The earlier that the margin debt contraction
begins relative to a stock market rally, the more important the
eventual market peak tends to be. At the end of Cycle wave III,
for instance, when a 16-year decline in the constant-dollar Dow
started, margin debt peaked in November 1963, more than two
years before the peak in the Dow. The accompanying chart shows
the current situation. NYSE margin debt peaked at a record high
of $669 billion in May 2018, 14 months ago. This is the longest
divergence relative to a rising market since the Cycle wave III
peak in 1966.

In a related dousing of animal spirits, the CEO of Tron, the

If there is a financial instrument that defines the risk orientation
of investors in today's bull market, it's the market for
cryptocurrencies. Bitcoin is the blue-chip asset in this sector, and
this is how a recent Bloomberg article describes its function:
"Hardly anyone is using the world's largest cryptocurrency for
anything beyond speculation." Cryptocurrency enthusiasts assert
that cybercurrencies are not correlated with stocks, but this chart
shows that this is a denial of reality. Bitcoin, the middle graph on
the chart, topped slightly ahead of stocks in December 2017;
bottomed coincident with the December 2018 low in the major
stock indexes; then rallied through the middle of this year, in
close alignment with the major averages. As happened in
December 2017, bitcoin now appears to be leading the way
lower, having made a countertrend rally high in late June.
Similar to the lagging performance of the secondary stock
indexes relative to the blue chips, there is also a striking
underperformance among less established cryptocurrencies.
While bitcoin retraced 65% of the decline from its 2017 peak in
late June, other cryptos only managed retracements ranging from
26% (bitcoin cash) to 37% (monero). The bottom graph on the
chart shows another cryptocurrency, tronix. As the
cryptocurrency world soared to previously unfathomable heights
in December 2017, tronix was one of the most prolific gainers,
rising 13,233% from its low point in December to its peak on
January 4, 2018. From that top, however, its value declined
95.2% to a low of 1.2 cents in November 2018. In the first half
of 2019, it retraced just 11% of the decline from its former peak.
Most alternate coins are in a similar predicament. Speculative
impulses just aren't what they used to be.
Chinese developer of the cryptocurrency tronix, postponed a
scheduled, heavily-hyped lunch with Warren Buffett, even
though he paid a record $4.6 million for the privilege in late May.
Until last week, CEO Justin Sun was billing the lunch with the
famous investment guru as an effort to convince Buffett of the
efficacy of digital currencies. Three weeks ago, Cryptonews.com
stated, "Sun wants to convince Buffett about cryptocurrencies,
and if he succeeds, it could do wonders for the industry." Sun's
plans changed dramatically on July 25. That's when the New
York Post says Sun canceled the lunch and issued "a long,
groveling apology for 'excessive self-promotion.'" Sun claims the
lunch was only postponed due to a kidney stone attack, but
various news outlets say the lunch was canceled at the behest of
the Chinese government. The New York Times cited the incident
as part of a Chinese government "crackdown on risky and
speculative investing activities." "Justin Sun's main crime is
probably to have so openly flaunted his wealth," said a member
of the Hong Kong bitcoin association. The chart shows two
decades of mostly rising bids for a seat at the table with Warren
Buffett and the recent new record. At some point in the distant
future, investors will wonder if this really happened. Did people
really pay ever crazier amounts of money just to have lunch with
the Oracle of Omaha? Yes, they really did. In the end, it was for a
lunch that didn't happen.

5
Following Up on Technology
Meanwhile, the backlash against the biggest technology giants,
which GMP discussed in the December 2018 and May 2019
issues, continues to gain momentum. In July, the U.S. Justice
Department said it will open "a broad antitrust review into
whether dominant technology firms are unlawfully stifling
competition." Recently, executives from Amazon, Google, Apple
and Facebook faced "stinging criticism" in Capital Hill hearings,
and Facebook paid the Federal Trade Commission $5 billion, the
largest fine in history. Right after Facebook wrote the check to
the FTC for "deceiving users about their ability to control the
privacy of their personal data," the Securities and Exchange
Commission proposed an additional $100 million in fines for
misleading investors about the risks of the privacy breach. The
New York Times concludes there is a "new reality for big tech
companies: Scrutiny from regulators and lawmakers has become
a constant." The Wall Street Journal called the technology
onslaught an "erosion" of a "quarter century, bipartisan
Washington consensus." In the past, the Journal says
Congressional rules and regulations were "designed mainly to
foster technology firms' development." The change from
"permissiveness" to "attacks on successful corporations" is
mapped out in Pioneering Studies in Socionomics. "A
Socionomic Perspective on the Microsoft Case," chapter 26 in the
book, discusses the U.S. Justice Department's antitrust rulings
against Microsoft near the stock market peak in 2000 and states:
behind each of these examples is the same: When bull-market
optimism runs into bear-market realities, voters turn against their
leadership regardless of their policies.
Because the new UK Prime Minister, Boris Johnson, has tied
himself even tighter to the bull market, his fall from grace should
be even more dramatic. According to his first speech before
Parliament, Johnson says that Britain stands on the cusp of a
“new golden age,” one that will see the nation introduce new
high-speed railways, develop lightning-fast wireless 5G
networks, produce electric planes, lead the world in battery
technology, build an array of new bioscience centers, launch a
“galaxy of satellites,” and develop “blight-resistant crops that
feed the world.” According to Johnson, the UK will also manage
to add 20,000 police, protect fishing grounds, reduce school class
sizes, cut taxes, deliver affordable homeownership, provide better
care for the elderly, and cut carbon emissions. In time, he says,
the United Kingdom will become “the greatest place on Earth …
clean, green, prosperous, united, confident, ambitious.”

The social mood shift that occurs at the transition from bull
market to bear includes a change in general attitudes toward the
financial success of others. Society moves from a feeling of
support toward one of resentment. During a bull market, the
social mood is directed toward rewarding achievement; during a
bear market, it is directed toward punishing it. The bear market
mood begins to creep into collective thinking late in a bull
market.

Suddenly, across an otherwise rigidly polarized Washington,

lawmakers and regulators find one thing to agree on: technology
giants need to be taken down a peg. It's what happens when
aggregate mood transitions from positive to negative.

European Stock Markets

One of the most reliable themes during the stock market’s
topping process has been the close parallels in politics to prior
social mood peaks. The European Financial Forecast identified
this theme early on, observing a procession of political leaders
riding into office on waves of optimism only to slam headfirst
into walls of waxing public pessimism. It happened to Alexis
Tsipras in Greece, the “darling of the international media in early
2015,” (Financial Post, 7/25/19) who just saw his Syriza party
defeated in last month’s elections. It also happened to Emmanuel
Macron after the Economist depicted the French leader walking
on water following his May 2017 presidential win. A year and a
half later, Macron’s approval rating had sunk to a record low of
23%; it currently stands at about 32%. Ditto for the Deputy
Prime Minister of Italy, Matteo Salvini, who voters deemed to be
the country’s defacto leader despite his actual appointment as
Vice Premier in May 2018 alongside Luigi Di Maio. Today, the
Italian government “could collapse following mutual
recriminations over the election of the next European
Commission president,” says Reuters. (7/18/19) The principle

6
We applaud his vision, but the trouble for Johnson can be seen in
this eight-decade chart of the FTSE All-Share Index: He is taking
office just as the index flirts with another massive drawdown.
Despite AP News suggestion that Johnson “aspires to be a
modern-day Winston Churchill,” his time in office should more
closely resemble the administrations of Edward Heath
(1970-74), James Callaghan (1976-79), or Gordon Brown
(2007-10), three of Britain’s most disparaged prime ministers,
each of whom also fought vainly against a negative mood trend.
Gordon Brown, in fact, took office in June 2007, just one month
before the previous big peak in the FTSE 100 index. After riding
the entirety of Britain’s previous bear market, Brown left office
in May 2010 as the Labour party suffered its worst election defeat
since 1931. Years later, a University of London survey found
Brown to be Britain’s least successful post–World War II prime
minister. We will say it again: the political consequences of a
large-degree mood decline are real and tangible.

To be clear, however, political agendas already skew heavily

toward bear-market ideologies, because European stocks have
traded sideways to down for nearly two decades. The promise
that could make or break Johnson’s premiership, for example, is
to remove Britain from the European Union by October 31, 2019.
Likewise, Johnson seeks to rewrite Britain’s immigration laws,
envisioning a points-based system modeled after Australia. The
critical thing to remember is this: Whether he is popular now or
not, voters will soon recast all of Johnson’s objectives in a new
light of a negatively waxing mood. His perceived success or
failure will depend entirely on aligning policy goals with the
soon-to-be burgeoning public pessimism. It’s no small feat, as
many others have discovered before him. The closest historical
parallel is actually Supercycle wave (II), which began in 1972
and ended in 1974. That bear market was big enough to sully the
reputations of two former prime ministers. The coming bear
market will be wave c of Supercycle wave (IV) — an equivalent
degree — and it, too, could destroy Johnson’s political legacy and
the legacies of at least one or two more politicians who succeed
him.

Elliott Wave Analysis

Europe’s slow-moving stock market top is dragging into late
summer. The current peaking process dates back to April 2015,
when the Euro Stoxx 50 index of European blue chips reversed
from its countertrend high of 3,836. Germany’s DAX followed
suit, topping at 13,597 in January 2018, and the FTSE 100
peaked four months later at 7,903. Despite last month’s new
countertrend high in the CAC 40, French shares still sit well
short of their two biggest peaks of the past 20 years — May 2007
and September 2000 — and the same is true of the Euro Stoxx
50, which is off 36% since its March 2000 all-time high.
Meanwhile, peripheral European shares in Spain, Portugal, and
Greece are off between 42% to 86% from their respective all-
time highs. What this means is that investors’ enthusiasm for
shares, which we have been discussing for months, is becoming
increasingly misguided.
Even underneath the excitement surrounding Britain’s new
administration, shares in the UK display a critical loss of
momentum. The four graphs on this chart depict increasingly
higher-beta indexes, comprising companies with smaller and
smaller market capitalizations. As the FTSE 100 sits within
striking distance of its all-time high, the FTSE 250 is down about
7%, while the Small-Cap and Fledgling indexes have dropped
8% and 17%, respectively. (The Fledgling Index comprises
Britain’s highest-beta companies that are too small to be included
in the All-Share Index). Markets almost always splinter when
major social mood changes are afoot, and today’s markets are
some of the most fractured we have ever seen.
Near term, our analysis from last month remains unchanged. As
long as stocks remain below their respective highs (13,597 in the
DAX, 7904 in the FTSE 100 and 3836 in the Stoxx 50), the table
is set for a bear-market feast. A rise above these levels will not
substantially change the prospects for a long-term bear market,
but it will delay its onset until later this year.

7
Market Psychology
Stocks aren’t the only things diverging; the gap between
corporate expectations and financial reality is also blindsiding
analysts. Here, for example, is how an HSBC analyst described
the massive earnings miss at the world’s largest chemical
company: “Profits have collapsed, and it’s not even a
recession.” (Reuters, 7/9/19) The company in question is BASF,
the German conglomerate involved in everything from chemical
and plastics production to crop protection, auto emissions, battery
technology, and oil and gas exploration. On July 8, BASF
reported a 30% drop in adjusted annual operating profit,
triggering downgrades by nearly all of the global investment
banks. More important, because BASF supplies products to
thousands of manufactures across the globe, the company’s
warning shot rang out across European industries from cars to
consumer products to computer chips. “Investors called into
question the outlook for other sectors in the upcoming earnings
season,” said Bloomberg (7/8/19)
Also, because BASF’s profit warning coincided with a 4% slide
in the company’s stock price, it triggered the usual round of
explaining stock price weakness by using fundamentals. Here are
a few examples from recent press reports:
“The projected drop in earnings … was mainly due to
the trade conflicts.”
(Bloomberg, 7/8/19)

“One problem has been the German economy, which

still accounts for about 11% of BASF
revenue.” (Bloomberg, 7/8/19)

“Investors have also been waiting for an improvement

in the trade war. That will have a bigger impact on The slowdown at BASF confirms many more key elements of
BASF, with its large international exposure….” (Reuters, our near-term and long-term analysis. For one thing, BASF is the
latest company to fall victim to Europe’s slumping auto industry.
7/8/19)
EFF discussed the inevitable potholes as far back as January
“BASF is challenged by continued slowing demand 2012, when Swedish automaker Saab became the first high-
in the auto market, particularly in China, where profile bankruptcy to follow the financial crisis. BASF has tied
production fell 13% in the first half of the itself intricately to the global auto market, producing the
year.” (WSJ, 7/8/19) chemicals, paints, plastics and composites that carmakers use at
every stage of the production line. Global auto production
BASF will certainly come up against each of these factors, but slumped 6% in the first six months of 2019, and China, the
this look at the stock price reveals a more complete picture. world’s biggest car market, fell more than twice as much.
Namely that the fundamentals were destined to deteriorate ever European car registrations also fell again in June, as this chart
since prices peaked near 100 in May 2018. In fact, that high shows. Notice that the recent contraction reached its 11th month,
formed a bearish technical reversal pattern known as a double the longest consecutive stretch since an 18-month downturn that
top, and prices have since traced out four waves of the five-wave lasted from October 2011 to March 2013.
decline that will confirm the reversal. Minor wave 4 is either
complete or nearly so, meaning that prices
should soon confirm the pattern by falling
below support at the 55 level. As we have
said before, stocks are a leading indicator of
social mood, which is why corporate
weakness follows stock-price weakness. In
turn, these isolated stumbles show up in the
broader indexes, which signal the economic
recessions and depressions that follow
significant bear markets. This progression
— a normal part of every peaking process —
is why successful economic analysis
depends so heavily on successful analysis of
stock prices.

