Next Bear Market Phase Starting: Prechter

(Extracts from Reuters Report January 25 2010)

Prechter said: "We probably have begun the next phase of the bear market.”

The next leg of a bear market in stocks has probably started and gold and corporate bonds are likely to slide as the U.S. economy suffers long-term weakness.

The U.S. S&P 500 index has fallen about 5 percent since hitting a 15-month peak on January 19 as some investors started to worry about the possibility of a double-dip recession.

Although many stock analysts expect a short term pullback of about 10 or 15 percent in U.S. stocks, Prechter, known for his bearish views, expects a steeper, longer term fall.

For investors in equities, this is "the last chance to get out with the Dow in quintuple digits”, Prechter added.

Now, along with stocks, corporate bonds are set to fall to lower levels than in the market panic of 2008, he said.

NO GLITTER FOR GOLD?

If deflation -- an environment in which prices of everything from houses, to cars, to wages fall -- does set in, gold, which in some respects is a hedge against inflation, is likely to fall precipitously in value, he expects.

Gold "is over-owned and overvalued and is about to resume a bear market, if hasn't already," said Prechter." I think it could drop at least 40 percent from its peak value," he added.

DOLLAR SILVER LINING?

Prechter reiterated his longstanding advice to investors to shelter in Treasury bills until between about 2014 and 2016 when he expects the unwinding of the biggest debt bubble in history will start to abate.

"The bear market (in stocks) has a number of years left to run: four to six more years," he said. "It makes it prudent to stay in the safest cash equivalents till it's over," and perhaps keep some money under the mattress as well in case of problems in the banking system, he said.

Over about the next year, the dollar should continue gaining against the euro Prechter said. In October, Prechter said the dollar was bottoming.