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Therefore, while the Dow pressed limits in 2009, it seems valid to say that it did not ruin the case that
wave (V) continued after 2000. This perspective matters, because the Fibonacci analysis offered below is
cleaner when applied to wave (V) ending now rather than to a completed wave (V) in 2000 plus part of a
correction since then.
The Dows pattern from 2009 still fits a corrective wave better than an impulse wave, so bremains
the preferred label. But that could change by year-end (see Uncertainties on p.22). The time and price
observations presented in this issue hold either way.
With that background, we can proceed to our Fibonacci analysis. We will start with time and then move
to price.
Time Target: Fibonacci Multiples Project a High for Wave V in 2014
Fibonacci Relationships among Waves II & IV, and III & V
Presently there is a striking affinity between the durations of corrective waves II and IV, and between
impulse waves III and V. The two waves in each set are related by the Fibonacci ratio, denoted as . (This
symbol indicates the ratio or its inverse.)
We have long noted that the two corrective waves within wave (V)waves II and IVlasted 5and 8
years, respectively, and 5/8=. The Dow has finally risen long enough to place the two subsequent impulse
waveswaves III and Vinto the same time relationship. Wave III ran from 1942 to 1966, lasting 24 years.
Using the 1974 low as the end of wave IV, wave V has so far lasted 40 years. This is a Fibonacci ratio, as
24/40 = 3/5= . The ratios 3/5and 5/8are built from the adjacent Fibonacci numbers 3, 5and 8.
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Figure 1
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Identical Fibonacci Relationships among Waves1,3and5Using the 1982 low as the end of wave IV, the durations of the impulse waves withinwaves III and V
are simultaneously related by 2. Within wave III, wave1ran from 1942 to 1946, wave3from 1949 to1959, and wave5from 1962 to 1966. Wave3lasted 10 years, while waves1and5each lasted 4 years.These durations are in Fibonacci proportion, as the ratio 4/10 = 2/5(.40), which is 2.
Within wave V, wave1ran from 1982 to 1987, wave3from 1987 to 2000, and wave5from 2009to 2014 (so far). Wave3lasted 13years, while waves 1and 5to date have each lasted 5years. Thesedurations are in Fibonacci proportion, as the numbers 5and 13are Fibonacci numbers, and the ratio 5/13
(.385) is 2, the same Fibonacci multiple found for the same subwaves within wave III.
The ratios 2/5and 5/13use 5and the second Fibonacci number in each direction of the sequence. In
terms of whole numbers, 2is to 5as 5is to 13.Wave I is different. Within it, wave5, not wave3, is the extended wave. Its impulse waves do nothave the same type of time relationships as those within waves III and V. Wave I lasted 5years, the same
duration as waves1and5of V, if V ends this year.
So, per Figures 1 and 2, we have two sets of time ratios relating wave V to wave III by Fibonacci, ifwave
V ends in 2014. Moreover, a top in 2014 will fulfill the guideline of equality within wave V, where waves
1and5are of equal duration (see text, p.69). No alternative setups relate both degrees of trend (Primaryand Cycle) so neatly. This year is it.
Additional Time Observations
Within wave4 of III, the Dow made a slightly higher high in January 1960, barely stretchingthe price high into the next year. Compromising between 10 and 11 years duration for wave 3
gives 4/10.5 = .381, which is closer to the 2limit ratio of .382. Using Fibonacci numbers, 8/21yields the same ratio. Carrying wave 3into January 1960 makes it 127 months long, in whichcase the duration of wave 1is .386 (2, or approximately 5/13) times that of wave 3.
This duration also puts waves 1and 3within waves III and V in the same proportion. Inwave III, wave 1took 1492 days, and wave 3took 3858 days; in wave V, wave 1took 1839days, and wave3took 4706 days. The ratio 1492/3858 = .39, and 1839/4706 = .39.
The double top of 1959 and 1960, then, serves to accommodate all these relationships and
those in Figure 2.
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Rarity of the Confluence
A set of time relationships such as this is rare. With Figure 1 in mind, we will begin by observing thatthere have been seven years since 1974 that made wave V relate to wave IIIs 24 years by a Fibonacci ratio.
