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Richard Russell comments

  1. Chuck

    11,900 posts.
    The arrogance and ignorance displayed by some of the posters who blithely continue to promulgate their unsupportable views on this site amazes me. Once or twice is understandable but this continuous parading of their egos is becoming intolerable. Here's the last RR report for some time...July 23, 2002 -- When a market goes down this hard and this persistently and for this long, it's almost beyond analysis -- which is where I believe the stock market is now. No, I'll re-phrase that -- the market is past intelligent analysis over the near-term.

    This bear market is taking on a life of its own. The market is now feeding on itself as thousands of mutual funds deal with redemptions and rising stock-holder fears. In my opinion, this bear market is worse than 1973-74.

    As of today, the S&P has wiped out roughly half of it entire bull market gains from 1982 to 2000!! Frightening! The comparable loss would be 6450 on the Dow.

    Over the long term, in the primary sense, clearly this is a major, an historic bear market. But over the near term, any market can do anything, and certainly this market has placed itself in that category.

    Since March of this year, the stock market has been in a virtual waterfall. From its March high, the market sank to an April low. Next, we saw a two-week rally into May, and from there it was down, down, down to today's low.

    The persistence and savagery of the decline has left professionals and amateurs bleary-eyed and stunned. Few investors were able to, or chose to, get out of the way of the bear. Losses have been massive and sentiment is finally beginning to change.

    Interestingly, although this bear market has been in force since September of 1999, it's only recently that the media and the government agencies have begun to deal with the scandals and deceptions that have enveloped Wall Street.

    "Pro forma" nonsense earnings were accepted eagerly as long as the Nasdaq was rising. But once the bear began to dig his claws into the Nasdaq all hell broke lose, and all earnings and all analysts became suspect. "Who can you trust?" became the anguished cry from investors who saw their tech stocks disintegrate. "Are any earnings worth taking seriously -- and where are the dividends?"

    What I think is so interesting (and frightening) is that I hear little or nothing about what this historic stock market decline means. This primary bear market is almost three years old, it's now affecting almost every nation in the world, stock market averages in almost every nation are declining. And what are the talking about in the media? Some blasted corporation's quarterly earnings.

    But who's saying anything about the meaning of the decline in stocks averages across the face of the globe?

    The meaning of most major stock movements is seldom understood at the time. Sure, smaller stock movements and one or two-week rallies or declines can be meaningless. But when stocks decline in a primary sense over a period of a year or more, believe me, the market is telling us something.

    All the talk on CNBC and Bloomberg and CNN-FN is about what stock will earn how much over the next quarter -- or what potential scandal will hit what stock. These reporters are fussing over the trees while failing to see the forest. Nobody, and I really mean nobody, is addressing the BIG PICTURE.

    What is this primary bear market all about?

    I believe it's about world over-production, and I've held that opinion all along. It's about manufacturers and retailers being unable to raise prices -- no it's about manufacturers and retailers not even being able to hold their prices.

    Worse, it's about bursting bubbles and price deflation and pressure on debt and about whether banks will continue to extend lines of credit. Today we read in the WSJ that the banks have cut off credit to the Williams Company. I think that headline could be an early peek into the future.
    On my computer screen I have lined up, all in a row, MWD (Morgan Stanley), GS (Goldman), C (Citibank), JPM (Morgan) AIG (Amer. Int. Group), FNM (Fannie Mae), MER (Merrill) and NYF (NYSE Financial Index).

    These giant financial stocks constitute a "who's who" of the financial structure of this great nation. As I write this morning half and hour after the opening, six of the eight are down, and giant Citicorp is down big time, down 3.69 to 28.35. C is breaking wide open, having gapped down two days in a row.

    Back in August of 2000, C was selling at over 58. Since then it has lost over half of its market value. What's going on?

    What I believe the collapse in financials is telling us that we're heading into a financial mess in the period ahead. This could be why the utilities stocks have been in a catastrophic free-fall. This could be why yesterday on all three exchanges there was a total of 156 new lows in financial stocks and 50 new lows in utility stocks.

    I'm writing this early section of this site an hour after the opening, and lo and behold, with the S&P up 200 points and breadth down by a plurality of 741 stocks -- the Dow is UP 71 points. Could this be manipulation? After all, the Dow Industrials is composed of only 30 stocks and the multiplier is 7. This is the easiest Average and most visible Average to manipulate.

    I'm not being a comic when I say that when the Dow is higher the general market declines slowly, and when the Dow is lower the general market declines rapidly.

    Gold --I hate to say it, but here's the story as I see it. Deflation is enveloping this nation, and probably the world. The last peg in the deflation story, in my opinion, is the breakdown in gold and gold shares and in silver.

    The collapse in the financials is telling me that deflation is beginning to put pressure on the giant debt structure that has been built up in the US.

