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Richard Russell comments

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    For all you dreamers in La La Land who think it's going to get better any time soon...


    July 12, 2002 -- The Shame, the shame -- From USA Today today -- Washington -- Under a withering lobbying campaign that included calls from some of their biggest donors, Senate Democrats on Thursday shelved an attempt to tighten rules on the accounting treatment of stock options." Bad karma, Senators, bad, bad karma.

    So the corruption goes on. Thanks Senators, that should really encourage investors. Russell question -- where in hell is President Bush?

    The Market -- On the basis of many "normal" studies, the stock market is now oversold. Just using the McClellan Oscillator (figure are posted here every day), which was at minus 125 yesterday, we know that the market is oversold. But how oversold? Good question. And my answer is "Well, oversold, but NOT as oversold as it was at the September lows."

    In other words, the market is oversold by normal standards, but this is a big bear market, and in big bear markets the market can get very, very oversold.

    But here's a puzzling fact -- we know that so far on this decline from the March high we have not seen a single 90% downside day. Every major market decline in bear markets have been characterized by 90% downside days. These days usually come in series, in other words more than a single 90% downside day.

    In all the years I've been dealing with markets going back to the 1940s I've never seen such stubborn optimism -- or let's call it ingrained bullishness. To see the S&P decline on 12 out of 16 weeks and still not throw the market into at least a mild panic is extraordinary.

    But how do you identify or gauge a real market panic? You do it by identifying 90% downside days. This technique, discovered by the Lowry's service, which has a history going back decades in real time.

    Lowry's began tabulating 90% upside and 90% downside day starting in 1960. Recent history shows that there were five 90% downside days in 1998. There was one 90% downside day in 2000. There were two 90% downside days in 2001. Amazingly, the last 90% downside day occurred back on April 3, 2001.

    What not a single downside day since April of 2001? Where's the fear? Where's the panic. Who's afraid of the big, bad bear?

    As I write the news has come out that the Michigan's Consumer Sentiment poll shows a sharp drop this month from 92 to 86. So the consumer is becoming discouraged. Is that so? They may be discouraged, but they're not discouraged enough to dump their stocks in panic fashion. And that's what counts in the stock market.

    As another example, I just talked to my local coin dealer. I've given out his name on this site and his telephone number (858 459 2228). "Leon," I asked him yesterday, "did you hear from any of my subscribers?"

    He answered, "Yes, quite a few calls, but they were all inquiries. Nobody actually bought any coins." Well I did -- yesterday.

    Same thing in the stock market. Consumer Confidence may be dropping, but people are not tossing in their stocks. Which is why we haven't had a single 90% downside day since April 3, 2001.

    So here's my suspicion -- this market could continue to head irregularlyand erratically lower until we get the first 90% downside day. And remember, 90% downside days in bear markets almost always come in series.

    Following the market's early morning swoon, the market recovered, and as I write (two hours after the opening) the Dow is unchanged but breadth is up with a plurality of about 300.

    And I'm wondering whether the market is now working off an oversold condition simply by whipping back and forth, tacking on unimpressive gains, giving us a few plus days, but really not doing anything important on the upside -- prior to the next serious decline.

    Let me put it this way -- the market is oversold now, but if the market can't do anything impressive on the upside over the next week or so -- watch out. Or I should say, watch out below.

    Gold -- I continue receive a slew of questions about gold. Where's it going, what's it worth, should I buy it, on and on.

    First, consider this "puzzle." In 1938 the minimum wage was 25 cents. That was what the government thought an hour's work was worth -- at minimum. Today the minimum wage is 6.75, up 2600%. So the government is valuing an hour's work up 2600% since 1938.

    How about gold? In 1933 the US government fixed the official price of gold at $35 an ounce -- up from $20. In 1972 the US raised the official price of gold to $38 an ounce. In 1973 the US government raised the price of gold to $42.22 an ounce.

    And that's where the US values its gold stock today -- still at $42.22 an ounce.

    Now why in the world would the US government continue to value its gold stock at $42.22 when the free market price is 315? Why wouldn't the government want the gold portion of its reserves at a far higher value?

    The answer is easy and ominous -- the government doesn't want to give any credence to gold at all -- even at the cost of lowering the value of its own reserves. The government doesn't want people to equate gold with dollars. The US government wants to denigrate gold, make it a "useless relic" and it should never require more dollars to buy itan ounce of it.