They are 1982, 1983, 1989, 1990, 2010, 2013 and 2014, at which time the years in waves III and V would
have produced ratios of 3/1, 8/3, 8/5, 3/2, 2/3, 8/13and 3/5, respectively. In the first two instances, the market
hadnt moved far enough to be at a top, and in 2010 the market was not at a new high. So, only 4 years out
of 40, or 1 out of 10, have qualified as terminal setups.
This calculation overstates the frequency, because the next Fibonacci relationship wont show up until
the ratio reaches 60/24 years, or 5/2, in 2034! So, only 4 years out of 60 can possibly qualify, averaging just
1 year out of 15.
Notice that the four cited years cluster, in two periods: 1989/1990 and 2013/2014. This effectively
narrows the time windows to two.
In 1989, I issued a long report calling for a major top. The Dow Jones Transports fell 50% from there,
and the Value Line Composite index repeated its collapse of 1987. But the Dow and S&P mostly held up.
The averages then bottomedat the next Fibonacci ratio of years, in 1990. In retrospect, those two years were
important but not terminal. Here we are 25 years later, and the second cluster has arrived.
Last year we had two nearby options: 2013 and 2014. I thought 2013 would be it, too. Now, with 2013
behind us, there is only one nearby year left: 2014.
Now consider that Figure 2 adds asecondset of Fibonacci time relationships, which also ends in 2014.
The only years besides 2014 that were able to create a similar picture were 1989 and 2007. In the first case,
the subwaves of wave V could be labeled as taking 2years, 5years and 2years (covering 1974-1976, 1982-
1987 and 1987 to 1989). The waves in this case are not very compatible, because it is a stretch to label wave
2as encompassing 1976 to 1982. In the second case, the subwaves could be labeled as taking 5years, 13years and 5years (covering 1982-1987, 1987-2000 and 2002-2007). But in 2007 there was no Fibonacci
time relationship between waves III and V. The nextyear that can provide a Fibonacci ratio among wave Vssubwaves is 2017, when wave5will be 8years long. But then there will be no corresponding relationshipto wave IIIs subwaves orbetween waves III and V overall.
The Next Confluence is 8 Years Away
This leaves only 2022, when wave5will be 13years long. This is a qualified year, because when werepeat the exercise illustrated in Figure 1 using the 1982low as the start of wave V, the only remaining years
that project Fibonacci relationships between waves III and V are 2018, 2021 and 2022, which would make
the duration of wave V equal to 36/24, 39/24 and 40/24 of the duration of wave III, producing the Fibonacci
ratios 3/2, 13/8and 5/3. The only one of thoseyears in which wave Vs subwaves would also be in Fibonacci
proportion is 2022, at which time wave Vs subwaves would be 5, 13and 13years long. This combination,
shown in Figure 3, is not as satisfying as the one projecting 2014, because the relationship among wave Vs
subwaves differs from that among wave IIIs subwaves. Nevertheless, it is the closest cousin to 2014 in termsof providing coincident external and internal Fibonacci relationships. It also has the advantage that the Dow
would produce them from the same starting year, 1982.
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Figure 3
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Figure 4
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Figure 5 updates this idea. It shows that when labeling the start of wave V in 1974, wave V will equal
the percentage gain of wave I times the next multiple of (where is again 5/3, or 1.6667), namely 4.
Here, (1.6666)4= 7.71605, and that number times 371.62% = 2867.44%. This gain from 577.60 projects
17,139.89, which rounds to 17,140.
As noted on the chart, if wave5from 2009 carries to a Fibonacci 2.618multiple of its starting pointof 6547.05, it will peak at 17,140.18, which rounds to 17,140, the same number.
The actual peak of wave III is shy of its ideal target by only 0.18%. At the projected end of wave V, this
amount is equal to 31 Dow points.
If the Dow turns near the projected level, then both the 2007 and 2014 highs will have achieved multiples
of the percentage gain of wave I to successive powers of from each of the valid starting levels for wave V.
Figure 5 is the only projection offered here that is based on a percentage gain. The remaining projections
are based on multiples, per the approach inBeautiful Pictures.
