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Richard Russell Comments

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    I see HC is still haunted by raving ratbags. NO reason for me to return... Maybe if you ban fools like mojorisen etc, the site would do a lot better.

    Just for old time's sake, here's Russell's report for Friday (last night). You'll note that even Russell is disgusted at the US Congress' vote.

    Members' Area - Richard's Latest Remarks

    October 11, 2002 -- I can't believe it. I can't believe our cowardly Congress gave up their Constitutional right to declare war -- gave it up to one man. George Bush alone will have the Unconstitutional power to declare war on a nation that has not attacked us.

    I'll tell you the honest truth -- I don't trust Saddam Hussein, and I don't trust George Bush Jr.

    Would I want my 24-year old son to go to war on the word of one man? You can be damn sure I would not. It now remains for the Senate to cave in to a President who confessed that "Saddam tried to kill my father."

    At NYU I took a course given by the great teacher, Sydney Hook. The course was called, "The Philosophy of Democracy." This was the single best course I took in college. And I well remember Hook saying, "Democracy is a great system, because it allows the people the right to make their own mistakes." Then he added, "There is only one system that would be better than Democracy, and that's a dictatorship. But there's a catch -- God would have to be the dictator."

    So do I trust one man to declare war or not to declare war? I DO NOT. Bush is not God. Furthermore, for many reasons, I particularly do not trust George Bush to declare war. I don't trust Bush and I don't trust Cheney. If Americans are to go to war against a nation that has not declared war on us, I want the full count of Congress to take responsibility and declare that war. Congress has cowardly copped out for political reasons. For shame, you ignorant cowards, for shame.

    By the way, in 1913 Congress gave away its Constitutional right, it's sole right -- to create money. It gave it to a private corporation which called itself the Federal Reserve, and you know how that has turned out.

    This whole war situation will not end well -- I predict it. What starts out wrong will end up wrong.

    I train a few times a week with a lovely young lady. As a trainer, she's terrific. The subject of the stock market (surprise) came up, and she seemed unhappy about it. I asked her if she was "in" the stock market. She answered, "Well, I am in a way, through my 401(k) plan.

    I asked her how she was doing. She told me that she and her husband had put $17,000 into the plan, buying stocks that their broker thought would "go up."

    How had she done? She told me rather sheepishly that their 401(k) plan was now worth $5,000.

    I've heard dozens of stories like that. In fact, almost everybody I talk to now admits that they are losing money in the stock market.

    I don't know whether I've said this before, but after writing about, and living through, half a century of stock markets, my considered opinion is that the average person has no business being in the stock market. And I'll tell you why.

    It's very simple. Let's call the average investor "Joe." Joe doesn't buy stocks near the beginning of a bull market, he buys stocks during the hyped-up speculative third phase of a bull market when everyone else (all Joe's friends) are buying. And Joe doesn't sell out in the early phase of a bear market, no, Joe holds his stocks through the first phase of the bear market and well into the second phase when everyone is losing (which is where we are now).

    Somewhere during the second or third (final) phase of a bear market Joe sells out in abject fear or in desperation. In the end, Joe sells out when everybody else is selling out -- and Joe takes his losses.

    So it is my opinion is that the average person should not be in the stock market. Joe would be better off buying CDs or T-notes or T-bills and staying with them and just compounding. Joe's a loser in the stock market just as surely as he's a loser at Las Vegas. The stock market isn't constructed for Joe and all his friends to make money in. And neither is Las Vegas.

    Joe and his friends don't get in the market right, and they don't get out right. They swallow a lot of bilge from smart and not so smart advisors, and in the end they hate the stock market, they denounce the stock market, and they curse Wall Street.

    Wall Street's job isn't to make money for people. Wall Street has a legitimate job -- it's job is to distribute stocks and bonds to the world -- to raise money for Wall Street and its clients.

    I'm sorry to sound so cynical, but it's the truth. It's the blessed truth.

    Personally, I love Wall Street. Wall Street doesn't owe me a thing. I owe my living to Wall Street. I also consider myself sort of a pro -- but I've learned. I don't speculate in stocks. In fact, except for gold stocks which I bought early and I'm holding, I don't own a share of common stock. Which means that I haven't been hurt by this bear market.