8
Yet, even these bearish data points can’t dislodge the entrenched
optimism. BASF executives “had assumed car sales would
grow,” says Reuters. As we described last month, the same
optimism prevails across Europe’s steel industry, preventing
companies from changing their business operations to adjust to
the reality of a looming recession. The truth is getting harder to
ignore, however. One Oslo-based analyst recently described it
like this: “Two key German industries are in trouble. We now
think it will be tough for the broad German economy to avoid a
recession.” Actually, avoiding a recession will be nearly
impossible at this point, because tightening credit conditions will
eventually become a full-fledged credit contraction. Europe’s
sputtering auto market suggests strongly that the Continent’s
economic engines are about to stall out completely.
The Blame Game Bears Down
Recrimination is a fairly easy-to-observe repercussion of a
negative mood trend. As stocks fall and the economy follows,
the corporate leaders who previously rode to public esteem on
waves of optimism come face to face with mounting public
indignation. The trend hit PricewaterhouseCoopers in July 2017,
as the UK Financial Conduct Authority levied a record £5
million judgment against the accounting firm, and in June, the
public ire focused on Lufthansa’s star CEO, Carston Spohr (see
June 2019 EFF). At this point, the more generally rich and well-
off find themselves in the crosshairs. On July 10, French
President Emmanuel Macron’s energy minister resigned after an
online media outlet published photos of lavish taxpayer-funded
dinners, including “giant lobsters, champagne and $550 bottles
of Chateau Cheval Blanc.” (Bloomberg, 7/10/19)
In Berlin, high
housing costs
provide a primary
outlet for public
retribution. In fact,
Berlin is somewhat
unique in that only
15%of residences are
owner-occupied.
Berlin’s government
capitalized on this
fact in June when it
approved a
controversial new
plan to freeze rent
increases for five
years. It prompted
this headline from
Bloomberg: “The
Property-Owning
Classes Are Under
Attack.” The government will also backdate the plan from
January 2020, when the proposal becomes law, to June 18, 2019,
in order to stop landlords from raising rents ahead of time. Shown
on this chart, the share price of Deutsche Wohnen, a large German
property group, has fallen 25% since its March 2019 all-time
high, while Grand City Properties, a Luxembourg-based property
group with exposure to Berlin, is off about 9%. So, while property
renters may be optimistic, investors appear to have already
rendered their bearish verdict on the owners of those rental
properties.
9
Then there’s Deutsche Bank, the current poster child for
corporate malfeasance. In early July, when the bank unveiled its
€5 billion restructuring plan, the media featured one particular
story far more prominently than any other. It wasn’t a story about
the bank closing its equity businesses or suspending its dividend.
Nor was it a story about how Deutsche Bank will slash its global
head count by 18,000, the “largest mass banker firing since the
collapse of Lehman.” (Zerohedge.com, 7/9/19) Indeed, the story
that generated the most buzz surrounded this photograph, which
appeared to show two sacked DB employees carrying their
belongings out of the bank. “Scene Outside Deutsche Bank
Offices Evokes Lehman Collapse,” read one zerohedge.com
headline.
As it turned out, however, the photo did not depict two recently
fired employees. Instead, it captured two high-end tailors, who
had coincidentally just left the bank’s London office after fitting
several managing directors with £1500 bespoke suits. Forbes
captured the public outcry with this headline:
An Ugly Story of the Unbridled Arrogance
and Downfall of an Investment Bank
The gaffe even forced a rare public apology from Deutsche’s
pilloried CEO, Christian Sewing, who called the behavior
“disrespectful [and] in no way … keeping with our values.”
Requests for forgiveness are no match for major downturns in
social mood, however. Forbes went on to itemize no fewer than a
dozen of Deutsche’s past indiscretions, beginning all the way
back in 1933, when the bank “dismissed its three Jewish board
members … seized Jewish-owned businesses, provided banking
for the Gestapo and loaned the money to build the Auschwitz
concentration death camp.” (Forbes, 7/12/19) Forbes pieced
together 10 more of the bank’s wrongdoings, ending with
Deutsche’s alleged role in the 1MDB banking scandal, which is
currently under investigation by the United States Department of
Justice. “[Deutsche Bank] has arrogantly engaged in one heinous
activity after another with impunity,” says Forbes. The New York
Times, meanwhile, linked Deutsche Bank to Jeffrey Epstein, the
multimillionaire former hedge fund manager who authorities
arrested in July on federal charges of sex trafficking of minors in
Florida and New York.
We claim no special knowledge in the bank’s practices from
today or from 90 years ago. But as experts in patterns of social
mood, we can say one thing with a high degree of confidence:
Something more than mere reporting is afoot when journalists
suddenly feel compelled to dig up a bank’s Nazi-era financial
practices. The media’s deep dive into the lowest of the 20th
century’s low points speaks to the high degree of the trend change
that is underway.
Asian-Pacific Overview

Consider these recent news events:

— Japan restricts exports of key industrial

chemicals to South Korea.
— North Korea fires off more ballistic
missiles.
— Pro-government thugs beat up and bloody
anti-establishment protesters and bystanders in
Hong Kong, inspiring yet more protests.— A
political party in Malaysia contrives a sex
scandal to try to weaken a rising politician.
— The United States imposed more tariffs
on imports from China.

News stories like these in Asia in recent weeks highlight

continued conflict—enough to argue that the region’s stock
markets are still climbing a wall of worry. Several secondary
indicators we review in this issue also support our forecast of
higher prices over the long term. For example, see our discussion our February 2019 issue first looked at the indicator, it had
of the resurgence in the Global Economic Policy Uncertainty hit a record extreme at the turn of the year. We said we
Index below. expected the indicator to be near a major peak, which
supported a stock market low, based on past extremes in the
It should be no surprise then that our daily and monthly charts of indicator. The indicator subsequently plunged as global
the MSCI Emerging Markets Asia Infotech Index show that stocks rallied in early 2019.
wave 5 continues to advance. Under this scenario, the index,
which tracks Asia’s leading sector since the 2008 lows, ended More recently in June, though, the indicator surged toward its
wave 4 down at the start of 2019, and it is now advancing in record in the wake of the May-June correction, which
wave 8 of 5 up. supports our intermediate- and long-term forecasts for stocks.
Nonetheless, the indicator could surge to another record if
The picture is not perfect, however. One problem with this stocks were to continue correcting. (See the Hong Kong
scenario is that the momentum of the advance that began at the section for the China-Hong Kong EPU Index, which did in
May 29 low has been waning, and that kind of weakening fact hit a new record high in June.)
behavior is not consistent with a third-wave advance.
Let’s look now at China, where GDP growth in the second
What alternate scenario may explain the waning
quarter of 2019 slowed to its lowest level since records began
strength of the rally? The alternate count shows one
in 1992, a lagging effect of wave C of IV down in the
possibility: The January 2019 low may have been only
Shanghai Composite.
wave a down of a wave 4 contracting triangle. Under
that scenario, the index may be headed for an extended
period of sideways trading, even as mood remains
negative. Indeed, the mood in the region and the social
events it engenders could become even more negative
if the triangle count is correct.

For now, we will keep our developing wave 5 count in

place while staying alert for continued loss of
momentum in August, which would probably mean
that the rally ran out of steam ahead of a third-quarter
high.

Global Economic Policy Uncertainty Index

Our July 2019 issue showed how global equity
analysts in May and June had ratcheted down their
expectations for corporate earnings at an extreme rate.
Such an extreme rate preceded significant lows in the
MSCI Emerging Markets Asian Infotech Index nine
out of 10 other times over the past 20 years. Now,
journalists at major newspapers around the world seem
to have caught the same fear bug as the equity analysts.

The Global Economic Policy Uncertainty (EPU) Index

tracks the relative frequency of words used to describe
economic policy uncertainty that have been published
in major newspaper articles in 20 major nations. When

10
China
Our July 2019 issue showed how the Shanghai Financials Index
has been leading Chinese shares higher in 2019. While the
financial sector remains the leader this year, the CSI 300
Information Technology Index has been a strong mover in
recent weeks, closing the gap down it experienced in May during
the wave 7 correction. Relative strength in financials and
infotech stocks bodes well for continued upside over the long
term in mainland shares, although we remain alert for the
possibility of continued sideways price action near term, similar
to our discussion in the Overview of the MSCI Emerging
Markets Asia Infotech Index.
Shanghai STAR Market
Strength in infotech shares may benefit the Shanghai Stock
Exchange’s new STAR Market, which began trading on July 22.
Billed as a Nasdaq-style exchange, the board is the only one in
China to welcome companies that have yet to make a profit, as
well as shares with unequal voting rights, which grant insiders
superior voting rights at shareholder meetings. Regulators hope
such flexibility will encourage more innovative growth
companies to list in China, rather than in the United States or
Hong Kong.
“Gains were much stronger than expected, either due to
unreasonable IPO pricing or speculative trading,” a Shanghai-
based analyst told Bloomberg on the STAR Market’s first day of
trading, when all 25 of the companies that debuted that day rose.
With mainland shares rising in wave D up over the next year or
longer, long-term prospects for the new board look good.
11
Japan
The Nikkei 225 continues to advance in the early stages of wave
3 of (3) up. Elevated levels of short-selling support our long term
forecast of higher prices. The ratio spiked to an unprecedented
51.2% of total value traded on the Tokyo Stock Exchange (TSE)
on July 18, which helped to raise the 30-day moving average to a
record high of 46.1%.
Kyoto Animation arson
Our July 2019 issue noted that violence appears to have become
more common in Japan in recent years. A hideous act of mass
violence in July added evidence that mood in the nation remains
extremely low—and has perhaps even worsened in line with the
TSE short-sell ratio. On July 18, a 41-year-old man poured fuel
around a production building owned by Kyoto Animation, a
respected art studio in Kyoto, and then set it ablaze. The fire he
set killed 33 people in “one of the deadliest acts of violence in
Japan's modern history,” as the Washington Post described it.
(7/19/19)
It is probably not a random coincidence that this deadly incident
occurred on the same day that the TSE short-sell ratio spiked to a
record. Of the three other entries that Wikipedia lists for arsons
in postwar Japan, all occurred toward the end of major corrective
periods in the Nikkei, and they all preceded higher prices over
the intermediate term. For example, the most lethal arson in
Japan’s modern history, which killed 44 people, occurred on the
first day of September 2001, which went on to become the
month the Nikkei bottomed that year. This most recent mass
murder by fire is probably also a product of the extreme negative
mood that festers in Japan almost three decades after the 1989
high in the Nikkei. It may also support our long-term wave count.
India
The weight of the evidence now favors a period of weakness for
Indian stocks, for these reasons:

1. The Nifty failed to accelerate in a third-of-a-third-wave

advance as we were expecting. That means that the
choppy, overlapping advance from the 2018 low is better
labeled as a corrective advance, possibly wave b of 4,
rather than a series of first and second waves.
2. The Nifty IT Index, a leader of the rally over the past
few years, has completed five waves up from 2016 and
fallen below the lower line of the channel that bounded
the advance. The infotech index should ideally end its
correction near the end of the previous fourth wave of
lesser degree (wave 9, in this case).
3. The Nifty Midcap 100 Index, which never really
attempted to rally along with the Nifty in 2019, is now
testing its 2018 lows (see monthly chart). If the midcap
index were to end wave (4) down near its lower channel
line, the Nifty would also likely test its 2018 lows before
ending its own decline.
4. Our April 2019 issue showed  how billionaire Azim
Premji has a reliable track record of making pledges to his A tax at a top
philanthropic organization, the Azim Premji Foundation, The Indian government proposed a tax on corporate share
ahead of corrective periods in the Nifty. His most recent buybacks when it delivered its annual budget on July 5, and it
inadvertent sell signal, which came on March 8, 2019, approved the proposal on July 23. Governments often squeeze
may still be valid. successful corporations and investors after strong advances in
5. Rahul Gandhi announced his resignation as leader of the stocks, as the monthly chart shows. India raised the dividend
opposition Indian National Congress Party on July 3, the distribution tax to 15% in early 2008 in the early stages of the
day of the high in the Nifty. The rising social mood global financial crisis. An additional 10% dividend tax kicked in
supporting the bull market, and therefore the ruling party, as of early 2017, in the middle of wave 3 of (3) up. The
may have pressured the opposition leader to give up at an government instituted a capital gains tax in February 2018 just
intermediate-term peak. after the peak of wave 8 of 3. The addition of another tax on
investors in July 2019 is proabably another indication of a peak
Bottom line: Indian stocks are following the long-term pattern for in sentiment, and possibly a top in price.
emerging Asian stocks that we discussed in the Overiew.
Although we expect to see some weakness near term, India’s bull
market from the 2008 lows is far from over.