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Figure 5
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Projection from 1974 Based on a Fibonacci Multiple of Wave III
In addition to using wave I as a basis for targeting, we can use wave III. Wave III rose in a multiple of
10.70975. Wave I rose2times that multiple, where = 2/3. Wave V may also rise 2times that multiple.
The Dow has already passed all possible targets based on squared Fibonacci ratios except one: 5/3. The two
ratios are different by exactly 1, since 2/3is 0.6667, and 5/3is 1.6667. Our projection for wave V is: (5/3)2
= (1.6667)2, times 10.70975 = 29.7493, times 577.60 projects 17,183. (See Figure 6.)
The actual peak for wave I fell short of its target by 0.9275%. At the projected end of wave V, this
amount is equivalent to 160 Dow points.
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Figure 6
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A Nearby Projection Based on a Multiple of Wave I
There is no perfect counterpart based on wave Is multiple, but we can come close. Figure 7 shows the
same 2relationship between waves III and I shown in Figure 6, where = 3/2. Here, the multiple for wave
V will be related to that of wave I by4, where = 19/12, or 1.5833, if the Dow peaks at 17,119. This ratio is
not derived from Fibonacci numbers but is the closest to when creating a ratio using the numeral 12 or 19.
Other Fibonacci ratios to the fourth power times the multiple of wave I project prices further from the
target area already established. It seems unlikely that one of them would succeed while the four projections
offered above would fail.
This price relationship is not as seminal as the preceding ones, so the upcoming summary omits it.
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Projection from 1982 Based on the Multiple of Wave I Squared
R.N. Elliotts guideline of equality (see text, p.69) is that a fifth wave is often about equal to the first
wave when the third wave is extended. In 1978, Charles Collins used this guideline to predict that wave V
in the Dow from the 1974 low would achieve the same multiple as wave I from 1932 to 1937. Using daily
closing prices, wave I carried from 41.22 to 194.40, a multiple of 4.71616. From the 1974 low of 577.60, the
same multiple projected a top for wave V at 2724.05. When the Dow registered a high in 1987 of 2722.42
and then crashed, it seemed that Collins prediction had come to pass.
In September 1982, The Elliott Wave Theoristconcluded that the orthodox end of wave IV had just
occurred in August. EWT used the same multiple of wave I from the 1982 low to project a peak at Dow
3664.08(3686 using the intraday extremes). When the market exceeded this level, I thought the idea that
the multiple of wave V would be related to the multiple of wave I had failed. But that conclusion may havebeen premature.
Lets revisit the math. The 1932 low was 41.22. The peak of wave I occurred at 41.22m, where m=
4.71616. Nearly the same multiple4.71333applied to the 1974 low of 577.60 marked the 1987 high.
What if the Dow is heading to a level that expresses the importance of the 1982 low andmby traveling
m2? When once again marking 1982 as the orthodox beginning of wave V, at 776.92, we get a nearby target
for the end of wave V with this formula: 776.92m2, where m= 4.71616. So, (4.71616)2= 22.242165, and
that number times 776.92 gives a target of 17,280.38. Figure 8 shows this relationship.
(Using the 4.71333 multiple for m(from 1974-1987) gives a target of 17,259.65. The two projected
numbers are a Fibonacci 21points apart and equidistant from 17,270.)
The Dow already tipped its hat to the 1974low via min 1987 and to the 1982low via 3in 2007 (per
Figure 4). It cansimultaneouslyraise both multiples by a single power to honor the 1974low via 4in 2014
(per Figure 5) and the 1982low via m2
(per Figure 8).
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Figure 8
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Projection from 1974 Based on a Progression of Multiples of Fibonacci Fractions
Figure 9 shows that the price multiples of waves I and III are powers of adjacent Fibonacci fractions.
Wave I achieved a multiple of 4.71616, which is close to 5/3to the power of 3, and wave III achieved a
multiple of 10.70975, which is close to 8/5to the power of 5. The second number uses the next-highest pair
of Fibonacci numbers, two powers higher. It would be most fitting for wave V to achieve a multiple using
the next-highest pair of Fibonacci numbers two powers higher, or 13/8to the power of 7. Then the Dow will
have progressed in three impulse waves at multiples of (5/3)3, (8/5)5and (13/8)7.