    This fraud, this stupidity, this lie, will ultimately blow up in the face of the Federal Reserve and the Treasury. The Fed thinks it can continue to create liquidity at the rate of $2 trillion a year while gold, real money, languishes at $42.22 an ounce?

    In the end all lies, all fakes, all deceptions will be exposed. The great lie about the dollar and gold will ultimately be exposed. It will be exposed by the markets. Which is why the Fed and the Treasury are so afraid of the market for gold. And they should be. Because the market is more powerful than any propaganda, any lies, that the government can come up with.

    In my mind, lies are a form of evil. And the only power evil has is the power to destroy itself (I learned that lesson in our war against Nazi Germany).

    Wait Russell, what is the big lie that the government is handing us? The lie is that gold is trash and Federal Reserve Notes (we call them "dollars") are real money.

    Real money is both a medium of exchange and a store of value. On that basis, the dollars we deal with are not real money, they are simply "legal tender," and legal tender is just money by government fiat.

    TODAY'S MARKET ACTION -- These markets are a devil to trade. You put out shorts (you do, not me), the market rallies strongly, you panic and cover your shorts, the market turns around and like today the Dow is down over a 100 points. Speaking of points, the Dow was down triple-digit four out of the last five days. I believe that's a record.

    My PTI was down 6 to 5237 (we adjusted yesterday's PTI to up 2 instead of up 4). The moving average today was 5290.

    PTI is now 53 points under its MA, getting stretched, but this is a bear market so a stretch on the downside isn't that unusual (if this was a bull market I'd say the PTI was too far below its MA).

    The Dow, after looking better earlier in the day, looked worse later in the Day -- Dow closed down 117.00 at 8694.53. Dow is only 449 points above it September low, and it wouldn't shock me to see the September lows broken next week.

    Three movers in the Dow today, HD down 2.31 (bye, home improvements), KO down 2.06 (will people drink water instead of Coke?) and PG down 2.32.

    August crude up .65 to 27.48.

    Transports were down 25.12 to 2480.14 (hey remember, the Transportation Average has negative earnings, it's selling at a P/E of infinity, and sports a yield of 1.1%. I think it may still be to high.

    Utilities were down another sickening 8.47 to 237.92.

    There were 1300 advances and 1926 declines, a polite dip in breadth but hardly panic action.

    There were 24 new highs and 125 new lows.

    Big Board volume was 1.59 billion shares.

    S&P was down 5.87 to 921.40.

    Nasdaq, after a valiant attempt at rallying, ended down just 0.87 on 1.99 billion shares.

    My Big Money Breadth Index was down 8 to 746, a new bear market low.

    Sept. Dollar Index was up .06 to 106.25. Sept. euro was unchanged at 98.82. Sept. yen was down .08 to 85.82.

    Sept. Nikkei was down 45 to 10,470.

    Bond were up slightly but at their highs; the Sept. long T-bond was up 5 ticks to 105.08 to yield 5.34%. The Sept. 10 year T-note was up 6 ticks to 109.01 to yield 4.59%. The Sept. muni futures were down 1 ticks to 105.20.

    August gold was down 1.70 to 315.90 and continues to consolidate above 315 (do you notice how they knock gold down a bit in almost every night session when volume is low?). Sept. silver down 2 at 5.06. October platinum up 1.70 at 524.00. Sept. palladium down 7.00 at 320.00.

    Gold/Dollar Index ratio was down 1.68 at 297.40 but just off its high.

    XAU was up .61 at 76.06. HUI up .55 at 136.03. Gold stocks consolidating, and I notice some large trades in NEM. If I had to bet (and happily I don't) I'd bet that NEM could end up as the stock of the year. This is the first gold stocks the funds will buy, and they could be quietly nibbling now (just my instinct, that's all). May I suggest that all subscribers who have no NEM get your "feet in the water" and buy an initial 25 shares, 50 shares, 200 shares -- whatever you can sleep with.

    NEM was up .49 to 28.54, PDG down .09, ABX down .42, AEM down .07, HL up .05.

    McClellan Oscillator breaking down at minus 1.30. Lowry's Selling Pressure Index at an all-time high at today's close (highest in 70 years). Not a happy picture. In fact, it's downright frightening.