The USD/INR continues to trend within a declining channel. If

the price were to register a weekly close above 69.5, then it
would break out of the channel and increase the odds that a new
uptrend has begun. If on the other hand the price were to fall
below 68, then it would challenge our long-term bullish wave
count and open up the possibility of a larger downtrend.

12
Australia The ASX 200 Information Technology Index has faced
resistance at its upper channel line for three months. The index
The ASX All Ordinaries Index this year has enjoyed one of its
may continue correcting, perhaps along with a pullback in the
strongest rallies since the end of the global financial crisis,
ASX All Ordinaries.
hitting record highs in July. The rally has been so strong, in fact,
that the index has exceeded analysts’ expectations—a rare feat.
That sets up a test of the near-term bullish case, as we explain
below.

Home prices bottoming

All Ords beats analyst expectations
This chart shows that eight out of nine prior times the All
Ordinaries caught up with average analyst target prices as
collected by Bloomberg, it either topped immediately or faced
limited upside over the next few months before eventually
rolling over into a correction. The exception occurred in May
2009, after which the index corrected briefly and then continued
rising strongly for several months. The most recent signal
occurred in May 2019, and since then prices have continued to
rise. So, it will soon be make-or-break time for the bearish case:
If the index does not top soon and begin a decline, then it could
be a sign that the sell signal has failed amid a roaring bull
market, as it did 10 years ago in mid-2009.
The Corelogic Daily Home Value Index for Australia’s five
capital cities fell 10.5% from its October 2017 high to July 2019,
when it registered its first monthly uptick since the 2017 high.
Fundamentals tend to lag stock prices by several months, which
supports a bottom in home prices now. The Corelogic index may
be ending its correction about nine months after the ASX 200 A-
REIT Index (which is made up of real estate investment trusts)
ended its wave 4 correction, similar to how the home price
index ended its correction in 2012 nine months after the A-REIT
Index ended its wave 2 correction. The A-REIT Index has now
advanced as much as 28% since its wave 4 low, similar to how
it advanced 27% from its wave 2 low at the time the Corelogic
Index bottomed in 2012. That the All Ordinaries is most likely in
the middle of a long-term bull market also suggests that
downside risk in Aussie home prices is now probably limited.

13
New Zealand
The New Zealand All Ordinaries has outperformed most global
indexes this year, but the lagging behavior of the NZX Small
Cap Index may be hinting at a coming correction. A decline in
the small cap index in early 2014 foreshadowed the 2015 wave 2
correction in the All Ordinaries. History may repeat itself during
wave 4 down in New Zealand stocks.
Hong Kong and Singapore
We believe the Hang Seng Index and the Straits Times Index
continue to advance in third waves. The April-June declines in
both indexes retraced about 61.8% of their wave 6 advances,
which suggests wave 7 down has already ended in each index.
But continued sideways movement in the two markets remains a
possibility, as discussed in the Overview.
14
China-Hong Kong Economic Policy Uncertainty Index
The new record high in June in the China-Hong Kong EPU
Index supports our forecast of higher stock prices in Hong Kong
over the long term, even if prices do continue correcting
sideways in the near term. Like the record turnout for the anti-
extradition bill protests that have rocked Hong Kong in recent
weeks, and the record high short-sell ratio in Japan, the record
extreme in policy uncertainty in Hong Kong is either useless or
extremely bullish for Asian markets!
South Korea and Taiwan
The KOSPI 200 and the Taiwan Index continue to trade
sideways in the early stages of impulsive advances.
“I’ve never seen such bearish sentiment for Korean stocks,” a
fund manager at a Korean asset manager told Bloomberg on July
29, adding that it “may be the most bearish since 2008.” Two
international incidents support that anecdotal observation
regarding the market sentiment, which we review below.
Buy on the cannons (example 1)
Japan on July 1 imposed export restrictions on three chemicals of
critical importance to South Korea’s high-tech industry. It
claimed that South Korea had allowed one chemical, which can
be used in weapons development, to be shipped to North Korea—
a charge that South Korea denies. Analysts speculate Japan really
intended the action as retaliation for decisions handed down by
South Korea’s Supreme Court, which in late 2018 ordered two
Japanese companies to compensate Koreans forced to work for
the companies during World War II.
Two days after the January 2019
low in the KOSPI 200, a South
Korean court approved the seizure
of local assets of the two
companies. The export restrictions
Japan announced in July 2019 have
prompted a boycott of Japanese
products and at least two cases of
self-immolation in South Korea.
On August 2, Japan removed South
Korea from a so-called “white list” of preferred trading partners,
which will make it more difficult for South Korea to import a
range of Japanese products.
15
From our perspective, though, the timing of South Korea’s initial
actions and Japan’s reaction reflect lows in social mood in the
two nations near lows in their respective stock markets. Notice
that Japan’s Nikkei 225 looks similar to the KOSPI 200 over the
past year. Aware of the relationship between mood and stock
prices, the famous 19th century investor Nathan Rothschild
advised to “buy on the cannons.” These initial shots in the trade
conflict between South Korea and Japan support our forecast of
higher prices in both markets from a contrarian perspective.
Buy on the cannons (example 2)
North Korean leader Kim Jong-un continued his impeccable
record of expressing the mood on the Korean peninsula when he
smiled for the camera with U.S. President Donald Trump at the
Korean DMZ on June 30, the day before the July high in the
KOSPI 200. After stocks corrected during July, he then turned
tail and launched ballistic missiles into the Sea of Japan at the
end of the month, most likely expressing the mood around yet
another low in the KOSPI 200. It may seem odd, but North
Korea’s foreign relations remain the most reliable sentiment
indicator we know of for South Korean stocks.
Malaysia
The FTSE Bursa Malaysia KLCI undercut its long-term trend
channel in the second quarter of 2019 but rallied strongly to
close the quarter positive and near lower channel support. It is
now testing its May 2019 lows in the early stages of a multi-
month advance.
Mudslinging in bear markets
For several years, we have shown how the major waves of social
mood in Malaysia as reflected by its stock market have
influenced the major events in Malaysian politics. Consistent
with that relationship, the decline in the nation’s social mood
over the past year has produced a sex scandal contrived for
political purposes, which follows two prior such precedents.
Here is the background:
After Prime Minister Mahathir Mohamed fired Anwar
Ibrahim as his deputy prime minister on the day after the
1998 low in the KLCI, Anwar came under investigation
for sodomy, which is illegal in Malaysia. Anwar claimed
the charges were politically motivated. After Mahathir
stepped down as prime minister in 2003, the verdict
against Anwar was partially overturned in 2004, in the
middle of the subsequent bull market, allowing him to
leave prison.
Anwar was accused of the sex crime again in July 2008,
in the middle of the global financial crisis. He again
claimed the charges were politically motivated and won
re-election to parliament the next month, when he
became leader of the opposition. He was acquitted of the
second sodomy charge in 2012, in the middle of the
subsequent bull market, but began a second five-year
prison sentence after the acquittal was overturned in
2015, during the 2014-2015 correction in the KLCI.
Ironically, during the wave (2) correction, Mahathir and
Anwar joined forces as heads of opposition parties to
defeat their former colleagues in the ruling party in the
May 2018 general election (PDF), after which Anwar
was pardoned of all his sex charges.
In mid-June 2019, in the wake of the May 2019 low in
the KLCI, a video purporting to show the deputy
president of Anwar’s party, Mohamed Azmin Ali, having
sex with another man was leaked to the press. Azmin
denied the accusations and claimed they were politically
motivated.
As we go to press, Malaysia is abuzz with speculation regarding
the identity of the "mastermind" behind the video.
The truth remains shrouded, but the mudslinging appears to be
just another machination in the game of thrones that is
Malaysian politics. The one constant is the waves of social
mood driving the nature and timing of key events in that
game.
Other Emerging Markets: Brazil
The iShares MSCI Brazil ETF completed three waves
down from 2008 to 2016 and may have since traced out a
series of first and second waves in a larger impulsive
advance.
16
Brazilian prison riots
The month after the wave 2 low in the iShares MSCI Brazil ETF,
conservative strongman Jair Bolsonaro won the 2018 Brazilian
presidential election partly on a promise to “stuff prison cells
with criminals.” Strongmen tend to be popular during and soon
after major corrections in stocks, not just because the social mood
at such times is negative but also because social conditions
sometimes deteriorate to the point that physical security becomes
a real social priority.
But, in Brazil’s case, the prisons were already stuffed with
prisoners when Bolsonaro came to power—a lagging effect of the
nation’s eight-year bear market. Brazil’s prison population has
increased from 500,000 to 800,000 in the past decade, making it
the third-largest in the world.
The overcrowding has contributed to an explosion in the number
and severity of prison riots in recent years. In the month of
January 2017, a wave of gang violence overwhelmed the nation’s
prison system, resulting in the deaths of 120 inmates. “It was
barbaric. Some were beheaded; others had their hearts or
intestines ripped out,” a security secretary at one prison said at
the time. (7/30/19)
The barbarism has only increased in the wake of wave 2 down in
the Brazil ETF. In late May of this year, 55 inmates were
strangled or stabbed to death with sharpened tooth brushes at
four prisons. And on July 29, 57 people were killed—16 of whom
were decapitated—during a riot at a single prison, after which
some inmates were filmed actually playing soccer with one of the
heads.
The rising social mood of the current bull market should
eventually alleviate some of the social problems contributing to
Brazil’s high prison population, while intelligent economic and
social policies could improve conditions even more.
But, for our purposes, Elliott Wave Principle says that
“fundamentals ultimately collapse” following wave C declines,
and the overcrowding in Brazil’s prison system in recent years is a
good example of that observation. In addition, the explosion of
prison violence in recent years as Brazilian stocks have risen
provides sentiment support for our wave count from a contrarian
perspective.
GLOBAL INTEREST RATES
Interest Rates Around the World
The big focus in bond markets in July was the ever-increasing
mountain of negative yielding debt and the fact that some
European corporate bonds, including junk-rated issues, are now
yielding below zero. This means that those companies now require
investors to pay THEM for the privilege of holding their bonds to
maturity. On the face of it, that sounds like the lunatics have taken
over the asylum, but a relatively positive shaped yield curve, for
now, means that this extraordinary situation can continue.

The global bond market is fraught with more risk than at any
period in history. The decline in the yield on 30-year T-bonds is
close to completing its wave structure. When the pattern finishes,
yields will move strongly higher.

Australian and UK 10-year yields are approaching a temporary

low. We look for a corrective bounce in August before a fresh U.S. Treasuries
wave of lower yields and higher bonds prices begins. Consider these astounding bond market facts:

The Bond Universe There is now more than $14

Global bond sectors recovered from a sell-off early in the month to trillion of global negative-yield
end broadly unchanged in terms of yield and spread levels. debt outstanding, an amount
However, global junk bonds are showing some signs of instability, equal in size to the entire
particularly in the CCC-rated group which has been Eurozone GDP.
underperforming. That's where we would expect to see the first 43% of the global investment-
signs of changing sentiment in the credit markets. grade bond index (ex-US) is
trading at negative yields, up from
The yield on the Bloomberg Barclays Global Aggregate index 20% late last year.
hovers around 1.44%. At this juncture, our thesis remains that Italy, which has a long history of
Primary degree wave 2 is a zigzag decline which has potential to fiscal irresponsibility and political
extend towards the 0.786 retracement of wave 1 at 1.32%. An shenanigans (read: risk to
advance back above 1.85% will be the first sign that wave 2 principal), recently sold $19.6
is over. billion in 50-year bonds with a
yield of just 2.8%.
All of the outstanding bonds of
Germany, Denmark, Switzerland
and Sweden trade at negative
yields.
There are now 14 euro-based
corporate junk bonds with
negative yields.