    As I've predicted, the Fed is doing everything it can to offset the forces of deflation. So far the stock market is telling us that the forces of deflation are more powerful than anything the Fed has been able to muster.

    I'm wondering whether the Fed might even drop rates again; I'm wondering whether the Fed will start monetizing other debt such as the debt of Fannie Mae or even corporate debt. The Fed has got to be getting desperate. If the forces of deflation really start to accelerate, we face an unmitigated disaster.

    Believe me, the Fed would love to see gold moving higher at this point. Higher gold would signify that the Fed was winning the battle to re-inflate the economy. For this reasons, I take today's break in gold as very ominous.

    And again, I'm afraid that the action of gold is confirming everything I've been saying about deflation. Falling gold is a dagger in the heart of the Fed's re-inflation efforts.

    I have felt that in the face of deflation, the Fed would open the spigots wide in an attempt to re-inflate the economy. I have felt that this action would knock the dollar to its knees and send gold higher, maybe vastly higher as suspicion increases regarding the very viability of the dollar. This was the "insurance" against a dollar disaster that I was talking about when I advocated holding physical gold and gold shares.

    At this point, as the majority of gold shares break down technically, each subscribers will have to chose whether to sit tight, whether to cut back, or whether to ride out the storm and continue to hold his gold and gold shares as insurance against a dollar disaster and a deflationary melt-down.

    I've emphasized that you should own no more gold than you were comfortable with. I would continue to hold gold coins no matter what or regardless of where the price of gold goes.

    As for the gold stocks, technically most of the gold shares are now breaking down, and you may want to sell part of your gold share holdings or you may want to sit. It depends a lot on what percentage of your total assets are in gold shares. If you hold say 5% of your assets in gold shares, and those shares drop say 50%, that will cost you only 2.5% of your total assets, far from a fatal loss. You'll have to choose, I can't do it for you.

    I assume (I hope) that most of my subscribers have taken my advice and moved completely out of common stocks. If so, as this bear market moves on, your relative position will improve considerably as common stocks go down and as the economy deteriorates. This is a crucial part of our investment strategy as we move along in this great primary bear market.

    Remember what I've said all along -- "In a primary bear market everyone loses, but the winner is the one who loses the least."

    People are being wiped out by the thousands by this bear market. Do not be greedy. If you have to take a loss take it. The first loss is the best loss. If you are down 1% or 5% or 10%, believe me, you are way ahead of the game. Take whatever loss you have to take, but get off the track. The Wabash Cannonball is coming towards us at 120 miles per hour, and the brakes have burned out.

    As I've said repeatedly, the IMPORTANT THING IS NOT TO TAKE THE BIG LOSS. I'll repeat this again -- do whatever you have to at this point (if you haven't already) so that you will AVOID TAKING THE BIG LOSS.

    TODAY'S MARKET ACTION -- In two words -- relentless, frightening.

    My PTI was down 6 to 5209 with the moving average at 5281. PTI appears to be in a free-fall.

    The Dow -- after "trying" all session to stay in the plus side (manipulation?), the Dow finally gave it up and ended down 82.24 to 7702.34.

    Dow movers today were C down 5.05, JPM down 4.44, MMM up 2.76, MO up 2.15, MSFT down 3.30.

    Aug. crude was down .39 to 26.31.

    Transports were down 81.15 to 2160.35.

    Utilities still crashing, and I mean crashing, down 17.81 to 191.85 (very scary).

    There were 573 advances and 2734 declines but again no 90% downside day (downside volume wasn't there).

    There were 12 new highs and a whopping 728 new lows. My High/Low index dropped 716 to a new bear market low of minus 1936.

    Big Board volume was a huge 2.43 billion shares.

    S&P was down 21.88 to 797.97.

    Nasdaq was down 53.64 to 1229.01 on 2.35 billion shares.

    My Big Money Breadth Index was down 2 to a new bear market low of 714.

    What about this thought? The dollar is a junk currency -- but the yen and the euro are worse. Yet, people still prefer the dollar to gold. Sept. Dollar Index up a huge 196 to 107.09. Sept. euro down a giant 212 to 98.34 (euro saying good bye to parity with the dollar?). Sept. yen down 110 to 85.07.

    Sept. Nikkei up 90 to 10,140.

    Bonds firm -- the Sept. long T-bond up 3 ticks to yield 5.28%. Sept. 10 year T-note up 10 ticks to 110.15 to yield 4.42%. Sept. muni futures down 2 ticks to 106.01.

    There are two kinds of top-grade munis, those that are AAA own their own and those that are AAA because they are insured. I far prefer those that are AAA on their own. And I wonder, how good the companies are that insure the bonds?