    I've been preaching income and compounding ever since this bear market started in September, 1999. I put 90% of my own money in bonds a few years ago (no secret, I've recommended bonds over and over again). I bought bonds two years ago because I thought bond were decent values -- they were throwing off 5-6% in tax-free interest (yeah, I bought AAA-rated municipal bonds). Those bonds have continued to throw off 5-6% in tax-free interest, and they are up about 10% or more since I bought them.

    The blow-off in stocks and the IPOs during 1999 and 2000 never interested me, and I told my subscribers that. I told them in September, 1999 that a primary bear market had started, and that we should follow "correct procedure" which means being OUT of stocks in a bear market.

    Since that time I have reason to believe that a lot of my subscribers followed my advice. I know because I receive kind e-mails every day from people who thank me for saving them most of their money. I guess those are the people who believed what I was saying.

    But I'll stick to what I said above -- for most people, for maybe 95% of the public, the stock market is like Las Vegas -- if they play the game on their own, their ultimately going to lose their money.

    You see the stock market is stacked against you and me. We're "playing" against the smartest people in the world. We're trying to beat the pros who are better at it and have better information than we have.

    How about the mutual fund managers? Listen, there are thousands of mutual funds. Each one is run by one or more managers. How many smart managers do you think there are in this business? Not that many. Which is why Investor's Business Daily's Mutual Fund Index is down 34% for the year so far. And their Mutual Fund Index is made up of 26 of the best equity mutual funds in the business.

    But win or lose, the mutual funds make money. They charge you a fee no matter how the fund is doing. The mutual fund business takes in roughly $75 billion a year in fees. I'd call that real money, wouldn't you? Yeah, the funds do fine. Oh, they may fire an incompetent manager here and there, but the funds are part of Wall Street, and Wall Street doesn't ask you whether you're making money or losing money. Wall Street only wants to know if you're buying their wares.

    A brokerage house manager doesn't go around asking his brokers "Hey, Charlie, how are your customers doing?" Hardly, the manager asks, "Charlie, how are your sales this month?" You see, there's a difference. It isn't a very subtle difference, but there is that difference.

    "Russell, where the hell is all this leading to?"

    It's leading to a few words about the current market. The S&P has been down six months in a row and more recently six weeks in a row, and it might be heading for three years in a row. The McClellan Oscillator has been down in super-oversold territory. My PTI and all the major averages are "stretched" far below their moving averages. Let me put it this way -- subscribers should know that the market was fiercely oversold.

    So should we play this bear market rally? Suit yourself, but again, the market and the US government is stacked against us. The market is stacked against us, because obviously we don't know how far this rally will carry. And this is a rally in a bear market, and bear market rallies can end as quickly as they started.

    Furthermore, if you get in and get out of your stocks with a short-term profit, then Uncle Sam is your partner, and he'll want a nice chunk of your profits (around 50% between the state and the government, in my case). But if you lose, then Uncle lets you write off a lousy $3,000 against your winnings. It's a tough way to make money trading the market -- unless you're on the floor of the New York Stock Exchange. That's why you don't hear anything today about those "day traders." They're all gone -- they've been knocked out of the box.

    Real money is made by buying early in bull markets, not, as a rule, by playing bear market rallies.

    Yesterday the VIX was at 50.5 -- at its high. Option-writers were betting that volatility will remain extremely high, and so far, judging from today' action, they were dead right.

    I'm writing this a half-an-hour before the close, and people are asking, "Was this the bottom? Could the bear market be over?" And my answer is no, this is not the beginning of a new bull market. But we haven't had a "convincing" rally is a while, and this one is overdue.

    Some of the bad news that this market has been discounting is starting to emerge. It's coming out in retail sales. According to Bloomberg, "US September retail sales probably had their biggest fall in 10 months." Well that shouldn't come as a surprise to my subscribers, I've been wondering how long it would be before consumers "pulled in their horns." It seems to be starting now.

    And here's TODAY'S MARKET ACTION -- We've got the first up week in six weeks, and it's long overdue. My PTI was up 6 to 5214 while the moving average is 5245. PTI remains in its bear mode.

    The Dow surged 310.93 points to 7844.88. Dow movers were IBM up 6.34, MMM up 4.05, MSFT up 2.49, UTX up 2.91 and WMT up 2.19.

    Nov. crude was up .40 to 29.37.

    Transports were up 57.02 to 2153.79.

