gold - russell's latest.

  1. 217 Posts.
    Russell On the Dollar & Gold Stocks

    There's a silent war in progress. I call it "the war on savers." You see, one advantage of living to almost the age of 80 is that I can compare different eras first hand -- because I was there. I was around before WW II -- I was there during the Great Depression. The psychology of the nation during the Depression of the '30s was an understandable reaction to the collapse of the storied "Jazz age" economy. The '20s were characterized by fun and dancing and wild speculation and free spending. I well remember my parents giving big dinner parties every week or so. In the jazz age, at least in New York, everybody who could was "making whoopee."

    But when the stock market collapsed in 1929, the fun ended and it ended quickly. Within a few years one-third of America was unemployed. America's mood turned somber. With the Depression came the idea of saving. Those few who had saved for a "rainy day" found that it was raining. As bankruptcies littered the land, people decided that there was nothing as comforting as some money in a solvent (and I emphasize the word "solvent") bank. Within a few years, debt became a dirty word.

    Back in the '30s, unlike today, we didn't worry about the soundness of the dollar. Rather, we worried about whether we had any dollars and whether we could find a job and earn a few dollars. I got my very first job delivering telegrams for the old Postal Telegraph Company. I was making a dollar a day. During the '30s it was deflation, not inflation, that people were worried about. and believe me, the two scarcest items were a little cash and any kind of a job. In 1939 I got a job up in Harlem loading trucks five days and half-a day-Saturday (it was a union job!) for $18.75 a week. And I couldn't have been more proud. Hey, I was working.

    Then came World War II, and the long famine came to an end. Everybody either joined the armed services or signed up for a job in the defense industry. Labor was so scarce that America's women went to work by the tens of thousands. My mother worked for the Census Bureau, checking all incoming and outgoing letters.

    The greatest and cruelest War in history changed everything. Mores changed, perceptions changed, women got power, money was available, America became less "up-tight," and when the war ended the US emerged as the richest and most powerful nation on earth. Most of the rest of the world was a collection of smoldering ashes and bombed-out cities. The US was left untouched (except for our tens of thousands of dead, scarred and wounded).

    After the War America went on the path of growth. Years of pent-up desires and needs were unleashed. Houses were built by the tens of thousands. New companies came into being. The armed forces unloaded their men onto what appeared to all of us as a bright new world. Hey, we had won, we were alive, we were survivors -- and best of all, the terrible War was over.

    The years have gone by. The US has become the undisputed military leader of a skeptical world. The US has also become the spendthrift of the world. We buy our fool heads off, while the rest of the world sells us their merchandise and more recently their services.

    As for saving, there's a war on saving now in progress. The war has been declared by the Federal Reserve. With this nation now saddled with $38 trillion in total debt, there's no backing off, there's no inhaling, there's no easing up, there's no correcting. The thought of a severe recession is terrifying to the men who run the Federal Reserve. The thought of deflation sends the Fed into a panic.

    Huge and rising levels of debt can only be "handled" by perpetual inflation. Today, relative to the current mountain of debt, there are no savings. This nation couldn't take a severe recession.

    As it is, over 30,000 unemployed people are forced to declare bankruptcy every week. The Fed, in pushing short interest rates down to 1%, has forced savers into taking large risks. You want a return on your money -- then try buying stocks that yield nothing. That doesn't work? Then buy risky "junk bonds" or go out 30 years and buy Treasury bonds that give you a little better than a 5% return. But what's your bond going to be worth in 30 years? The way things are going, the answer is "Not a hell of a lot."

    Yeah, you can buy I-bonds or TIPS or you can try to beat the stock or commodity markets with some clever trading system that is advertised in Barron's or Forbes. But the odds are that you're going to lose your money on any trading system that you subscribe to. If the advertisers had a system that worked, they'd damn well keep it to themselves, instead of advertising it.

    We've got a Fed Chairman who will go down in history as the greatest inflationist of all times. Once espousing the wonders of gold and discipline, Alan Greenspan has "sold out" in favor of power and glory. He's got the power, but the glory is fast turning into rude questions and rising skepticism. Soon it will turn into dismay and anger.