    Gold "gave it up" today, with August gold down 10.90 to 312.60. Sept. silver down 16 to 4.88. October platinum down 1.90 to 511.30. Sept. palladium up 2.50 to 319.00.

    Gold/Dollar Index ratio was down 15.80 to 291.90.

    XAU down 7.33 to 59.27. HUI down 15.19 to 105.78.

    NEM down 3.02, PDG down .84, ABX down 1.77, AEM down 1.45, HL down 1.15.

    See comments on gold above. The gold bull market, in my opinion, is still intact, but today XAU broke below its 200-day MA, which I never like, and XAU is now undergoing a major correction and will have to carve out another bottom before the gold shares are ready to rise again.

    McClellan Oscillator is at an extremely oversold level of minus 234. Lowry's short-term index is at a full oversold level. This market is now very dangerous for short sellers as well as stockholders.

    This market continues to be a coiled spring. The best position is to be on the sidelines. Amazingly, there have still been no 90% downside days.

    STOCKS -- My Most Active Stock Index continues to crash -- it was down 7 today to a new bear market low of 234.

    The 15 most active stocks on the NYSE were -- C down 5.04, GD down .86, JPM down 4.44, AOL down .46 (don't like their $28 billion of debt), PFE up .13, XOM up .65, TYC down 1.20, EP down 3.15, CCU down 4.94, T down .72, CM down .96, RD up .29, JNJ up 1.55, UPS down 2.81, NOK down .95.

    A few more -- GS down 4.27, AIG down a shocking 5.15, MER down 1.97, AEP down a shocking 2.51, ED down 1.86, TXU (can you believe this?) down 3.95, IBM down 1.45, MRK down .9 6, WMT up .50, EBAY down 2.89, GM up .32, DCX down 1.74, MSFT down 3.30, CSC down .48, DELL down 1.03, ORCL down .43.

    CONCLUSION -- They don't get much nastier than this. We've never had a primary bear market in which 60% of US families own some stocks or funds, and we've never had a bear market in which 6,000 mutual funds and 5,000 hedge funds were involved. Heavy participation was great in the bull market. Somehow, I don't think it's going to be that great in this bear market.

    At the risk of boring you, I want to emphasize this again -- it's no embarrassment to lose a little money in a great bear market -- believe me it's not. It's no embarrassment to reverse your course in a bear market.

    It's vitally important in this bear market to be in a position where debt will not destroy your financial position. The ideal position is "No debt, no common stocks, no junk bonds -- no worries." I don't know how many of my subscribers are in that position, but that's the ideal, and the closer you can get to the ideal, the better.

    Forget minor or even more-than-minor losses. You do what you have to do in a market like this. The main idea is not to let your small losses become big losses.

    At this juncture, I would say that the ideal position would be 95% T-bills or T-notes and maybe 5% in physical gold in the form of gold coins.

    None of us can be certain as to what lies ahead. I've given you my best ideas, and that's all I can do. I've thought and pondered about this bear market for three years. I've felt all along that it would be far worse than what even most pessimists were envisioning.

    In this business as in life, you hope for the best and prepare for the worst.

    During World War II I learned the wisdom of that expression, but during the War there wasn't much you could do as far as preparing for the worst. You did a lot of praying. Today there's a lot you can do in preparing for the worst.

    In my opinion, the coming "worst" would be a debt melt-down, a run on the dollar (to where? Maybe to gold), and some kind of economic depression. Of course, the worst of all would be a war, but let's not get too depressed.

    Let's just no be too bearish or too bullish. Let's just deal with reality, and the reality as I see it is that this is a bear market and the good part is -- we're free to act any way we want.

    So saying, I'm going to climb on my StairMaster and get a bit of exercise.

    Your buddy,

    Russell

    Interesting e-mail from a subscriber --

    Richard, I have been doing Japanese stocks for 12 years and having been born in a "bear market" and suffered it for so many years I can tell you the parallels between the USA and Japan are frightening. The US equity bubble is going to do even more damage to the consumer than the Japanese bubble bursting did to the Japanese consumer. This is because the average Japanese had a very low exposure to the stock market during the bubble and also maintained a very high savings ratio. In the US the opposite is the case so if the market goes down the effects on the consumer will absolutely terrible. I if the property market goes down it will really be "game over" for the economy and this will prelude a very nasty bear market. When Greenspan cuts rates again and it has no effect on the economy panic will begin. This is exactly what has happened in Japan. Hence I totally agree with Richard's caution.
    Best wishes

    Richard

    President Bush let his guard down and his real feelings out yesterday when he said, "My attitude on Wall Street is, they'll buy you or sell you, depending if it's in their interest. When I used to watch the stocks, I was in Midland, Texas, I was somewhat skeptical about what was taking place on the floors of those exchanges."


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