When will the wake up call happen? My model predicts very soon...

I'll start off by saying that this is only a model, not all of my models have played out as expected, and the usual disclaimers about odds versus certainties, etc.  I'm being asked by several sources when I think Prechter's moment of recognition will occur.  Of course, if you read this or other EW blogs at all, you will know that it happens only during 3rd waves and the cause of the recognition is sudden massive, scary moves which cause the herd to lose confidence.  In charting we call those "gaps".

Well, I expect to see some gaps coming in the next 2-3 weeks.  If Wal-mart cannot do well then earnings are going to suck across the board.  I suspect that we will see my long predicted one day 500 point drop in the Dow somewhere within the blue rectangle below.  It will most likely lead to a 3rd wave that takes us to a lower low than the Feb 2014 low.  That's when people are going to start getting afraid.  We've heard this tune before back in 2007-early 2009 and we all know what happened that time: a 50% hair cut.  But we recovered from that and then some using every ounce of stimulus that the federal reserve could muster.  This was not a US event, it was  global event.  So here we are with all the central banks of the world having balance sheets that are chock full of worthless debt based assets that will certainly be defaulted upon as the world caves into the crushing force of credit deflation.

The result will be a lower low than the last low.  This post contains charts that show the very high level model that I expect to play out (scroll down to see the charts of expanding triangle).  That means it will be at least 60-80% loss (perhaps 90%+) and it will not recover quickly the next time because the fed will be holding a bloated, defaulting balance sheet.  The fed has shot its wad.  It cannot bail the financial system out again.  They need time to recover and time is what they do not have.  This is how Japan's stock market tanked 86% from its peak (so far - it will go down much lower before the collapse is over).  It's also how the Icelandic stock chart collapse from 9000 down to 250.  Chinese stock market was down 60+% already and will crater even more from here before the collapse is over.   

The US is no different, just a bigger flywheel, that's all. 

Everything else is structurally the same and so the result will be similar.  Math is math.  It will not be denied.  All of the "market cap" valuation that we have been sold is vaporware which will evaporate into mist as soon as the massive defaults begin.


Those who think the fed can just print money to avoid asset price deflation don't understand 2 basic points.

1. The money supply is made up of 2 components: the monetary based which is federal reserve notes authorized by the federal reserve, and the fractionally reserved credit.  While they spend the same in the economy, they are actually different kinds of money. One of them is used to buy bread, milk, gasoline and clothing.  The other is used to buy long term assets like cars, houses and yes, financial assets like stocks.
2. The credit portion of the money supply is at the very least 10x the monetary based.  Some data suggests that the leverage is even higher, especially when you factor in the value of all future government promises for social security, health care, etc.  For example's sake, let's say the monetary base is 4 trillion (which it is) and the credit is 40 trillion (we know it is more than that but 10:1 makes easy numbers).  Let's say the credit supply contracts by 10% because there are no more willing lenders or borrowers.  That is 4 trillion gone from the money supply.  If the fed tries to make up for it with the monetary base then they have to double the monetary base.  So in other words, in order to prop up the market value of real estate and stocks by 10% they will have to double the price of things not bought on credit like bologna sandwiches, milk, fruit, heating oil, gasoline.  Even electronics, which we are all used to see going down in price each year, could see rapidly rising prices.

If #2 happens then people go hungry.  Their children go hungry.  They want for the basics.  Welfare and other optional "safety net" programs like food stamps are cut off.  Store shelves begin to go empty.  People become angry and, thinking they have nothing left to lose, they "lose it" (one of my fav Gerald Celente quotes).  That's the basis of real food lines (not the electronic ones we have today) and armed revolt by the people.  That's how states finally secede from the union.  That's how martial law and military coups and civil war begin.  When people see their kids go hungry and they see government unwilling or unable to do anything about it, they stop being nice little citizens and they turn into snarling beasts. 

This is not going to end well and there is nothing anyone can do to stop it.  Any attempts to do so only kick the can down the road.  While that might sound like a good thing it is not a good thing because it comes with a price: letting a problem fester only makes it worse to deal with when the day of reckoning finally comes.  So anyone in government who enabled the can kicking simply doomed more citizens to bad consequences, including the violent deaths that always accompany civilian fighting.  This is why I think most of congress and the entire executive staff is guilty of high treason against the people of the United States.  I predict that within a few short years this extreme sounding position becomes common thought as everyone will by then learn what I already know: they are con men running a debt Ponzi using the tools of fiat currency and fractional reserve banking.  All Ponzis always collapse, no exceptions.  Those running the con knew it from day 1 and they didn't care.  In fact they laugh about it all the time and refer to those who will be culled from the herd as a result as "useless eaters".