Bond Market Bubble? Put Your Money in 'Cash,' Says Analyst

Update: For an opposing view, see also Tech Ticker which is running several looks at this issue.

From Tech Ticker, a financial site with a short video and analysis that you should watch and read each morning, top-rate analyses that the Internet brings us commoners.

Robert Prechter of Elliott Wave International says that the huge and inflated bond market is a dangerous bubble. "The individual investor has been more or less abandoning stocks" and buying bond funds, Prechter (says). "I think that is going from the frying pan into the fire. The bond market is the biggest bubble in the history of the world. "

Do you have your money in "dangerous" stock mutual funds and the bond market. Likely. Put a lot of your money in actual cash, cash equivalents and Treasury Bills. "Cash is King," says Prechter. Watch the video about five times at Tech Ticker. Check out his book.

Bullish a Year Ago, Robert Prechter Now Sees "the Biggest Bubble in History"

In February 2009, Robert Prechter of Elliott Wave International predicted a market rallythat would be "sharp and scary for anyone who is short."In recent months, Prechter returned to more familiar territory, declaring here in November the market was in a "topping area."

A few weeks ago, the veteran market watcher told the Society of Technical Analysts in London that a "grand, super-cycle top" is at hand, The WSJ reported.

"What has happened is a complete change in psychology from extreme negativity [a year ago] to extreme optimism" heading into the market's recent top in January, Prechter says.

Among the many sentiment indicators he watched, Prechter cited the very low levels of cash at mutual funds, which is approaching levels seen near major tops in 1973, 2000 and 2007.

"Nobody should be taking risk right now. This is a time to be safe," he says.

But considering U.S. equity funds suffered about $46 billion of outflows from August to December 2009 while bond funds took in about $198 billion, according to ICI, aren't investors already playing it safe -- a bullish contrarian signal?

"The individual investor has been more or less abandoning stocks" and buying bond funds, Prechter concedes. "I think that is going from the frying pan into the fire. The bond market is the biggest bubble in the history of the world. "

Corporate debt, municipal debt, mortgages and consumer loans will all suffer in the great deflation Prechter believes is already underway, as detailed in his book Conquer the Crash.

So is there any way for investors to protect themselves from the carnage? Check the accompanying video for Prechter's recommendations [at Tech Ticker].