The last bullet point is particularly stunning. Companies

with the weakest credit structure and the highest risk of
default, so weak that their bonds are considered junk, now
get paid to borrow money. If there was ever any doubt that
investing is governed by non-rational herding impulses,
current global bond market dynamics positively prove it.

17
"It's not completely crazy," says the chief investment officer at an
investment firm. "For some investors, there is an acceptance that
it's not about absolute returns, but relative returns." A fixed-
income portfolio manager adds, "just because something is
negative yielding, that doesn't mean it can't get more negative
yielding." Suppose yields do become more negative; to whom do
you sell these bonds? According to a Bloomberg Businessweek
article on July 25, "Investors are willing to pay a premium—and
ultimately take a loss—because they need the reliability and
liquidity that government and high-quality corporate bonds
provide. Large investors such as pension funds, insurers, and
financial institutions may have few other safe places to store
their wealth." This may be true, but when investors start
rationalizing non-rational price moves, the prevailing trend is
usually in its late stages and near a reversal. The established
sentiment brings to mind an observation that our friend Ian
McAvity used to make: In a strong enough wind, even turkeys
fly. Buyers of negative-yield debt have zero margin of safety.
When interest rates rise, the value of their investments will
plummet.
Negative rates are wreaking havoc with bank profits, particularly
in Europe where much of the negative-yield debt emanates. This
chart of the EURO STOXX Banks index shows the damage that's
already been done. The index crashed 82% from its peak in May
2007 and is now close to its low in November 1987, nearly 32
years ago. A contracting banking sector is a problem for
everyone.
18
In the U.S., the yield on 30-year U.S. Treasury bonds declined to
2.421% yesterday, a new 2½-year low. The decline to this low is
part of a fifth wave, the final wave of decline that started at
3.466%, the high on November 2, 2018. There may be a few
more downward subdivisions but when the fifth wave is
complete, yields will rise strongly and prices will decline. Be
prepared now.
European Credit Markets
On July 4, the French multinational corporation and Euro Stoxx
50 component, Schneider Electric, borrowed €200 million for
five years at a negative interest rate of -0.043%. A week prior, the
private German lender, Landesbank Hessen-Thueringen
Girozentrale, sold a five-year covered bond at a negative rate of
-0.227%. So in today’s bizarro world of negative interest rates,
investors are not only paying sovereign governments, but also
public and private companies for the privilege of loaning them
money.
In fact, bizarro doesn’t even begin to describe some of the truly
crazy behavior that has become commonplace in European credit
markets. This chart of sovereign yield curves (i.e. a snapshot of
interest rates at various bond maturities) in Switzerland, Denmark
and Sweden makes the point. On July 25, when we constructed
the chart, every single Swiss bond – from tenures of three months
to maturities of 50 years – sported negative yields. The same
thing happened in Denmark, where the yield on every circulating
Danish bond dropped below zero. In Sweden, investors have to
travel beyond the 10-year mark before they find bonds that will
deliver a positive return.
As we have said before, the thing that makes investing in these
bonds so dangerous is that the probability of getting any return on
an investment is extremely low. Due to the concept of duration,
which approximates a bond’s sensitivity to interest rate changes,
even a small upward tick in interest rates will send the price of
longer-dated bonds plummeting. In other words, investors will
lose money if they hold these bonds to maturity, and they will
lose money if interest rates merely become less negative. As one
analyst put it, “Yield curves have gone mad. Negative yields are
everywhere, from AAA-rated government bonds to corporate
junk.” (Seeking Alpha, 7/22/19)
You may ask what could possibly account for investors’ UK 10-Year Bond Yield
willingness to hold these bonds at all. As we discussed in June, With the drop to a new low, yields are likely completing five
the explanation rests on a toxic mix of desperation and waves down for wave 3 of (3). Wave 3 equals a typical 1.618
complacency. “There is no choice but to go further out the risk times the length of wave 1 at 67 bps. We look for a temporary
curve,” says the director of a European advisory firm. low and a corrective bounce in wave 4 of (3). Resistance should
(Bloomberg, 7/16/19) He’s speaking to the desperation side of be found near the prior fourth-wave high of 85 bps. Once wave 4
the equation, which is the feeling that an investor might as well ends, prices should head to new lows to complete wave (3) of 5,
buy this debt, because no other options exist. The complacency perhaps near the 1.618 multiple of wave (1) near 31 bps and
side of the equation is equally important. According to possibly lower.
Bloomberg, 14 euro-denominated junk bonds traded with a
negative yield in July. At the same time, the index that gauges the
average yield across Europe’s junk bond market — the ICE
BofAML Euro High Yield Index — sank from 4.9% at the start
of the year to 2.83% last month. Likewise, spreads between
investment-grade debt and high-yield debt in the euro area have
narrowed from 168 basis points in early January 2019 to 105
basis points in July.

Complacency, in other words, is pushing bond investors into the

riskiest corners of the credit market where companies are far
more likely to default. These trends are versions of the TINA
strategy (There Is No Alternative) that pops up from time to time
in equities. There, too, investors justify purchasing overvalued
securities, because they can find no alternatives that offer better
returns. EWI, however, has long described TINA as a fickle
emotional state, not a proper investing approach, and the next big
reversal in social mood will catapult investors away from equities
and bonds that show even the slightest hint of risk. It will produce
jaw-dropping declines in bond prices and a correspondingly large
run-up in interest rates.
Australian 10-Year Bond Yield
Similarly, in Aussie 10-year yields, we are likely approaching a
European and Asian-Pacific Interest Rates
temporary low and an upside correction in wave 4 of (3). Wave 3
German 10-Year Bond Yield
would achieve a 3.618 extension of wave 1 near 96 bps. Near
The bearish outlook in German 10-year yields remains
this level, we will watch for an upside reversal in wave 4. The
unchanged. A strong downside target for wave 5 remains prior fourth-wave high near 149 bps should be strong resistance
the .618 multiple of 1 near -55 bps, although greater bearish to rallies. The recovery in wave 4 will then set the stage for
potential exists. A solid break below – 55bps on a closing basis another impulsive decline toward 87 bps, the 2.0 multiple of
would likely then target -126 bps, where wave 5 would match wave (1), and possibly lower in wave 5 of (3).
the length of wave 1, as previously discussed.

19
Japan 10-Year Bond Yield
The latest bounce in Japan's 10-year yield is viewed as a minor
correction within the early stages of an impulsive decline in
Intermediate wave (3). Yields should gain downside traction
once channel support is overcome. It currently comes in at -20
bps. A reasonable downside target for wave (3) remains the
1.618 multiple of wave (1) near - 44 bps.
INTERNATIONAL CURRENCY
RELATIONSHIPS
Currencies Around the World
The US Dollar reached a two-year high relative to the Euro, and
it is positioned to strengthen relative to the Japanese Yen and
Swiss Franc. The British Pound is falling to reach levels it hasn’t
traded since 1985.
Sterling took a good hammering through July, and there might
not be much let up for August, especially against the Yen and
Swissy. Except for Sterling, the Euro continues to struggle
against most of the crosses we follow; however, it is at an
interesting juncture against the Nokkie and the polish Zloty.
Why You Should Be Paying Attention to FX Right Now
By Murray Gunn, European Short Term Update, Interest Rates
Pro Service, Currency Pro Service
As we have pointed out previously, FX volatility is at or near
record lows. It's like a house full of gas just waiting for a spark.
Where will the spark come from? Here's a good candidate.
The world appears to be heading towards a currency war.
Although he has denied it, there is increasing focus on the
possibility that President Trump will order intervention to
weaken the U.S. dollar. This comes on the back of increasing
angst in geopolitical circles that the United States' disregard for
multilateralism is eroding the cordial agreements that have been
in place whereby governments agree not to purposely manipulate
their currency. President Trump has recently directed his ire at
the European Central Bank, accusing it of deliberately trying to
weaken the Euro.
20
A unilateral policy from the U.S. of intervening to weaken the
U.S. dollar would be the equivalent of a nuclear bomb going off
in the currency markets. With volatility being so low in FX,
perhaps that's what is being anticipated. Given President Trump's
2020 election ambitions, he will want to do everything he thinks
he can do to keep the U.S. economy from sinking before then.
Should the U.S. economy start to weaken (and the U.S. dollar
doesn't), the probability of President Trump pressing the button
will increase further.
This chart shows the U.S. dollar index as measured by the DXY
as well as the Federal Reserve's Broad Trade-Weighted index.
The DXY index is mostly weighted towards European currencies
whereas the Broad Trade-Weighted index only has a 27%
weighting towards Europe. It has a 16% weighting to China,
13% to Mexico and includes many Asian and Latin American
currencies not included in the DXY.
So, as we can see, whereas the long term chart shows that the
DXY is actually below the level where it was in 1973, the Broad
Trade-Weighted is around 400% higher. In other words, the U.S.
dollar has appreciated much more markedly versus non-
European currencies over the past few decades. More
importantly, the broad index now sits at its highs from 2002
whereas the DXY is still 20% below.
So, President Trump is not wrong when he says that the dollar is
currently strong (or in his view, that other currencies are weak)
but he may be looking in the wrong place when criticizing
Europe. In the end, though, that's semantics. If the U.S. does
decide to unleash hell on the foreign exchange markets, all
currencies will be affected. This may be the most crucial moment
in the currency markets since the Plaza Accord of 1985 and huge
trading opportunities could lie ahead. There's never been a better
time to be on top of Elliott waves in FX.
Furthermore, gold's comeback could be an ominous sign for
what's to come.
It is commonly thought that the celebrated economist, John
Maynard Keynes, famously disparaged gold as a "barbarous
relic." In fact, he was referring to the gold standard currency
regime that existed when he wrote, "In truth, the gold standard is
already a barbarous relic," in his 1923 "A Tract on Monetary
Reform."
There's a difference. You see, Keynes knew that gold is
ubiquitous money; he just didn't want money created by the state
(fiat currency) to be tied to it. That's because the economics that
Keynes espoused, and which is supported across all political
spectrums to this day, involves the state intervening in the natural
economic cycles of expansion and contraction. That means
borrowing, debt and printing money. You can't print gold.
Dollar Rates
The US Dollar Index rallied through its prior extreme to levels it
last traded in May 2017. Wave 8 is subdividing and will be in
five waves before it ends. Wave 8 from 95.85 should approach
101.06 where it will travel 1.618x wave 6. That’s a typical
relationship between first and third waves.

Now, as the global economy starts to slow, nation states are

gearing up for another round of monetary easing which will
involve lowering interest rates, printing fiat money and possibly
direct attempts to devalue their currencies in a "beggar thy
neighbor" attempt to keep their economies afloat. That's known
as a "race to the bottom" because nobody wins. (Richard Russell
of Dow Theory Letters, and Elliott wave expert, lived through the
1930s depression and used to write that, "In a depression nobody
wins. The winner is he who loses least.")

The (relative) winners out of this could be precious metals that

have served as currency for millennia. (There's a certain irony
here in that "millennials" think of crypto currencies such as
Bitcoin as the "new gold.") One interesting aspect with regard to
Gold is what it has done vis-à-vis the Swiss franc. The Swissy
has traditionally been seen as the safe haven in the post-Bretton
Woods fiat currency world but even against that, Gold is
showing a hint of long-term strength.

The chart shows that Gold priced in Swiss francs found support
at the old 1980 high and is now moving higher again. We'll
continue to take our lead from the Elliott waves as they develop,
but this could be a sign that fiat currencies in general might be
entering a phase in history where their very existence comes into
question.
EURUSD dipped to a new low beneath 1.1107, the lowest level
its traded since May 2017, and having eliminated any evidence a
bottom had been established the downtrend is intact. A third
wave from 1.1411 will travel toward 1.0754 where it will travel
1.618x wave 1.