    Utilities were up 2.30 to 183.58.

    There were 2557 advances and 715 declines. Upside volume was 1.645 billion shares and downside vol. was 189 million. This was just a fraction short of a 90% upside day -- but even if it was a 90% upside day, 90% upside days that have not been preceded by a 90% downside days are usually associated with short-covering rallies and with rallies that tend to be short-lived.

    There were 21 new highs and 74 new lows. My High/Low Index was down 53 to a new low of minus 7685.

    Total Big Board volume was 1.84 billion shares.

    S&P was up 31.16 to 835.08.

    Nasdaq was up 47.10 to 1210.47 on 1.88 billion shares.

    My Big Money Breadth Index was up 6 to 713.

    Dec. Dollar Index was unch. at 62.65. Dec. euro was unch. at 96.35. Dec. yen was down .30 to 80.96.

    Dec. Nikkei was up 190 to 8745.

    Bonds were knocked down with the Dec. 30 year T-bond down 114 ticks to 112.10 to yield 4.82%. Dec. 10 year T-note was down 28 ticks to 114.26 to yield 3.81%.

    Dec. gold was down .20 to 317.20. and sitting right on its rising 50-day MA, which stands at 317.30. Dec. silver was up 3 to 4.32. Jan. platinum was up .70 to 578.10. Dec. palladium was up 1.40 to 321.40.

    Gold/Dollar Index ratio was down .19 to 294.80 and just above its rising 50-day MA.

    XAU was up 1.81 to 62.52. HUI was up 3.44 to 112.68.

    NEM was up .22, PDG up .45, ABX up .36, AU up 1.28, AEM up .32, DROOY up .04, GG up .22, HGMCY up .46, MDG up .45.

    Gold has been acting better than the gold stocks, but today the switch -- gold stocks acted better than gold.

    STOCKS -- My Most Active Stocks Index was up 13 to 175.

    The 15 most active stocks on the NYSE were -- GE up 1.61, F up .72, C up 1.83, AOL up .34, HI up 1.90, JPM up 1.24, TXN up 1.91, IBM up 6.34, PFE up .17, MOT up .88, EMC up .45, VX up 2.24, HD up 1.61, AEP down .06, HPQ up .21.

    More -- GM up 1.70, HON up 1.88, AA up 1.69, IP up 1.60, SBC up 1.20, CSCO up .57, COST up 1.61, KSS up 2.95, LEN up 2.20, GS up 3.12, MER up 1.75, FNM up 1.33, MWD up 2.45, EBAY up 2.98, MOT up .88, DELL up .72, DD up 1.26, TGT up 2.05, F up .72, DCX up 1.60.

    McClellan Oscillator rose to minus 41 today, and it could go positive on Monday. A time to be very careful whether you're long or short.

    CONCLUSION -- I think the retail public is pretty much OUT of this market. What we're seeing here is short covering, then the pros coming in and banging on the shorts -- and lastly hedge fund operators jumping in for the ride. This is a tricky and dangerous, high-volatility market.

    We've had three days in a row -- each closing over 200 Dow points either way. Of the last six day, we've had only one in which the Dow changed less than 100 points at the close.

    That, dear subscribers, is VOLATILITY, and that's why the VIX is so high, and that's why option-writers are charging so much for selling options. Make a mistake in this high-volatility market, and you're dead meat. No wonder the day-traders are history.

    A bit more tomorrow, which, I believe, will be Sa*urday.

    Regards, from your old friend and e-mail companion,


    A special greeting to all my new subscribers, and especially my new foreign subscribers. I don't know where all the "outside-the-US" subscribers are coming from (it's obviously the Internet), but I feel as though I'm writing for the United Nations.

    Lots of new Mideast subscribers, and as my Christian wife, Faye, puts it, "You're the only Jew with an Arab following." Yeah, when it comes to money, all men are equal -- and democracy reigns.
    Everybody is an expert on the stock market. George Will is a brilliant writer, but in the latest Newsweek (Oct. 14) he ends his column as follows --

    A majority of Americans participate in equities markets. Forty percent of those old enough to trade stocks had never known a quesiness-inducing market until the July slide. Would turbulence trigger panic? In July investors withdrew $52.6 billion from stock funds. But that was just 1.7 percent of those funds. So 98.3 percent stayed put. Wisely.