    STOCKS -- My Most Active Stock Index still plunging to new bear market lows, down 3 today to new bear market low of 267. This and my Big Money Breadth Index have been two of the most persistent and consistent bear market indicators.

    The 15 most active stocks on the NYSE today were -- LU up .21, GE up 1.25, HD (this one is sad) down 2.31 to 29.09, AOL down .56 (debt, debt and if only Time Warner could get rid of this dog AOL) to 13.14, EMC up .40, TYC down .87, DUK down 3.20, T up .28, F down .57 (maybe the heaviest carrier of debt in the nation), PFE down .40, XOM down .57, C down.55, BMY u .59, NOK down .34, TXN up .57.

    And a few more -- GM down 1.12, MER up .47, AEP down 1.53, TXU down 2.41 to 37.60, IBM down .20, DELL up 1.09, INTC down .26, MSFT down 1.05, MRK up 1.27, DD down .51, MO down 1.08, AA down .24, DIS down .25, EK down .68, MMM down .53.

    CONCLUSION -- Up to now, I've had a pretty close relationship with Mr. Bear. In fact, I talked to Mr. Bear last night, and I can tell you that he's a real "bad-ass." He told me that he's getting angrier and angrier. Why? Because "Nobody's giving me any respect" (that's the way he talks, uses a lot of vernacular and naughty words).

    I asked him what he means. He said, "I'm being dissed, nobody respects me, and it's gettin' me really, really angry."

    I told him that I thought he was being too harsh.

    "The hell with that," he retorted (Gad such language), and he continued, "I don't see no real fear, I don't see no panic. I don't see nothing but people watchin' CNBC and sucking their thumbs."

    I pleaded, "Please Mr. Bear, can't you ease up just a little. You're really hurting people. I think investors are just sort of in shock."

    With that Mr. Bear got up and waved a threatening paw at me. Then he thought better, and stalked out of the room. Worse, when I timidly followed, he slammed the door right in my face. I mean, is this any way to treat a guy who's just trying to help?

    More exciting insights and interviews tomorrow. Pretty soon I'm going to need some rest. That interview with Mr. Bear was scary, damn near wore me out.


    Russell -- wait, there's a little more.

    I got a lot of mail complaining about my boosting of the Kudlow and Cramer show. Subscribers complain that these guys are "too bullish." Let 'em be, it's still a good show. Cramer is a wild man and "Lawrence of America" is a character. I like this show. So there.

    Don't Say "Bear." say "BUY." Barron's in last week's cover story called it a "lousy" market. Money magazine that just arrived and right on the cover it said in big letters, "How to Beat a Bum Market" (not a bear market, mind you, a "bum" market. What's a bum market?)

    To add to the excitement, Morgan Stanley's lead strategist (long a bear) says that this is no time to sell. In fact, he says that the lower this market goes, the more bullish he becomes.

    Hey, you can't go wrong with that kind of thinking. If this bear market takes the Dow down to 2500, I'll be bullish as all get out myself. But the question will be whether I still have a house at Dow 2500 and whether Morgan Stanley will still be in business.

    Have you noticed that all that talk about people being able to invest a portion of their Social Security funds in stocks has sort of died out. Wonder why?

    I just got a 15- page flyer from Lou Rukeyser. The Great White Father says right on the front page of the flyer that stocks will "surge. "Hey, I knew that. Please, Great White Father, don't tell me stocks are going to surge -- just tell me WHEN they're going to surge.

    Investor Bullishness and Stubbornness -- I bet I've received 25 e-mails along the lines of the e-mail below. Every one is trying to understand why investors remain bullish. It's the mystery of the day, maybe of the year.

    Russell, you have continued to be amazed at the ingrained investor bullishness and stubbornness during this grinding bear market. I spoke with two of my colleagues yesterday and today, both still heavily invested in equities and showing major portfolio losses. When I asked them why they just didn't sell and step aside from the market, they both gave replies suggesting that they believed selling would indicate a lack of masculinity. One said that he was not going to "panic" like weaker souls ( he meant me). The other said that it would be a sign of weakness to sell at such a low point and would prove that he is a chump. Both rejected my view that risk assessment and consequent action had nothing to do with personal courage -- at all. Both are highly mature, experienced graduate school graduates operating in the corporate finance legal field!

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