Known for their bearish outlook and their forecast for deflation, co-editors Pete Kendall and Steve Hochberg in The Elliott Wave Financial Forecast suggest, "Throughout the first half of the year, we have observed the succession of credit events setting up the greatest credit crisis in history,"

The advisors notes, "A wellspring of credit drives every bubble. The beginning of the end for the credit boom occurs upon a tightening of credit. An intensifying thirst for cash will dry up the well of credit that fed the global markes over the last few years. As it dries up, the seemingly endless succession of market manias will end, also."

The expansion of credit, they contend, lifted virtually all asset prices, and, they say, its contraction will now guide them lower, much to the dismay of those seeking refuge in supposed safe havens.

Meanwhile, Hochberg and Kendall add, "The big news in the bond market is the credit spread explosion, which remains the bedrock of our bond forecast. The steep widening that occurred in July should be the beginning of a historic move. When it ends, junk bonds will have disappeared from the investment landscape."

"The big plunge is under way," says Pete Kendall, co-editor of The Elliott Wave Financial Forecast and a leading proponent of a deflationary, bear market outlook.

He suggests, "A flight from risk has been seeping into the markets for some time. And it's accelerating now." Here's his bearish outlook on stock as well as his forecast for bonds and the U.S. dollar.

Kendall notes, "How quickly investors forget! Wasn't it really just a few weeks ago that KKR's Henry Kravis told a conference of investment bankers, 'The private equity world is in its golden era right now. The stars are aligned.'"

Indeed, Kendall adds, "At the time, we agreed that stars were aligning, but in a different way. We have been forecasting a new era that would crush the over-extended hedge funds and investment banks."

The notably bearish advisor states, "It's all part of the unfolding flight from financial risk. Most people still have almost no idea just how risky these markets are. They will find out in the weeks and months ahead."

Each year Steven Halpern, editor of TheStockAdvisors.com, surveys the leading financial newsletter advisors asking for their favorite stocks for the coming year. This article is part of his 24th annual Top Picks Report.

For both of their top picks for 2007, Steve Hochberg and Pete Kendall look to ETFs -- the iShares Lehman 1-3 year Treasury Bond Fund (ASE: SHY) for conservative investors and a short position in the iShares S&P SmallCap 600 Index Fund (NYSE: IJR) as a speculation.

The co-editors of The Elliott Wave Financial Forecast explain, "Stock prices have been crashing since 1999 in terms of real money, a fact of which nine out of ten people are unaware. From 1980 to 1999, stocks rose in terms of paper dollars, gold, and commodities. Since 1999, a historic shift out of stocks and into hard cash or 'things' has been underway.

"Relative to gold, the Dow is down 56% and the NASDAQ is off 78%, with new lows made this year. Similar stock market behavior occurred from 1966 to 1980, a time period that included a decline of 50% in the S&P 500 index.

"The Dow is at a new high in nominal terms due to credit inflation, which has allowed the index to stay up because the measuring unit (the dollar) is falling. Historically, whenever a discrepancy between the performance of the Dow in real terms and the Dow in nominal terms develops, the Dow in nominal terms always plays catch up to the Dow in real terms.