    For followers of Elliott, this is an interesting e-mail received yesterday --

    If you assume the bull market started in 1982 at 769 and ended in 2000
    at 11750, the 38.2% retracement is 7555. This has already been violated.
    The next support is the 50% retacement at 6259. Will this be the bottom
    of the A wave? Is 7555 now resistance?
    Ken Blank

    Subject: More on earnings estimates

    On July 1, analysts’ consensus estimate for earnings by S&P 500 companies for the coming 3rd quarter called for 16.6% average growth in earnings.
    Two weeks ago, near the end of the quarter being forecast, estimates had been revised downward to 8.5% growth.

    Yesterday, with the quarter over, but earnings reports not yet out, the analysts had re-revised their estimates to 5.5% growth in earnings.

    It will probably take another 30 days for the final tally to be made, but I wouldn’t be surprised if the real numbers turn out to be even lower.

    And none of this even begins to deal with the fact that very many companies today are grossly overstating their earnings by hiding stock options expense and booking phony pension income. If you were to figure the honest net earnings of the S&P 500, it would probably be sporting a P/E in the 50 or 60 range. The pension nonsense has been around for a long time, though it’s gotten worse in the last few years. The options abomination is only a few years old; therefore, earlier market statistics for earnings were not inflated by this particular device.

    The very interesting piece below is by my old friend, Doug Casey.

    Gold mining stocks are an extremely leveraged way to play the gold price. But it's not, unfortunately, quite that simple.

    As a business, mining is about the worst enterprise in the world. Economic deposits are very hard to find and very expensive to prove up. Then it costs up to a billion dollars to actually build the mine-a huge up-front investment. Even then, you can't be completely sure the thing will perform as hoped; maybe the metallurgy will turn out to be troublesome, maybe metal prices will collapse, maybe the political system will act up, maybe any of a hundred equally serious things will go wrong. The more I've learned about the mining business, the less I want to be in it. It's a lousy business. Among other things, a good business is one that isn't overly capital intensive, isn't fixed to one locale, is not overly subject to commodity price swings, is not regulation intensive, doesn't have to rely on hourly labor, doesn't have potential environmental problems and, most importantly, can be grown consistently. The mining business violates all of these things. It's a 19th century business, intended for a choo-choo train economy, and that kind of economy is on its way to the scrap heap. Entirely apart from that, the long term history of commodity prices has been to fall, and that trend is going to accelerate radically with the development of nanotechnology over the next decade or so.

    The way to make money investing, as Warren Buffett has demonstrated, is to put your money into great businesses for the long term, not lousy businesses in hope of getting lucky. You cannot, therefore, "invest" in mining stocks; it is only possible to speculate in them. I know this sounds like bottom of the market talk, but it's just reality; I was saying this at the top of the market as well. Hopefully, when we dump the mining shares again in a few years, we'll be able to buy into high tech for the kind of value now available in resource issues.

    Very, very few of even the best mining companies should even be considered as long-term holdings. True, the majors sometimes show earnings-but most sell at absurd P/E ratios, making them chronically overpriced even if they were good businesses. But they're terrible businesses, deserving low P/Es regardless of whether times are fat or lean.

    Frankly, I have a lot of misgivings about recommending people own mining stocks because I'm afraid that, for whatever reason, many view gold stocks as heirlooms. They emphatically are not. These things are burning matches or, at best, trading sardines. But the prospect of seeing them run 1,000% every cycle (even within the context of a 22-year bear market) makes them worth following at all times and sometimes owning in size if you're a speculator.

    The recently ended bull market in New York is actually an excellent underpinning for the building run in gold stocks. That's because there are now scores of millions of people out there who've had their appetites whetted for "hot," volatile sectors of the market. They've lost a lot of money in the last couple of years, but they're still players. Most tend to be trend followers, who are anxious to jump on board any sector that's moving, especially if it's got a credible story to go with it. Gold stocks are made to order for these folks. You saw what they did to the Internet stocks, and they'll do it here. Better yet, as hard as promoters will try to meet the demand by forming new companies and printing up new share certificates, I don't think they'll be able to meet the demand. People in the gold stock finance business just aren't used to thinking that big. I think the group will have a wilder ride than the Internets did. I know that sounds outrageous, but there's good reason to believe it. And, at the present moment, the downside has been washed out by a brutal six-year bear market.

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