21
The Who’s famous line, “Meet the new boss Same as the old
boss” describes what’s happening in the United Kingdom. Boris
Johnson replaced Theresa May as Prime Minister, but the
outlook for GBPUSD hasn’t changed. Cable is headed beneath
its post-Brexit low at 1.1949. A decline beneath the end of wave
(3) of the proposed ending diagonal wave C will put GBPUSD
at its lowest level in more than thirty-four years (May 1985).
The Dollar has staged bullish price action relative to the Swiss
Franc since late June. A five-wave rally and subsequent three-
wave setback signals that the Dollar will continue to strengthen.
A breach of the end of wave D at 1.0236 would raise the
prospect that a triangle dating back to March 2015 has ended and
a thrust that carries well above 1.0344 is underway.
22
USDJPY might dip below 106.77, but from above 104.85, the
pair should stage a thrust from a triangle. A breach of the end of
wave (D) at 114.54 will support that a thrust from a triangle is
underway. That thrust should carry through the end of wave (B)
at 118.66 and ultimately exceed the origin of the triangle at
125.85.
The decline below 1.3069 triggered the “even larger triangle”
scenario introduced in July. If wave c did not end at 1.3015, it
should end near 1.2969 where wave (c) of c will travel the same
distance as wave (a). USDCAD would then trace out waves d
and e into the fourth quarter of 2019 to complete the triangle.
The Australian Dollar remains under pressure. If the spike low
established in January has any importance, AUDUSD must form
a secondary low above 0.6750. The proximity to that level
demands the turn occur from current levels. Otherwise, the rally
that occurred in January may represent a false start. A break to
new lows would fall in line with the general outlook for US
Dollar strength, but it might represent a terminal thrust from a
triangle per the alternate count shown on the chart.
This sentiment indication should mark an interim low in
Sterling's downtrend. As Michael Madden’s chart and text below
shows, EUR-GBP is still on course with its triangle pattern. Wave
D should top out now (before 0.9307) with then a decline in wave
E to complete the pattern. Once it does end, that is when Sterling
should have its really dramatic fall. If British holidaymakers (and
importers) think it's bad now, "they ain't seen nothin' yet!"
Short-term Analysis
By Michael Madden

EURGBP didn’t spend as long as we had anticipated it would in

the wave b correction, however, we can now raise our key level
to 0.8892. Against this level, five waves are underway for wave
c of D. Wave D is limited to the wave B high at 0.9307;
therefore, our sights are focused on 0.9203, the .618 Fibonacci
relationship of wave c with wave a. A breach of 0.9307 will
dismiss the triangle, and give us reason to favor that wave (B) has
finished at the May low.

Other Rates

By Murray Gunn

Expect a brief respite in Sterling's downtrend.

Back in 2002, my wife and I found ourselves at the Gabba

cricket ground in Brisbane, Australia watching England take on
the Aussies in the iconic Ashes series of matches (for American
readers, think World Series, but with each game lasting five
days.) England's legendary supporters, the Barmy Army, were in EURCHF has located support after traveling .618 times wave a;
exuberant mood having passionately indulged in the local amber at this juncture, we favor that it is only wave (i) of c that may
refreshment, and were in fine voice. My ears pricked up when be coming to an end. A corrective pullback to circa 1.1158, the
they started singing about foreign exchange markets! You see, end of the previous fourth wave of one lesser degree, will set up
GBP-AUD had rallied from 2 in the mid-1990s to around 3. for the next phase of the decline, wave (iii) of c.
When I heard the Barmy Army sing "we've got 3 dollars to the
pound" to the tune of "we've got the whole world in our hands," I
turned to my wife and said "well, that'll mark a top in GBP-
AUD." With GBP-AUD then halving over the next ten years, it
has to be one of the best sentiment indicators ever recorded!

When financial markets become part of popular culture, it often

marks the end of a trend. The latest example, on a much smaller
scale, came on 30 July when the fall in Sterling became headline
news on the flagship BBC news broadcast. As usual, the
commentators' causality was all wrong with the fall in the pound
being blamed on comments made by the new British government
that it would not enter any negotiations with Brussels over Brexit
until the Irish backstop was removed. Hyperbole abounded with
concerned holiday makers and British pensioners living in Spain
all saying how much the weak pound was ruining them. But the
pound was already weak, having topped out against the U.S.
dollar in March and, before the end of July rout, was already
down 7.5%. Everyone thinks that news makes prices move, but
it's actually price movements that make the news.

23
Against the wave (ii) peak at 1.6448, we are looking lower in
five waves for wave (iii), a five-wave decline expected to move
swiftly through 1.5721, possibly towards 1.4710, where it will
have traveled 1.618 times wave (i).
Our key level has been lowered to 1.5223, and our sights remain
set on the 1.4222 target, where wave e = .618 times wave c, a
common wave relationship within contracting triangles.
24
With the key level raised to 9.5830, we are looking for
EURNOK to break through the 9.9943 – 10.0572 band of
resistance that has been holding this pair back for nearly two
years. Wave (iii) of 8 should result in a swift move higher over
the coming weeks to months.
The impulse nature of price action from 1.7308 supports our
bearish forecast for EURNZD. Against 1.7308, look lower in
five waves for wave c, with sights focused on 1.5708; where
wave c = a, a common wave relationship within zigzags.
After tagging the .618 Fibonacci retracement of wave 1, the AUDJPY needs to locate support at/preferably above 70.63 to
wave 2 correction we have been tracking might now be in place. keep this bullish outlook favored.
A swift move up through 4.3452 will favor that wave 3 is
underway from 4.2370.

We have adjusted EURJPY's wave count to allow for a still- Following a brief, shallow wave (iv) GBPJPY has resumed its
unfolding wave (E). We are using 121.38 as the key level for downtrend in a nice impulsive manner. Against the 135.66 key
lower in wave c of Y. level, our focus is very much on lower, at least while the upper
boundary of wave c's impulse is intact.

25
The wave 8 forecast is very much on track. An equal distance to METALS & ENERGY
wave 6 has been registered, however, it looks like GBPCHF has
Metals and Energy Around the World
further to fall before a wave 9 correction has room to pull back.
Gold is tracing out the final waves of the bear-market rally that
Breaking out of the (i)-(ii) base channel is the next objective for
started in December 2015. Prices are within our target range and
the bears, but our sights remain focused on the 1.1161 level.
when the final subwaves of the push are complete, gold will
resume the bear market that started in 2011.

Crude and Natural Gas should trend substantially lower. Rallies

should prove corrective and set the stage for further decline.

Gold & Silver

"Gold Fever Breaks Out," says a Bloomberg headline from
Monday. A leading global hedge fund manager makes a 10-year
bull case for gold, as there is a "paradigm shift" in global
markets and gold will be the leader. "Gold is the perfect response
if you're entering the bubble game [caused by monetary easing
that fans asset bubbles]," says the head of global asset allocation
for a major bank. "Every time you have such a situation, gold has
soared." Somehow, he must have missed the Fed easing from
May 1989 to September 1992, when they reduced their short-
term interest rate from 9.75% to 3.00% even as gold's value
declined over 10%. Over the years, GMP has busted many of the
myths that justify a gold rally; like all exogenous-cause
explanations, they are simply rationalizations for one's
investment position.

Cryptocurrency

[For access to the cryptocurrency video by Tony Carrion, please

see online version.]

Gold's wave structure continues to develop in line with our

forecast. The rally from $1266.10, the end of Intermediate wave
(B), is Intermediate wave (C) of Primary wave B. The push to
$1452.98 on July 19 is well within our target range. Last month,
EWFF discussed the bullish sentiment extreme that attended the
rally, which we identified as strongly bearish measures. In fact,
investors' desire to own gold is so strong that they are willing to
pay a premium to do so. On the day prior to gold's recent high,
the percentage premium to net asset value of the underlying
assets in the SPDR Gold shares exchange-traded fund (GLD)
jumped to 2.074, the greatest extreme in 3½ years, since 2.685 in
March 2016.

26
The alternate line on the weekly range chart above indicates that
it is possible to interpret the rally from $1046.20 in December
2015 to $1375.53 in July 2016 as an A-B-C structure. This
would make the July 2016 high Intermediate wave (W) of
Primary wave B, the first zigzag of a double zigzag pattern (see
text, p.42). The triangle pattern that ended this May would be
Intermediate wave (X) and the rally since then would be Minor
wave A of Intermediate wave (Y). Minor wave B should be a
partial retracement of wave A, which will lead to Minor wave C,
a five-wave advance that carries gold to a new recovery high.
This scenario would allow gold to push to either of the targets
discussed in the July issue of EWT: $1484 + or - $2, or $1591 +
or - $4. Regardless of which of these two wave patterns
develops, gold's rally from December 2015 is a bear-market
rally. The "You Are Here" arrow on the schematic above shows
gold's approximate position in the progression of the wave
structure. Primary wave C, when confirmed underway, will be a
decline that draws gold into triple digits.
Silver sprang to life in July with a strong rally. The Daily
Sentiment Index (trade-futures.com) surged to 91% bulls for
three consecutive days from July 18-22 and prices reached a
closing high two days later at $16.63 on July 24. The last time
bullish sentiment was higher than the current extreme was at the
July 4, 2016 peak at $21.17, when DSI hit 97%. Speculators in
silver options have taken note, as the combined trading volume
of puts and calls jumped to over 240,000 for the month, the
highest total in 8½ years. The long-term trends in gold and
27
silver more or less align. Once Primary wave C down in gold
begins, the tug of declining gold prices will be too strong for
silver, which should move lower.
Energy
Crude Oil
Crude extended the rebound from its June low up to 60.94 and
then reversed rather abruptly. The price action leaves wave (2)
with the look of a double zigzag. The next leg should be a
powerful third-wave decline that carries prices substantially
lower in the weeks and months ahead. The first big downside
hurdles to cross are the early-June 2019 and late-December 2018
lows.
Note: A question that often comes up during periods of heighted
Middle East tension is how to deal with the threat of a sudden
curtailment or cessation of the flow of oil through the Straits of
Hormuz. Our answer is invariably to ignore it from an analytical
perspective and focus on the higher probability wave count –
wherever it leads. We can't predict whether speculating on a
potential outcome will pay off, but without a solid wave count to
back it up, it's the exact opposite of properly applying Elliott
analysis. One of the great advantages that a solid foundation in
the Wave Principle offers practitioners is precision risk
management. Elliotticians know to the tick where one wave
count supersedes another and they can calmly and rationally
prepare for the unexpected (i.e., manage risk) knowing that the
market always has the final say.
Natural Gas
Natural Gas extended its rebound as anticipated before turning
down to post a slightly lower low for the move at 2.107. If we're
on the right track, the subsequent advance should prove
corrective and set the stage for further decline. A
disproportionally large rebound at this juncture, however, would
look suspicious, but it wouldn't alter our longer-term bearish
outlook. The next big downside hurdle to cross is the 1.611 low
from 2016.
ECONOMIC, MONETARY, AND CULTURAL
TRENDS
Economy & Deflation
You've Never Had It So Good (?)
By Murray Gunn
The U.S. economy sets an historic record.
62 years ago last month, in July 1957, British Prime Minister,
Harold MacMillan, made a famous speech in which he waxed
lyrical about the healthy state of the British economy. "Indeed let
us be frank about it - most of our people have never had it so
good," he told the audience. As the U.S. economy last month set
a record for length of continuous expansion, expect similar
hubris to emerge.
28
The U.S. economy has now expanded for 121 months.
According to data going back to 1854 from the National Bureau
of Economic Research, that beats the previous record of 120
months set from 1991 to 2001. Taking all 33 cycles of expansion
into account, the current growth streak is over 3 times the length
of the 38.7 month average. It's even more than double the post-
World War 2 cycle average of 58.4 months. For some in the U.S.,
they really have never had it so good.
For others, though, the current cycle has exacerbated the wealth-
gap. Average earnings have not kept pace at all with asset growth
and it now takes the average American 127 hours of work to buy
one share of the S&P 500. In 2009, it took 40 hours.
Nevertheless, we fully expect the current administration to milk
the statistic for all that it's worth, seeking to take credit for it.
This is natural human behavior. Prior to MacMillan's 1957
speech, British Gross Domestic Product had grown at an average
annual rate of 3.8% over the previous four years. In 1957 GDP
growth slowed to 1.9% and then to 1.3% in 1958.
The previous three record economic expansions in the U.S. ended
with the U.S. stock market declining by an average of 32%. This
one might be different, but I'm not betting on it.
By Steven Hochberg and Peter Kendall
In April, GMP wrote about the curse of higher and higher debt
burdens on Chinese firms and stated that it would only make the
"ultimate reckoning" more painful. On July 8, the reckoning
made an initial appearance, as The Wall Street Journal published
this headline:
Heavy Debt Humbles China's Business Champions
China's economic slowdown exposed how some of the country's
biggest private companies are struggling to manage excessive
debt
All it took was a slowdown to 6.2% growth in China's second
quarter GDP. That's still more than most other countries, but it's
China's lowest quarterly growth rate since 1992. Turns out that
rapid "growth masked companies' strategic mistakes." On July 8,
the Journal revealed that many Chinese companies "over
expanded into unfamiliar and crowded business sectors. These
problems are becoming increasingly apparent." Since 2009,
China's debt quadrupled to $26 trillion, three times its GDP.
Two-thirds of the total is owed by corporations. At this point, the
"signs of distress are appearing most dramatically at private
companies, which have less pull with creditors and less support
under President Xi Jinping, who sees the state sector as the
economy's mainstay." In the first seven months of 2019, 271
Chinese property developers filed for bankruptcy, a 50% increase
from 2018. But the portion of corporate debt held by
government-run companies is benefiting from the "super-
abundance of government assistance" that we talked about in
May. As we've also noted, this assistance is not outside our
forecast. In fact, GMP talked about this potential way back in
June 2007:
With China's history of reliance
on social engineering, the effort to
stem the tide may be more
pronounced than in other
countries. Any such action will
magnify the effect of the eventual
decline.
The Shanghai Composite index peaked four months later in
October 2007 and crashed nearly 73% over the following year.
Despite almost uninterrupted stimulus efforts since then, the
index is still down more than 50% from that peak.
What—Me Worry?
By Brian Whitmire
Economic conditions have gotten so bad that the European
Central Bank is back on the case. According to the Financial
Times, a steep drop-off in foreign demand has “raised
expectations that the European Central Bank will revive its crisis-
era stimulus.” Our only question is, how can the ECB revive
economic stimulus when it never actually died? Indeed, the
central bank’s early strategies to stimulate the economy date back
to August 2014, when ECB president Mario Draghi first outlined
his bond-buying program, otherwise known as quantitative easing
(QE). Draghi officially announced the program in January 2015
and began purchasing bonds that March. By December of 2015,
the economy looked so bleak that the central bank cut its deposit
rate and extended QE through March 2017. Just three months
later, the ECB lowered both the deposit rate and the refinancing
rate, extended QE to corporate bonds, and also provided low-cost
and no-cost loans to investment banks. It still wasn’t enough.
Another QE extension came in December 2016, and, despite later
signaling that it would wind down its stimulus, the ECB left rates
unchanged at its October 2017 meeting. For those keeping score
at home, that was nearly two years ago.
The central bank continued its €60 billion per month bond-buying
program until December 2017, and, in March of this year, the
ECB refused to raise interest rates while it unveiled a new round
of targeted long-term loans for investment banks. The point is
this: Whatever you may hear in the coming months about the
central banks potential to revive economic activity, Europe’s
economic sickness has worsened despite some of the most
aggressive stimulus the world has ever seen.