The target for wave V on this basis is (13/8)7= (1.625)7= 29.9208, times 577.60 = 17,282. The actual
peaks in 1937 and 1966 were beyond their ideal targets by 1.8% and 2.1%, respectively. At the projected
level for wave V, 2% is 346 Dow points.
This projection is nearly identical to that given in Figure 8. So, we have two projections at the same
levelusing differentapproaches and two differentstarting points for wave V, the very starting points we have
recognized since September 1982 as being equally valid.
As alternatives, if the final multiple were to reach (13/8)8, the Dow would peak at 28,084. I dont think
theres any way it can get that high. If the fraction to be employed is to be 5/3, matching that of wave I, the
target at the 7th power would be 20,633. I doubt well see that number, either.
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Figure 9
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Combining the Time and Price Projections
In terms of time, in the year 2014, the durations of waves III and V are in proportion when using the
1974low, andthe durations of all their impulsive sub-waves are in matching 2proportion when using the
1982low. In terms ofprice from 1974, the percentage gain of wave V is approaching 4, or (5/3)4, times the
percentage gain of wave I, which projects the same level as 2(1.6182) times the low of wave4. Also, themultiple of wave V is approaching2, or (5/3)2, times the multiple of wave III anda7, or (13/8)7, multiple.
Finally, the multiple of wave V from 1982is approaching the squaredmultiple of wave I.From this analysis, an ideal price-and-time target zone for the peak of wave V in the Dow is 17,139.89-
17,282.25in 2014. This span is 142.36 points, quite close to a Fibonacci 144points. The highest and lowest
price projections among all these calculations are less than 1% from each other. Thats a good cluster.
Price leeway for the range is 100 Dow points on either side, which is 1% from the center of the range
at 17,211, giving an expanded range of 17,040-17,382. If our calculations matter, wave V, and therefore
wave (V), should end in that area. There is no time leeway. A turn this year in this price areawould produce
mathematical poetry within Cycle wave (V).
Upon Reection
Looking back, should an Elliott wave analyst (or anyone else) have anticipated the market rising so
high and for such a long time? Objectively, the answer is a firm no. When a third wave is extended, the fifth
wave is typically shorter and about the size of wave one. I was able to recognize the lows of 1974 and 1982
within weeks in real time, so I knew a great bull market lay ahead. But there was no known basis to project
that wave V would be extended, that wave V would be much biggerand last much longerthan wave III, and
that one of its corrections would be biggerthan wave IV. After all, wave V of the Roaring Twenties lasted
only eight years, far less time than the six decadesof the preceding wave III. In the present case, wave III
from 1942 to 1966 was already substantial at 24 years duration and a 10.7 price multiple. No one would be
looking for wave V to last 40 yearsand cover a 30x multiple.But here it is.
I started working on Wall Street in 1975. There were five significant lows between 1974 and 1982 (4Q
1974, 1Q 1978, 4Q 1978, 4Q 1979 and 3Q 1982). As of 1982, the Dow had made at least fourteen major
lows since 1842, averaging one per decade. I figured that I would be in business long enough to analyze
the ups and down of at least four major cycles. Yet here we are in 2014, and I havent even lived through
one cycle! Incredibly, the market has been on the left side of a cycle the whole time, since 1974. The dropin 2007-2009 was a striking event, but it turned out to be just an interruption of the rising trend in nominal
stock prices. I expect to publish long enough to cover a full cycle. One cycle over an entire career? Thats
nuts. But what a cycle it is. Thats the consolation: Its one everyone will remember.
Poised at the Peak of 1929 Squared
Figure 10 is an impressive display. Every major market sectorreal estate, commodities, bonds and
stocksis set up almost exactly as it was in 1929. Everything is bigger and has lasted longer this time around,
but the progression of events is nearly the same.
Real estate prices in the 1920s, highlighted by a Florida land boom, peaked in 1925 and then crashed,
well ahead of the top in stocks of 1929. In the current setup, real estate prices in the 2000s, highlighted
by booms in Florida and Nevada, peaked in 2006 and then crashed. There was a weak, partial recovery in
property prices into 1929, just as there is a weak, partial recovery in progress today.In the earlier time, commodities peaked in 1920, fell hard and then went sideways/up into 1929. This
time, commodities peaked in 2008, fell hard and since have been going sideways/up into 2014.
