10 May 2010

The business that succeeds only through failure

ElliottWave International has long been my favourite economic newsletter, producing insights, and viewpoints that are to be found no where else. They called the housing bubble years before the top. They identified the house of cards (and credit) upon which the global financial system was based.

Even more profoundly, EWI has done ground-breaking work in demonstrating that it is group psychology, and the herding instinct, that drives events (and the economy), not the other way around.

Unfortunately, as insightful and prescient as EWI has been over the years, I can't help but notice that their very own newsletter business itself will almost certainly vanish if their predictions hold water. Ironically, the only way EWI will succeed as a going concern is if their call for a deflationary depression, and the collapse of nearly every asset class, is wrong. In a world where virtually every asset has fallen by 90% or more, precious few souls will be interested in paying for investment advice.

Just look at financial news services in the 1930s (a time which EWI frequently refers to for guidance on what to expect in the years ahead). During the great depression, stocks became thinly traded and the average middle class American virtually disavowed investing altogether, focussing on bonds and simple savings for over a generation. If the Dow were to plunge below 1000 again, and remain there for years, a similar phenomena would occur.

Moreover, EWI itself proclaims that investors should be in cash, and stay there for many years. Assuming this advice is correct, there is little reason for anyone to continue paying for new reports when the advice will remain unchanged for years to come.

Here's to hoping that there will still be some new investment advice worth writing about, even if America were to experience a depression to rival the 1930s. Otherwise I will lose the precious voice of independent, and intelligent, thought I have come to look forward to every month.

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