Of course, this is not news to subscribers. Almost every issue of

EFF over the past two years has described or illustrated
deflation’s steady progress into nearly every facet of the
European economy. This chart showing the decline in worldwide
commodity prices makes a further mockery of the efforts of

“Tear gas engulfs the heart of Hong Kong”

The potential for a pronounced breakdown in China's social
order is clearly visible in Hong Kong. A new law that would
allow the extradition of criminally accused Hong Kong citizens
to mainland China sparked rallies in March. In recent weeks the
unrest has grown more contentious and broadened into general
"anti-government" demonstrations. Last weekend police
"unleashed pepper spray and rubber bullets" and arrested more
than 60 people. CBS News described the protests as a "violent
escalation in tension" that is "becoming the new normal for one
of Asia's most international and financially important cities.
Neither protesters, nor the government in Beijing appear willing
to compromise." On the mainland, the populace is more
compliant. Justin Sun's decision to forego his lunch with Warren
Buffett is a good example of the groveling that goes to the
highest level of China's corporate suites. The Guardian reports
that mainland China CEOs "go to abject lengths to praise the
party." One says his "life belongs to the party." In response to
such comments, a Beijing political commentator said, "They act
as if they are being chased by a bear. They are powerless to
control the bear, so they are competing to outrun each other to
escape the animal." It's not just any bear, it's a bear market of
very high degree. It will win the race.

29
central banks to induce inflation. In fact, the CRB index peaked
at an all-time high of 471 in July 2008, and, after a countertrend
peak in 2011, the index sank nearly 60% into its February 2016
bottom. Over the course of 2019, crude oil prices have dropped
more than 17%. Natural gas prices are off nearly 20%. And
propane prices have plunged an incredible 47%. The CRB index
has traded sideways over the past two years, but it’s probably the
calm before another storm. As economies stagnate, worldwide
demand for commodities will dry up, and the CRB’s low-water
mark near 150 should fail.
Either way, stocks have clearly hit some kind of optimistic mood
extreme, because every data point gets recast in a bullish light.
Here’s one representative headline from Barron’s:
Stocks Could Benefit From Lower
Commodity Prices. Here’s Why.
According to the article, the negative commodity price trend
“may provide a stock-price tailwind,” because anything that
boosts margins “would be a welcome surprise for investors.”
(Barron’s, 7/23/19) The logic seems sound, but as the following
passage in the October 2018 Elliott Wave Theorist discussed, it
also misses the point:
Economists tell us that falling commodity prices are
“bullish for the economy” and “like a massive tax
cut” and so on, because business can buy things
cheaper. This is both true and irrelevant. Commodities
begin their fall during a pause between moderate
optimism and ultra-optimism, and stocks join them
when ultra-optimism turns to pessimism and panic.
Although each phase in isolation is compatible with
an economic explanation, there is no consistent
causality between these two variables. Economic
thinking ruins any ability to anticipate the most
dramatic changes in trends for financial markets and
the overall economy.
Indeed, when commodity prices crashed alongside stocks during
the 2008 financial crisis, the press attributed the connection
(quite logically) to the collapsing worldwide demand that signals
a looming recession. As stock prices begin to come down again,
these age-old rationalizations will pop up again. It could happen
before the year is out.
Central Banks Starting to Panic over Deflation
By Murray Gunn
Central bank goalposts are being shifted as their "low-flation"
conundrum gets worse.
It wasn't supposed to be like this. Faced with the prospect of
price deflation a decade ago, central banks decided to embark on
quantitative easing. Prices going down? Simple. Just create shed
loads of new money and the problem will go away. Except, it
hasn't.
Price inflation measurements such as the Consumer Price Index
(CPI) have failed to show any signs of vigor despite academic,
economic eggheads' assertions that they should. Globalization
(Amazonization), demographics and the great technology
revolution have all been blamed for the fact that wages have not
risen much and, therefore, that prices haven't either.
30
Now, according to a Bloomberg report, the European Central
Bank is reviewing its "inflation targeting" policy whereby it
seeks to maintain Eurozone CPI growth "below, but close to,
2%". On the advice of outgoing president, Mario Draghi, the
ECB is investigating whether it can have more "symmetry"
around the 2% target. That's code for saying that it wants to be
able to see CPI growth above 2% without worrying about it. In
doing this, the ECB is starting to push for more justification to
continue with quantitative easing and, perhaps, even direct
buying of equities that the Bank of Japan and the Swiss National
Bank have been engaging in for years now. Even the U.S.
Federal Reserve is conducting a review of its strategy vis-à-vis
price inflation and its mandate. Those results are expected early
next year.
This is a sign that central banks are starting to panic over the fact
that, no matter what they do, price inflation remains stubbornly
low and falling. The chart below shows that price inflation
expectations in Germany have plummeted since the beginning of
2018 and this picture is repeated across the Eurozone and in the
U.S.
In classical economics, periods of falling prices were rarely
mentioned and certainly not seen as a problem. Viewing price
deflation as a problem is a distinctly neo-classical concept, and
that is because it gives states a reason to continually increase
borrowing and spending, expanding the reach of government in
the process. In the next major downturn, that model will very
likely be refuted.
By Brian Whitmire
Deflation’s grip on the economy has intensified over the past two
years. With demand for European cars crashing, the Continent’s
trucking industry is also veering off the road. In May, transport
management platform Transporeon reported a 15% increase in
capacity over the first quarter of 2018. The surprise jump was
confirmed by the chairman of Davies Turner Group, a UK-based
logistics management company, which said that the “strong
growth in European freight volume is slowing. In fact, consumer
demand for goods continues to diminish, with Europe’s haulage
capacity outstripping demand for the first time in years. Nor is it
only trucking freight that’s suffering. As this chart shows,
German factory orders fell another 2.2% in June, sending the
year-over-year change to (negative) -8.6%. With factory orders
free-falling, demand for airfreight has also dropped like a stone.
This next chart comes to us courtesy of the freight information
provider, Cass Freight. It compares the eurozone Purchasing
Managers Index (dashed line) with the Broughton Capital
 the year-over-year change in U.S. shipments across all modes of
transportation (truck, rail, air, and barge). After sinking at an
annual rate of 6% in May 2019, the shipment index fell 5.3% in
June, prompting Cass Freight to repeat its message from the prior
month: “The shipments index has gone from warning of a
potential slowdown to signaling an economic contraction.”

Our view is that this forecasted contraction will eventually turn

into a recession and, ultimately, a full-blown depression. As the
chart shows, the transportation contraction in 2015 and 2016
followed a mini boom that peaked in June 2014, when the Cass
Freight Index expanded by 6% annually. For debt-dependent
economies, bigger booms almost always translate into bigger
busts, and the 2018 boom broke the previous record by a long
shot. The 6% contraction in May 2019 has already exceeded its
2016 low point, and if the history of booms and busts holds, the
current transportation recession should get much worse. It should
also more or less mirror the economy at large.

European Airfreight Index (solid line). After pushing to more

than 8% annual growth in early 2017, European airfreight
volumes reversed course and have steadily contracted since
March 2018. More important, the drop-off is now accelerating.
In April 2019, the index contracted -7.2% year-over-year, while
the rate of decline increased to -7.9% in June 2019.

The drop-off in airfreight volume is even more alarming in the

Asia-Pacific region, according to Cass Freight. Inbound volumes
continue to contract at two of the region’s busiest airports, Hong
Kong and Incheon, while in Shanghai, volumes have plummeted.
The company published this warning in its June 2019 report:
“We are concerned about the severe declines in international
airfreight volumes (especially in Asia) and the ongoing swoon in
railroad volumes, especially in auto and building materials. Even
across the United States, freight volumes are falling despite the
S&P 500’s recent push to new all-time highs. This chart depicts