Back then, bond prices peaked in 1928, a year ahead of stocks. This time, bond prices peaked in 2012,
which should prove to be two years ahead of stocks.
In 1929, the Dow was at an all-time high at the end of the greatest stock boom in U.S. history. In 2014,
the Dow is at an all-time high at the end of the greatest stock boom in U.S. history.
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In the 1920s, real estate peaked 4 years ahead of stocks, and now it is 8 years since property prices
peaked. Then, bonds peaked 1 year ahead of stocks, and now it is 2 years since bonds peaked. In each case,todays duration is double that of the previous one. This doubling of time speaks to the larger degree of the
topGrand Supercycle instead of Cyclethis time around. The Wave Principle is not about time periodicities
or quantitatively matching price movements; it is about self-similarshapes. Look at the graphs in Figure 10.
The sizes differ, but the shapes are strikingly similar.
What about the economy? In 1929, the economy began contracting the very month the stock market
turned down. This time, it should be either coincident with or ahead of the stock market. How can that
be? Historically elevated optimism is failing to generate positive GDP. Thats how much rot thirty to forty
years of increasing financial optimism has built into the system in the form of the record debt burden and a
historically extreme desire among people to invest rather than to produce.
Man, oh man, what a change is nigh. Almost no one has a clue about whats about to transpire. When
the tide turns, the burdens that optimistic, careless people have placed on the economy will finally crush it.
The downturn will seem to come out of the blue, but it has been germinating for a long, long time.
How People Are Feeling as Markets Approach the Point of Transition
In 1999, an academic economist published an editorial in The Wall Street Journal predicting that there
would never againbe another recession. That was right around the time when the Dow/gold ratio, which is
the Dow in terms of real money, made its all-time high. Last week we read an editorial on line proclaiming
that the S&P will never againexperience another 10% correction. The same extremity of social mood is
manifesting in a similar way.
Figure 10
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The ebullience of 2000 was amazing, and the indulgence of 2006-8 was flabbergasting. Now words
are insufficient to convey the breadth and depth of the financial insanity that exists. The stock market is
overvalued, but no one thinks it matters. The economy is dying, yet economists think its fine. Real estate
is weighed down by debt, yet institutional investors are buying tens of thousands of homes, to flip. The
amount of risky debt is so huge that it can never be repaid, but the public is gorging on it at a record pace.
Corporations cant find any traditional areas worth investing in, yet they are buying their own stock. Most
people and institutions, including governments, are broke, but they dont know it.Positive social mood has reached a stateespecially relative to fundamentalsthat will not recur
for generations. It is so broad that expectations are elevated around the globe and across all markets. It is
so powerful that novices have reached a level of arrogance that prompts them to lecture veterans on what
the market wont ever do. It is so entrenched that, year after year, 100% of economists polled are optimistic
about the economic future, and recently they have been predicting GDP to enjoy a 4% growth rate, which
is something achieved only rarely.
Who would buy baskets of stocks without checking the companies relative fundamentals? The
answer is: lots of people. Who would, in the midst of the third greatest U.S. stock overvaluation in recorded
history, call for a melt-up and another 10-20 years of rise? The answer is: lots of people. Who on earth
would buy junk bonds from companies whose prospects are so precarious that they cannot afford to pay a
penny of interest but will instead pay by puffing up the size of their debt? The answer is: lots of people.Who would pay $90 million for an apartment and not live in it? The answer is: enough people to sell out
a 1000-foot New York skyscraper (http://www.elliottwave.com/wave/1407NYRE ). Who would buy shares
of a company that has one employee, no assets, no earningsand no revenue, runs a social network with no
members, is racking up lossesat the rate of $2 million per year, sits on $1.6m. in debt, promotes its stock
throughspamming, is reported to have insiders linked tofraud, registered its website byproxyto keep owners
identities secret and listed in a filing non-existent headquarters? Well, its stock just ran up 36,000% to reach
a market cap of $6 billion, so the self-evident answer is: lots of people. (Full story: http://www.elliottwave.
com/wave/1407CYNK. Late note: The SEC just halted trading in the stock, so the buyers are trapped.) A
securities lawyer calls the buyers extraordinarily unsophisticated investors. Ask yourself: Does a bottom
or a topin the market attract such people?