    In its frenzy to offset the forces of deflation, the Fed is on the road to destroying the dollar while literally demanding that Americans spend and spend more -- while saving little or nothing. C'mon, how are you going to save when T-bills pay you less than a lousy 1%?

    As the mountain of debt continues to rise, as the ocean of liquidity is churned out by the Fed, knowledgeable investors see the writing on the wall. And their thoughts turn to financial survival. The path that the Fed and the central banks of the world has put us on, is the path to bankruptcy, and I refer specifically to bankruptcy of the currency.

    You can't run negative annual budgets of half a trillion and negative trade balances of half a trillion and still have a stable currency. It's not possible. The way we are going has put the dollar on the path to either steady attrition or outright collapse.

    Ah, the Lord above is a kindly God, which means (and I'm being deadly serious) that he doesn't mean to destroy us. You see, God always gives us an alternative, a way out, a path to survival -- if only we have the guts to take it. And the way out entails how we use our dollars.

    The secret is that the dollar can buy real money. And the dollar can buy ownership in the companies that mine real money.

    Which is why I've been advising my subscribers to accumulate gold and gold shares.

    For years I've told my subscribers that the "royal road to riches" is via compounding. You bought securities that threw off interest or dividends and you reinvested the interest and dividends and by doing so your assets compounded and grew geometrically.

    But with the Fed's attack on savings, with the dollar facing certain attrition, we have to change our tactics if we want to survive financially. Today, as I see it, the question isn't whether we move into gold and gold shares. The question is -- "What percentage of our assets should be in gold and gold shares?"

    I don't have the perfect answer to that question. I can only tell you what I've done. I've moved an increasing percentage of my own assets into gold and gold shares and I've included some silver shares. I've done this week after week.

    The opportunity cost of buying gold, which pays no interest, or gold stocks, most of which pay no dividends, is rather small today. Put the money in T-bills and you receive almost nothing. Well, then, darn it, why not buy gold or gold shares instead of T-bills? Or, on the other hand, you can always buy common stocks which sell at over 30 times earnings and pay little or nothing in the way of dividends.

    So the fact is that today the opportunity cost of buying gold or gold shares has seldom been lower. At the same time the argument for buying the precious metals has seldom been stronger.

    Of course, there's another plus in the precious metals or real money picture. The other plus is that the general public isn't aware of the gold bull market. The gold bull market is still in its early stages -- it's in the first or accumulation phase. Gold is still "cheap" and silver, if anything, is even "cheaper."

    All the gold ever produced in the history of the world has a value of about $1.4 trillion. The Fed creates that much liquidity in a matter of 18 months -- or less if it wants. The value of all the gold mines in the world is around $150 billion. That's less than the market capitalization of most of the individual stocks in the Dow.

    Bull markets end in high speculation and public frenzy. We saw that most recently during the year 2000 on the NYSE. I want to remind subscribers of the phrase that was prevalent during the late 1970's right into 1980. It runs, "There's no fever like gold fever."

    Remember that phrase. You'll be hearing it again before this gold bull market is over. And by the way, I foresee this gold bull market ultimately dwarfing the gold bull market of the '70s.

    Next I'm going to show a few P&F charts to illustrate a point. These charts were picked at random. The first chart short Kinross trading today at around 8.02. The chart shows massive accumulation, but KGC hasn't even broken out yet. The breakout will come if KGC can hit the 9.00 box. Too expensive, KGC hasn't even broken out yet.

    Richard Russell
    Editor-in-chief - DOW THEORY LETTERS

    September 23, 2003

    The inimitable and venerable Mr. Russell gained wide recognition via a series of over 30 Dow Theory and technical articles that he wrote for Barron's during the late-'50s through the '90s. Through Barron's and via word of mouth, he gained a wide following. Russell was the first (in 1960) to recommend gold stocks. He called the top of the 1949-'66 bull market. And almost to the day he called the bottom of the great 1972-'74 bear market, and the beginning of the great bull market which started in December 1974.

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