31
POPULAR CULTURE
Record home runs are a bull market phenomenon.
—The Wave Principle of Human Social Behavior
It comes as no surprise that a barrage of home run
records accompany the all-time highs in the major
stock indexes. The dashed lines on the chart on the
next page show how major transitions from bull
markets to bear markets have been attended by home
run records. The correlation dates back to the Roaring
Twenties, when the “Live Ball Era” culminated in a
then-record 1,565 homers in 1930, a year after the end
of Supercycle wave (III). In 1970, the middle of the
topping process following the end of Cycle wave III, a
record 3,429 Major League dingers cleared the fences.
In 1987 and 2000, home run records coincided
perfectly with dramatic new highs in the Dow Jones
Industrial Average. Yet all of these performances are
dwarfed by what’s happening in 2019. To give you an
idea, 1,135 home runs were hit in May, a record
monthly high. In June, 1,142 homers landed in the
stands, another new record. The Minnesota Twins are
on pace to hit 311 homers, 44 more than the record for
any team in any season. At the current rate, major
leaguers will hit 6,624 homers by the end of the 2019.
The existing high number is 6,105 in 2017.
In a departure from the thrills that record home runs
inspired in the 1920s, 1960s and 1980s, however, the
home run boom is failing to attract new fans to the
National Pastime. Attendance is down in 19 out of 30
major league cities. According to a Gallup poll, just
9% of respondents list baseball as their favorite sport,
32
the lowest percentage since Gallup started asking the
question in 1937. A July 2 headline in The Nation
assesses the game’s popularity this way: “No One
Watches Baseball Anymore.” This was confirmed on
July 9, when the MLB All-Star game attracted 8.14
million viewers, the lowest total in history. A Houston
Chronicle sports columnist explains baseball’s
predicament this way: “I love baseball. I will always
love baseball. But Major League Baseball has a serious
home run problem, which is one of the oddest things
I have thought or written. It’s 100% true though.”
It makes no sense, unless you are a socionomist
observing the passage from a long-term positive mood
trend to a long-term negative mood trend.
Californians recently witnessed the same transition.
In a feel-good moment at a Dodger Stadium concert,
music fans traveled back to the groovy vibe of the
mid-1960s, as former Beatles Paul McCartney and
Ringo Starr appeared together on stage. It was their
first joint performance at Dodger Stadium since
August 28, 1966. Back then, it was the Beatles
penultimate tour gig. In a reminder of the peak
mood environment that characterized the late 1960s,
however, one of the two songs they played was
“Helter Skelter,” which was released on November
22, 1968, a few days ahead of the speculative peak of
Cycle wave III. “Helter Skelter” turns the corner into
a sound EWT described as “angry, negative-mood
material.” It’s generally regarded as a forerunner to
the grinding, heavy metal sounds that typified the
early 1970s. In writing the song, Paul McCartney
later stated that he was “using the symbol of a helter
skelter as a ride from the top to the bottom; the rise and
fall of the Roman Empire—and this was the fall, the
demise.” It worked to tragic effect in another part of
Los Angeles, as Charles Manson took the name
to describe his vision of an apocalyptic race war, which
culminated in the random murder of actress Sharon
Tate and several house guests in August 1969. In a pop
culture echo, the Manson murders are now being re-
examined in a major motion picture, Once Upon a
Time in Hollywood, and a slew of media re-visitations.
One New York Times columnist attests to a mass
psychological change coincident with the grisly
Manson family murders. “Around midnight on August
8,” writes the columnist, “Abigail Folger was lounging
in a guest room in Benedict Canyon when a ‘knife-
wielding’ member of the Manson family walked into
her bedroom unannounced. Folger waved hello. It was
ultimate vulnerability.” After that, everything changed
in Hollywood, says the writer. “From now on it’s lock
your doors, close your gates, hire some guards, get
some guns.”
Of course, a new trend and not a hippie cult was
behind the change. In 2018 and 2019, there’s been no
shortage of social changes that point to a similar
transition from a positive trend in mood to a newly
negative mood. In fact, the cultural landscape is
shifting into bearish form so fully that a USA Today
columnist wondered how “the fuse of suspicion can
smolder for years before setting off an explosion of
public outrage.” Citing the “Me-Too” movement, the
college admission cheating scandal and the Catholic
Church’s predator-priest scandal, the columnist states,
“In some way, the only thing shocking about these
events is that they’re shocking at all. It raises the
question: How does a bad thing go from being an open
secret to being the center of the national debate?” It’s
a good question to which only socionomics has a
ready answer. The public mind is moving from a
positive mood to a negative one at very high degree.
As it does, many seemingly overlooked “bad things”
that occurred over the course of the rising mood
become objects of public fixation. We covered the
“Me-Too” movement and the explosion of public
scrutiny over Harvey Weinstein’s sexual harassment
charges back in November 2017. Observing that The
New Yorker had called Weinstein’s suddenly
scandalous behavior “an open secret to many in
Hollywood,” EWFF noted that a New York Times
headline asked, “Why Now.” “The answer,” explained
EWFF, “is that positive social mood is transitioning to
negative.” When Brad Pitt, one of the stars of Once
Upon a Time in Hollywood was asked if “anything
else ‘rattled Hollywood’ as much as the Manson
murders,” Pitt responded, “Harvey Weinstein. Can I
say that?” The list of celebrity sexual predators
continues to lengthen as years-long indiscretions
become the object of prosecution. In the latest case,
financier and registered sex offender Jeffrey Epstein’s
former sentence has been deemed too lenient and the
federal prosecutor who put him away, Alexander
Acosta, has been forced to resign as U.S. Labor
Secretary. If Epstein is re-convicted, he can get “up to
45 years in prison. This seems a reasonable, if belated
punishment for the rampant abuse of girls,” says the
editorial board of The New York Times. In prior
times, the media openly referred to Epstein’s private
plane as the “Lolita Express.” Now it wants to know
“Who Protected Jeffrey Epstein?” They are “Due a
Reckoning with Justice.”
33
There are many other social changes that adhere to
a powerful new direction in mood. These headlines
reflect the emerging negative mood influence on
everything from international trade to diminished
sexual activity.
Sex drought? Experts Say Americans
Get Frisky Less Often
—WLS-TV, May 22
Who Will Survive the Trade War?
—The New York Times, June 6
Climate Protesters Arrested Outside Swiss Banks
—Reuters, July 8
Iran Tensions Soar After Tanker Seized
—CNN, July 24
In Europe, where the negative mood trend is more
established (see chart of European banks on page 6),
recent developments reflect more adverse conditions.
With global economies flagging, European Central
Bank president Mario Draghi says governments,
particularly Germany, will “need to pitch in with
fiscal measures if conditions keep deteriorating.” But
Germany is no longer willing to shoulder this burden.
The Wall Street Journal reports, “A broad consensus
in Germany has emerged among economists, the
media and politicians, especially conservatives, that
the [European Central Bank’s] easy-money policies
have side effects that outweigh their benefits.” In
Great Britain, Brexit hard-liner Boris Johnson, “one of
London’s most famous and divisive politicians,” won
the race to govern the Conservative Party with two-
thirds of the votes. “Johnson wooed Conservatives by
promising to lead the U.K. out of the EU.” In Puerto
Rico, a “once admired governor” resigned when
protesters demanded his ouster for corruption. USA
Today reported on July 24 that Puerto Rico’s deposed
governor, Ricardo Rossello, “remained popular even
a couple weeks ago.” In CNN’s words, Rossello fell
victim to an “extraordinary burst of outrage.” A bull
market in “outrage” is perfect for the current direction
of social mood.
HI! KIDS MIMICKING
CORMORANTS...YOU ARE MORE LIKE
REAL CORMORANTS THAN THEY!
—ISSA
The Wave Principle is Ralph Nelson Elliott’s discovery that social, or crowd, behavior trends and reverses in recognizable
patterns. Using stock market data as his main research tool, Elliott isolated thirteen patterns of movement, or “waves,”
that recur in market price data. He named, defined and illustrated those patterns. He then described how these structures
link together to form larger versions of those same patterns, how those in turn link to form identical patterns of the
next larger size, and so on. In a nutshell, then, the Wave Principle is a catalog of price patterns and an explanation of
where these forms are likely to occur in the overall path of market development.

Pattern Analysis
Until a few years ago, the idea that market
movements are patterned was highly
controversial, but recent scientific discoveries
have established that pattern formation is
a fundamental characteristic of complex
systems, which include financial markets.
Some such systems undergo “punctuated
growth,” that is, periods of growth alternating
with phases of non-growth or decline,
building fractally into similar patterns of
increasing size. This is precisely the type of
pattern identified in market movements by
R.N. Elliott some sixty years ago.

The basic pattern Elliott described consists

of impulsive waves (denoted by numbers)
and corrective waves (denoted by letters). An
impulsive wave is composed of five subwaves
and moves in the same direction as the trend
of the next larger size. A corrective wave
is composed of three subwaves and moves against the trend of the next larger size. As the chart shows, these basic
patterns link to form five- and three-wave structures of increasingly larger size (larger “degree” in Elliott terminology).

In the chart above, the first small sequence is an impulsive wave ending at the peak labeled 1. This pattern signals
that the movement of one larger degree is also upward. It also signals the start of a three-wave corrective sequence,
labeled wave 2.

Waves 3, 4 and 5 complete a larger impulsive

sequence, labeled wave (1). Exactly as with
wave 1, the impulsive structure of wave (1)
tells us that the movement at the next larger
degree is upward and signals the start of a
three-wave corrective downtrend of the same
degree as wave (1). This correction, wave
(2), is followed by waves (3), (4) and (5) to
complete an impulsive sequence of the next
larger degree, labeled wave 1. Once again,
a three-wave correction of the same degree
occurs, labeled wave 2. Note that at each
“wave one” peak, the implications are the

34
Global Market Perspective Capsule Summary

same regardless of the size of the wave. Waves come in degrees, the smaller being the building blocks of the larger.
Here are the accepted notations for labeling Elliott Wave patterns at every degree of trend:

Within a corrective wave, waves A and C may be smaller-degree impulsive waves, consisting of five subwaves. This
is because they move in the same direction as the next larger trend, i.e., waves (2) and (4) in the illustration. Wave B,
however, is always a corrective wave, consisting of three subwaves, because it moves against the larger downtrend.
Within impulsive waves, one of the odd-numbered waves (usually wave three) is typically longer than the other two. Most
impulsive waves unfold between parallel lines except for fifth waves, which occasionally unfold between converging
lines in a form called a “diagonal triangle.” Variations in corrective patterns involve repetitions of the three-wave
theme, creating more complex structures that are named with such terms as “zigzag,” “flat,” “triangle” and “double
three.” Waves two and four typically “alternate” in that they take different forms.

Each type of market pattern has a name and a geometry that is specific and exclusive under certain rules and
guidelines, yet variable enough in other aspects to allow for a limited diversity within patterns of the same type. If
indeed markets are patterned, and if those patterns have a recognizable geometry, then regardless of the variations
allowed, certain relationships in extent and duration are likely to recur. In fact, real world experience shows that
they do. The most common and therefore reliable wave relationships are discussed in Elliott Wave Principle, by
A.J. Frost and Robert Prechter.

Applying the Wave Principle

The practical goal of any analytical method is to identify market lows suitable for buying (or covering shorts), and
market highs suitable for selling (or selling short). The Elliott Wave Principle is especially well suited to these functions.
Nevertheless, the Wave Principle does not provide certainty about any one market outcome; rather, it provides an
objective means of assessing the relative probabilities of possible future paths for the market. At any time, two or more
valid wave interpretations are usually acceptable by the rules of the Wave Principle. The rules are highly specific and
keep the number of valid alternatives to a minimum. Among the valid alternatives, the analyst will generally regard
as preferred the interpretation that satisfies the largest number of guidelines and will accord top alternate status to the
interpretation satisfying the next largest number of guidelines, and so on.

Alternate interpretations are extremely important. They are not “bad” or rejected wave interpretations. Rather, they
are valid interpretations that are accorded a lower probability than the preferred count. They are an essential aspect of
investing with the Wave Principle, because in the event that the market fails to follow the preferred scenario, the top
alternate count becomes the investor’s backup plan.

Fibonacci Relationships
One of Elliott’s most significant discoveries is that because markets unfold in sequences of five and three waves, the
number of waves that exist in the stock market’s patterns reflects the Fibonacci sequence of numbers (1, 1, 2, 3, 5,
8, 13, 21, 34, etc.), an additive sequence that nature employs in many processes of growth and decay, expansion and
contraction, progress and regress. Because this sequence is governed by the ratio, it appears throughout the price and
time structure of the stock market, apparently governing its progress.

What the Wave Principle says, then, is that mankind’s progress (of which the stock market is a popularly determined
valuation) does not occur in a straight line, does not occur randomly, and does not occur cyclically. Rather, progress
takes place in a “three steps forward, two steps back” fashion, a form that nature prefers. As a corollary, the Wave
Principle reveals that periods of setback in fact are a requisite for social (and perhaps even individual) progress.

Implications
A long-term forecast for the stock market provides insight into the potential changes in social psychology and even
the occurrence of resulting events. Since the Wave Principle reflects social mood change, it has not been surprising to
discover, with preliminary data, that the trends of popular culture that also reflect mood change move in concert with
the ebb and flow of aggregate stock prices. Popular tastes in entertainment, self-expression and political representation
all reflect changing social moods and appear to be in harmony with the trends revealed more precisely by stock market
data. At one-sided extremes of mood expression, changes in cultural trends can be anticipated.

35
Global Market Perspective Capsule Summary

On a philosophical level, the Wave Principle suggests that the nature of mankind has within it the seeds of social
change. As an example simply stated, prosperity ultimately breeds reactionism, while adversity eventually breeds a
desire to achieve and succeed. The social mood is always in flux at all degrees of trend, moving toward one of two polar
opposites in every conceivable area, from a preference for heroic symbols to a preference for anti-heroes, from joy
and love of life to cynicism, from a desire to build and produce to a desire to destroy. Most important to individuals,
portfolio managers and investment corporations is that the Wave Principle indicates in advance the relative magnitude
of the next period of social progress or regress.

Living in harmony with those trends can make the difference between success and failure in financial affairs. As the
Easterners say, “Follow the Way.” As the Westerners say, “Don’t fight the tape.” In order to heed these nuggets of advice,
however, it is necessary to know what is the Way, and which way the tape. There is no better method for answering
that question than the Wave Principle.

To obtain a full understanding of the Wave Principle including the terms and patterns, please read Elliott Wave Principle
by A.J. Frost and Robert Prechter, or take the free 10 Lessons on the Wave Principle on the Elliott Wave International
website at www.elliottwave.com (http://www.elliottwave.com/tutorial/).

