14/10/09 – How to Prepare for the Coming Crash and Preserve Your Wealth

As was widely reported in the dark days of late February and early March 2009, Prechter called for the start of the biggest
stock market rally since the 2007 high. Since then, the S&P has soared more than 60 percent in just six months to reach
his target zone of 1000-1100. This is one reason why he decided to release his second edition now.
The first edition, which was published in early 2002, was “on the mark” with regard to our current economic
environment — so much so that it’s uncanny. Prechter’s message has been good for investors who kept their money
safe and for speculators who profited from declines. And he still expects a great buying opportunity ahead for those who
can keep their money safe until it arrives. Here is a short list of some of the accurate predictions he made in 2002 that
have come to fruition:

Credit Deflation

“Usually the culprit behind [simultaneous stock and real estate] declines is a credit deflation. If there were ever
a time we were poised for such a decline, it is now.” Chapter 16

Bailout Schemes

“If [governments] leap unwisely into bailout schemes, they will risk damaging the integrity of their own debt, triggering
a fall in its price. Either way … deflation will put the brakes on their actions.” Chapter 32

Banking and Insurance Stocks

“We will see stocks going down 90 percent and more … [and] bank and insurance company failures….” Chapter
14

Collateralized Securities

“Banks and mortgage companies … have issued $6 trillion worth of [securitized loans]….  In a major
economic downturn, this credit structure will implode.” Chapter 19

Derivatives

“Leveraged derivatives pose one of the greatest risks to banks….” Chapter 19

Mortgage-Backed Securities

“Major financial institutions actually invest in huge packages of … mortgages, an investment that they and
their clients (which may include you) will surely regret…. Chapter 16

Fannie Mae and Freddie Mac

“Investors in these companies’ stocks and bonds will be just as surprised when [Fannie and Freddie’s] stock
prices and bond ratings collapse.” Chapter 25

Banks

“Banks are not just lent to the hilt, they’re past it. In a fearful market, liquidity even on these so called ‘securities’ [corporate,
municipal, and mortgage-backed bonds] will dry up.”… One expert advises, ‘The larger, more diversified
banks at this point are the safer place to be.’ That assertion will surely be severely tested….” Chapter 19

Insurance Companies
“The values of insurance company holdings, from stocks to bonds to real estate (and probably including junk bonds as well),
will be falling precipitously…. As the values of most investments fall, the value of insurance companies’ portfolios
will fall…. When insurance companies implode, they file for bankruptcy….” Chapters 15, 24

Real Estate

“What screams ‘bubble’ – giant, historic bubble – in real estate today is the system-wide extension of
massive amounts of credit to finance property purchases…. [People] have been taking out home equity loans so they
can buy stocks and TVs and cars…. This widespread practice is brewing a terrible disaster.” Chapter 16

Rating Services

“Most rating services will not see it coming.” Chapter 25

Political Leaders
“A leader does not control his country’s economy, but the economy mightily controls his image.” Chapter 27

Short-Selling Ban

“In a bear market, bullish investors always come to believe that short sellers are ‘driving the market down’….
Sometimes authorities outlaw short selling. In doing so, they remove the one class of investors that must buy.” Chapter
20

Psychological Change
“When the social mood trend changes from optimism to pessimism, creditors, debtors, producers
and consumers change their primary orientation from expansion to conservation….” Chapter 9

Confidence

“Confidence has probably reached its limit. A multi-decade deceleration in the U.S. economy … will soon
stress debtors’ ability to pay…. Total credit will contract, so bank deposits will contract, so the supply
of money will contract….” Chapter 11

Falling Tax Receipts
“Governments … spend and borrow throughout the good times and find themselves strapped in bad times, when tax receipts
fall.” Chapter 32

“Retirement programs such as Social Security in the U.S. are wealth-transfer schemes, not funded insurance, so they
rely upon the government’s tax receipts. Likewise, Medicaid is a federally subsidized state-funded health insurance
program, and as such, it relies upon transfers of states’ tax receipts. When people’s earnings collapse in
a depression, so does the amount of taxes paid, which forces the value of wealth transfers downward.” Chapter 32

“The tax receipts that pay for roads, police and jails, fire departments, trash pickup, emergency (911) monitoring,
water systems and so on will fall to such low levels that services will be restricted.” Chapter 32

For more information on the new second edition of Conquer the Crash, visit Elliott
Wave International. Bob Prechter has added 188 new pages of critical information to his New York Times bestseller.