The reason people cant see disaster coming is that their behavior is the norm around the world. The
illusion of financial safety is systemic, and the financial excesses are systemic. When people look around,nothing looks out of place. Only history can put todays lunacy into perspective.
You cant blame such optimism on clinical insanity. These are everyday people. They are not so much
out of their minds as living entirely inside the public mind, where mood holds sway. They are sharing a
global dream state.
The charts posted here have the power to place us outside the dream. And we can see that an alarm
clock is about to jar the world awake.
Uncertainties
Even if our analysis proves to anticipate the area of the final high, we cant be sure exactlyhow the
top will play out. Has it already occurred, or is it in the future? Will the Dow hit the ideal target exactly or
miss it by 200 points? Will it hit the lower end of the range now, drop sharply, and reach the upper end in
the fall, following the pattern of July-October 2007? We cant say, but if a perfect juncture appears, youll
be the first to know.
Late Note for July 17, 2014
Yesterday, the Dow Jones Industrial Average closed at an all-time high of 17,138.20, less than two points
from our first ideal price target, given in Figure 5. This mornings intraday high is 17,151.56.
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New Investment Recommendation
The government is offering a new investment this year: 2-year U.S. Floating Rate Notes (FRNs). The
interest rate paid on FRNs is pegged to the 13-week T-bill and adjusts quarterly to the auction rate. You can
learn more about FRNs here: http://www.elliottwave.com/wave/1407FRN .
Naturally, anything pegged to T-bills is the last item on investors buy list. In 1980-1982, T-bills were
#1 on their buy list, and thats just when they should have held zero T-bills, because in fact it was time to
own stocks and bonds. Now stocks and bonds are tops on investors buy list, but they should be holding zerostocks and bonds, because its time to own the safest investments available.
The main reason to hold short term bills now instead of standard notes and bonds is to escape the risk
of losing principal and to increase the probability of a big gain. If interest rates soar, bond investors will
lose a lot of money. With long rates two years ago at their lowest levels in the history of the republic, and
given the risk suggested in Figure 10, the risk of getting killed in bonds is inordinately high. In contrast, if
rates rise, yields on rolled-over short-term bills will follow rates upward, paying out more and more interest.
Rates on most corporate and municipal bonds will almost certainly rise in coming years due to fears
of default. T-bills and FRNs, on the other hand, may be perceived as a last refuge for safety, so their rates
may or may not rise. With short rates essentially at zero, their lowest level ever, there seems little chance of
losing principal in an FRN. Rates have never fallen below zero (although that could change), and if inflation
ragescontrary to my expectationsrates should rise to compensate. Thats a lot to like.With FRNs, we avoid the hassle of rolling over T-bills. More important, there will probably be a shortage
of T-bills when the panic hits, just as there was a shortage of Swiss Money Market Claims in 2008. Investors
were turned away, and their nearest option was Eurodollar debts, which are not nearly as safe. Owners of
FRNs cannot be turned away during the two-year duration of the notes.
Like any other Treasury security, you can buy or sell these notes in the open market, so you dont have
to wait until the next auction to buy or until they mature to cash out. Also, interest earned is untaxable at
the state and local level.
Your bank or broker can buy FRNs, or you can buy them through Treasury Direct. But I withdrew my
earlier suggestion to use Treasury Direct due to complaints from users, so the best course of action is to have
your safe bank buy them for you.
With a financial bust looming, its a good time to make sure you do your banking at the safest institution
you can find, which is more likely to be outside than inside the U.S. We have reiterated our views on thissubject and others, and updated Veribancs list for the safest U.S. banks per state in our brand-new edition
of Conquer the Crash, described here: http://www.elliottwave.com/wave/1407CTC3 .
The Elliott Wave Theoristis published by Elliott Wave International, Inc. Mail: P.O. Box 1618, Gainesville,
Georgia, 30503, U.S.A. Phone: 770-536-0309. All contents copyright 2014 Elliott Wave International,
Inc. Reproduction, retransmission or redistribution in any form is illegal and strictly forbidden, as is
continuous and regular dissemination of specific forecasts or strategies. Otherwise, feel free to quote, cite
or review if full credit is given. Typos and minor errors are corrected in the online version, which is the
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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
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