36
Global Market Perspective
GLOSSARY OF TERMS
Alternation (guideline of) — If wave two is a
sharp correction, wave four will usually be a sideways
correction, and vice versa.
Apex — Intersection of the two boundary lines of a
contracting triangle.
Corrective Wave — A three-wave pattern, or
combination of three wave patterns, that moves in the
opposite direction of the trend of one larger degree.
Diagonal Triangle (Ending) — A wedge-shaped
pattern containing overlap that occurs only in fifth or C
waves. Subdivides 3-3-3-3-3.
Diagonal Triangle (Leading) — A wedge-shaped
pattern containing overlap that occurs only in first or A
waves. Subdivides 5-3-5-3-5.
Double Three — Combination of two simple sideways
corrective patterns, labeled W and Y, separated by a
corrective wave labeled X.
Double Zigzag — Combination of two zigzags, labeled
W and Y, separated by a corrective wave labeled X.
Equality (guideline of) — In a five-wave sequence,
when wave three is the longest, waves five and one tend
to be equal in price length.
Expanded Flat — Flat correction in which wave B
enters new price territory relative to the preceding
impulse wave.
Failure — See Truncated Fifth.
Flat — Sideways correction labeled A-B-C. Subdivides
3-3-5.
Impulse Wave — A five-wave pattern that subdivides
5-3-5-3-5 and contains no overlap.
Impulsive Wave — A five-wave pattern that makes
progress, i.e., any impulse or diagonal triangle.
Irregular Flat — See Expanded Flat.
37
Capsule Summary
One-two, one-two — The initial development in a
five-wave pattern, just prior to acceleration at the center
of wave three.
Overlap — The entrance by wave four into the price terri-
tory of wave one. Not permitted in impulse waves.
Previous Fourth Wave — The fourth wave within the
preceding impulse wave of the same degree. Corrective
patterns typically terminate in this area.
Sharp Correction — Any corrective pattern that does
not contain a price extreme meeting or exceeding that of
the ending level of the prior impulse wave; alternates with
sideways correction.
Sideways Correction — Any corrective pattern that
contains a price extreme meeting or exceeding that of
the prior impulse wave; alternates with sharp correction.
Third of a Third — Powerful middle section within an
impulse wave.
Thrust — Impulsive wave following completion of a
triangle.
Triangle (contracting, barrier) — Corrective pattern,
subdividing 3-3-3-3-3 and labeled A-B-C-D-E. Occurs
as a fourth, B, X (in sharp correction only) or Y wave.
Trendlines converge as pattern progresses.
Triangle (expanding) — Same as other triangles, but
trendlines diverge as pattern progresses.
Triple Zigzag — Combination of three zigzags,
labeled W, Y and Z, each separated by a corrective
wave labeled X.
Truncated Fifth — The fifth wave in an impulsive
pattern that fails to exceed the price extreme of the third
wave.
Zigzag — Sharp correction, labeled A-B-C. Subdivides
5-3-5.
Global Market Perspective Capsule Summary

The Elliott Wave Principle is a detailed description of how financial markets behave. The description reveals that mass
psychology swings from pessimism to optimism and back in a natural sequence, creating specific Elliott wave patterns
in price movements. Each pattern has implications regarding the position of the market within its overall progression,
past, present and future. The purpose of Elliott Wave International’s market-oriented publications is to outline the
progress of markets in terms of the Wave Principle and to educate interested parties in the successful application of
the Wave Principle. While a course of conduct regarding investments can be formulated from such application of the
Wave Principle, at no time will Elliott Wave International make specific recommendations for any specific person,
and at no time may a reader, caller or viewer be justified in inferring that any such advice is intended. Investing carries
risk of losses, and trading futures or options is especially risky because these instruments are highly leveraged, and
traders can lose more than their initial margin funds. Information provided by Elliott Wave International is expressed
in good faith, but it is not guaranteed. The market service that never makes mistakes does not exist. Long-term success
trading or investing in the markets demands recognition of the fact that error and uncertainty are part of any effort to
assess future probabilities. Please ask your broker or your advisor to explain all risks to you before making any trading
and investing decisions.

Global Market Perspective (GMP) is published by Elliott Wave International, Inc. Mailing address: P.O. Box 1618, Gainesville,
Georgia, 30503, U.S.A. Phone: 770-536-0309. All contents copyright © 2019 Elliott Wave International, Inc. All rights
reserved. Reproduction, retransmission or redistribution in any form is illegal and strictly forbidden, as is continuous and regular
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other such errors are corrected in the online version, which is the official final version of each issue. Subscribers will be notified
via email if substantive changes are made.
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Contact EWI Customer Care: Call 770-536-0309 (internationally) or 800-336-1618 (within the U.S.). Or email customercare@
elliottwave.com or online at www.elliottwave.com/contact/
The Elliott Wave Principle is a detailed description of how financial markets behave. The description reveals that mass
psychology swings from pessimism to optimism and back in a natural sequence, creating specific Elliott wave patterns in price
movements. Each pattern has implications regarding the position of the market within its overall progression, past, present and
future. The purpose of Elliott Wave International’s market-oriented publications is to outline the progress of markets in terms of
the Wave Principle and to educate interested parties in the successful application of the Wave Principle. While a course of conduct
regarding investments can be formulated from such application of the Wave Principle, at no time will Elliott Wave International
make specific recommendations for any specific person, and at no time may a reader, caller or viewer be justified in inferring
that any such advice is intended. Investing carries risk of losses, and trading futures or options is especially risky because these
instruments are highly leveraged, and traders can lose more than their initial margin funds. Information provided by Elliott Wave
International is expressed in good faith, but it is not guaranteed. The market service that never makes mistakes does not exist.
Long-term success trading or investing in the markets demands recognition of the fact that error and uncertainty are part of any
effort to assess future probabilities. Please ask your broker or your advisor to explain all risks to you before making any trading
and investing decisions.

38
Global Market Perspective Bios

EDITORS

Robert R. Prechter, CMT

Robert R. Prechter, is president of Elliott Wave International, publisher of Global Market Perspective.
After working as a Technical Market Specialist with the Merrill Lynch Market Analysis Department in
New York, he founded EWI in 1979. Bob served for ten years on the Board of Directors of the Market
Technicians Association (MTA) and was elected its president in 1990. Currently he serves on the advisory
board of the MTA’s Educational Foundation. Bob has made presentations on his socionomic theory of
finance to the London School of Economics, Oxford University, Cambridge University, Trinity (Dublin),
MIT, Georgia Tech, SUNY and academic conferences. He graduated from Yale University in 1971 with a
degree in psychology. For more information, visit www.robertprechter.com.

Dave Allman
Dave Allman graduated from the University of Maryland at the age of 19 with a degree in mathematics,
became addicted to the markets and what makes them tick in 1978, and has worked closely with Bob
Prechter since 1983. He has lectured around the globe on the application of the Wave Principle and investor
psychology and has taught advanced classes on Elliott wave analysis to hundreds of investors. Today,
Dave is active behind the scenes on a variety of projects at Elliott Wave International and the Socionomics
Institute. Since October 1990, Dave has reviewed and edited all the commentary and charts in Global
Market Perspective.

Tony Carrion
Tony Carrion is an Elliott wave specialist, investor and trader who covers intraday analysis on eleven
major currencies for Elliott Wave International. Prior to joining EWI, in 2000 he formed an independent
online research service, Market-Harmonics.com, providing research reports and market letters covering
equities, futures and forex.

Steven Craig
Steve has been involved with the energy industry for well over a decade and joined EWI in January 2001
as senior energy analyst. His industry focus was on trading and risk management, and he is intimately
familiar with the production and consumption side of the business. Steve’s most recent positions were at
Central and South West (now American Electric Power) and with Kerr-McGee. His extensive experience
with the physical and financial aspects of crude oil, natural gas and electricity adds a valuable dimension
to his analytical approach. He is responsible for EWI’s online Pro Services energy coverage, and his crude
oil and natural gas views are featured each month in Global Market Perspective.

Mark Galasiewski
Mark Galasiewski began his analytical career in 2001, researching company fundamentals at an institutional
brokerage in Stamford, Connecticut. After joining Elliott Wave International in 2005, Mark contributed to
Robert Prechter’s Elliott Wave Theorist before joining EWI’s Global Market Perspective team covering Asian
stock indexes. For six years during the 1990s he lived in Japan, where he observed that country’s extended
bear market first-hand. Mark has traveled to many of the countries whose markets he analyzes. A graduate
of Middlebury College in East Asian Studies, he is fluent in Japanese and conversant in Mandarin Chinese.

Murray Gunn
After earning his Master of Arts Degree in economics, Murray went straight into fund management in
1991. He quickly realized that textbook descriptions don’t apply to real-world markets, which in turn led
him to technical analysis and the Elliott Wave Principle. He worked for several firms as a fund manager in
global bonds, currencies and stocks, including long posts at Standard Life Investments and the Abu Dhabi
Investment Authority. Murray then joined HSBC Bank as Head of Technical Analysis. A published author
(Trading Regime Analysis), he has served on the board of the Society of Technical Analysts (UK), and
delivered lectures on the Elliott Wave Principle to students at Queen Mary University and Kings College
London. Watch for Murray’s commentary in Global Market Perspective, Interest Rates and Currency Pro
Services, and on deflation.com.

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Global Market Perspective Bios

Steven Hochberg
Steve Hochberg began his professional career with Merrill Lynch and joined Elliott Wave International in
1994. Over the years, Steve has become a sought-after lecturer and is quoted in various media outlets, such
as USA Today, The Los Angeles Times, The Washington Post, Barron’s, Reuters and Bloomberg. He also does
interviews about the financial markets on CNBC, MSNBC and Bloomberg Television. Steve co-edits The
Elliott Wave Financial Forecast with Pete Kendall, writes the Short Term Update thrice weekly, and provides
commentary on the U.S. stock market, interest rates and precious metals for Global Market Perspective.

Robert Kelley
Robert Kelley has worn numerous hats since beginning his career in 1987 as a futures broker. He joined
EWI in 1990 and edited The Elliott Wave Short Term Update, the Currency and Commodity Hotline and
the currency section of The Elliott Wave Currency and Commodity Forecast newsletter. In 1994, he left
EWI for New York to become a Vice President of JP Morgan where he was in charge of the technical
market research department. He later served as a consultant for HSBC Securities and thereafter developed
a proprietary options trading system. In May 2000, Robert rejoined EWI where he now provides analysis
for the World Stock Index for Global Market Perspective.

Peter M. Kendall
Peter Kendall served as a financial reporter and columnist from 1983 to 1992. He wrote the “On the
Money,” a column for The Business Journal from 1991 to 1997. Pete joined Elliott Wave International as
a researcher in 1992 and has been contributing to GMP since 1995. Pete is Director of EWI’s Center for
Cultural Studies, where he focuses on popular culture and the new science of socionomics. Pete graduated
from Miami University in Oxford, Ohio with a degree in Business Administration. For Global Market
Perspective, Pete provides commentary on cultural trends, the economy and the U.S. stock market.

Michael Madden
Michael Madden, CMT, CFTe, CEWA, began his financial career in 2009 while living in the United States.
He focused on technical analysis and grew to appreciate using the Wave Principle in his own trading. After
he settled back in his home in Ireland, he earned the Certified Elliott Wave Analyst (CEWA) designation
and launched his own Elliott wave forecasting and consulting service in 2012. He joined EWI in 2014 and
now covers intraday currency cross rates for EWI’s online Pro Services currencies coverage and Global
Market Perspective.

Jim Martens
Jim Martens began using the Elliott Wave Principle in 1985 and by 1989 was making insightful market
calls for his metals trader colleagues on the Commodity Exchange Center in New York. Jim joined Elliott
Wave International in 1993 as a commodity specialist. He also oversaw EWI’s currency analysis before
joining Nexus Capital Ltd., a Soros-affiliated hedge fund in 2001. He rejoined EWI in 2005. Jim received
a degree in finance from Florida Atlantic University. He covers currency relationships for Global Market
Perspective and provides full coverage of dollar rates in EWI’s online Pro Services currencies coverage.

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Global Market Perspective Bios

Brian Whitmer
Brian Whitmer’s analytical proficiency extends to two professions: He received a degree in civil engineering
from the University of Maryland and has served as a designer, planner, and project manager for $100-million-
plus civil and residential developments. Brian also is an Elliott-savvy technical analyst who is proficient in
socionomics, the science of history and social prediction. He describes himself as self-educated in Austrian
economics and thus well-versed in the misunderstandings of mainstream economics. Joining Elliott Wave
International in 2009, Brian serves as editor of The European Financial Forecast and contributes the European
stock section of Global Market Perspective.

Ivelin “Ivo” Zhelev

Based in Bulgaria, Ivelin Zhelev, CEWA, has been involved in the financial markets since 2011. He is a
co-founder of EWM Interactive, a company that provides weekly wave outlooks for the major forex pairs
and major stock indexes and a contributor to two books published by Academic Publishing House “Tsenov”
- Svishtov, “Capital Optimization” and “Debt Management.” Ivo contributes commentary for the interest
rates section of Global Market Perspective.

Acknowledgments
Our production team is indispensible in getting out each issue of GMP. For this issue, Angela Hall, Shannon Clark, and John
Watson handled charts, fact-checking, proofreading, layout and other details.

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