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Richard Russell Comments

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    Richard's Remarks:

    May 3, 2002 -- O.K I'm, sorry, I made two mistakes on yesterday's site, and man, did I hear about it from about 40 subscribers. First mistake, I posted the site as April 2 instead of May 2. All right, so I was a little off.

    Worse, I said that Clinton wanted half a million to run his proposed talk show. Wrong -- he wants $50 million. All right, so I was a little off.

    Actually, Clinton was furious at my mistake. He called me and accused me of trying to "cut the legs out from under him." I apologized profusely and told him that $50 million a year was chump change for a man of his stature. I suggested that he ask for $100 million plus his own version of Air Force One, something to get around in. That seemed to calm him down. Actually, I think he liked my suggestions. We parted on what I took to be friendly terms.

    Back to the markets. Subscribers ask me about cycles and periodicity. I've never been big on pre-determinism. Older subscribers know that there's only one cycle that I fully subscribe to. It's the same cycle that Charles H. Dow believed in. It's the cycle from bull market high to bear market low, better known as the cycle from super-bullishness to abject bearishness.

    Unfortunately, I don't know how to time those cycles. They can be long and extended or they can be short and abbreviated. Wait -- you can make a few statements about the bull and bear cycles.

    As a rule, the bigger and the most speculative the bull market, the more severe the bear market that follows. Big bear markets have usually ended with stocks at great values. One definition of great values is blue chips stocks selling at below 10 times earnings while yielding 5% or better.

    As a rule a bear market lasts one quarter to a third as long as the preceding bull market.

    There seems to be little connection between a bear market and the bull market that follows.

    Now here's one that is simply a Richard Russell observation -- Today bull markets seem to take longer and go further than anyone thinks possible. By the same token, bear markets now seem to take longer and go further than anyone thinks possible. Why is this? My answer -- probably because of the huge public and professional participation that we're seeing today.

    Enough of the above. Let's turn to --

    Economics -- "Whom the Gods would destroy, they first make mad."

    "Inflate or die."

    Remember the two aphorisms above. They both apply to today's conditions.

    The following is from Paul Krugman's column in today's New York Times -- In fiscal 2000 the federal budget was in surplus by $236 billion. This year's deficit will be more than $100 billion, possibly more than $150 billion. Only the Treasury Department knows exactly how much money is coming in, but the renewed push to raise the debt limit, which will allow the government to borrow more money, suggests that the news is grim indeed. A year ago Treasury officials said they could stay within the current debt limit until 2008. In April they said they could make into June. Now they say they'll hit the wall in a couple of weeks."

    Russell Comment -- Is anyone listening to the above -- besides the dollar and gold? Congress certainly isn't listening. The House just passed a farm bill that would increase subsidies 70%, a reversal of the 1996 Freedom to Farm law, which was supposed to wean farmers from government subsidies. The bill would authorize $180 billion in spending over the next ten years, a $73.5 billion increase over existing programs. Madness? You might call it that.

    On top of the federal deficits, most of the states are running deficits, and unlike Uncle Sam, the states can't print money. In today's San Diego Union I read -- Sacramento -- Personal income tax receipts in California during April plunged $5 billion, or 45% below the same month last year, snuffing out any last hope the government's fiscal health would soon perk up. April is when California collects the largest share of its revenues, and budget writers consider it a crucial barometer in shaping the state's budget.

    All right, so the government and the states are drowning in deficits. What can we expect coming up? We can expect the government to print the money to cover its deficits. What about the states? Cuts, cuts and more budget cuts. "Hey, handle your own garbage."

    The markets aren't stupid. The market see what's going on. As I write (an hour after the opening) the dollar is taking it on the chin. The June Dollar Index is down over 100 points and June gold is up 2.50. And the Gold/Dollar Index has surged to a new high of 273.

    The June euro is up over 100 points and the yen is up over 50 points. What's happening is that money is moving out of dollars and into euros, yen and gold.

    At the same time the Dow is down over 100 points and the Nasdaq is plunging to its lowest levels since October.

    I've said in the past the everything in economics comes down to a FLOW OF FUNDS. We're seeing the flow now -- out of dollars.

    What about gold? Interesting -- with gold now far above its 200-day moving average even the gold-bugs have been warning that gold has gotten "ahead of itself," and a correction is overdue. But so far, gold has resisted the long-promised correction.

    I've noted that there currently exists a record high short position in gold on the part of the commercials. Much of this short position is probably hedging-shorts on the part of the mines that use hedges -- and many of these shorts probably represent hedging on the part of dealers.

    I've stated that it's one thing shorting an item when its in a bear market -- but quite another when you short an item that's in a bull market. Gold is in a bull market, and it wouldn't' surprise me to see the commercial shorts smashed against the wall. There's a great battle going on in gold, and so far the gold bears have been losing -- at least so far.

    The gold bear have very powerful allies on their side, the most powerful of all being the central banks of the world. Gold is their enemy, manufactured paper money is their baby, their product. A rising gold price gives the lie to the value of paper money. Rising gold is an affront to the central banks' effort to control the world's "money."

    Today it was announced the M-3, the broad money supply was up $22.8 billion for the week ended April 22. What, $22.8 billion?! Who the hell worked to make that money? Who mined or sweated or killed to make $22.8 billion in a single week?

    The answer -- nobody, it was created out of thin air. It didn't exist a week ago. Immoral? You bet it is. The Founders of this nation warned against central banks and paper money. We've got it now, and there's only one defense against it -- real money, better known as gold and silver.

    Again I advise all my subscribers to take a position in gold. How much? Whatever you're comfortable with. Gold stocks I like are NEM, AEM, AU, DROOY, GOLD, HGMCY, ASA and specs BGO and GLG. Don't buy just one gold stock, buy an assortment even if you have to buy odd lots.

    As for the stock market, it's still trying to decide whether the recovery is just more Government baloney and seasonal adjustments or something more substantial. Me, I stick to my call that we are in a primary bear market and one way or the other, this bear market is going to run to conclusion.

    Bull markets die in exhaustion. Bear market's die in exhaustion. Is this bear market exhausted?

    Has the housing market collapsed? Has CNBC been pulled off the air? Are secondary stocks collapsing? Are people asking "what's the dividend?" when their broker calls with a new stock to buy? Does anyone believe that the bear market has a long way to go?

    TODAY'S MARKET ACTION -- Bearish as far as I'm concerned. No excitement, no big volume, just erosion. I note that on CNBC all they talk about is what stocks to buy. Nobody, and I mean nobody, talks about clearing out and respecting the bear. A sign that we're still early in the second phase of this bear market.

    My PTI was down 4 to 5302 with the moving average at 5325 and declining. The PTI remains in its bear mode.

    The Dow was down 85.24 to 10006.43. The lone mover was IBM down 2.08 to 81.78.

    June crude was up .36 to 26.62.

    Transports were down 5.85 to 2743.66.

    Utilities were up .87 to 306.86.

    There were 1641 advances and 1502 declines. People still buying the secondaries while the big stuff declines. They've got more guts than I do. How 'bout this -- upside volume today was 496 million and downside volume was 776 million. So despite the A-D figures, the ACTION was on the downside.

    There were 257 new highs and 58 new lows.

    Big Board volume was 1.29 billion shares.

    S&P was down 11.12 to 1073.18.

    Nasdaq was down 31.59 to 1613.23 on 1.94 billion shares, and I believe the Nasdaq is on its way to test its September low.

    My Big Money Breadth Index was down a full 10 to a new low of 822.

    The dollar took it on the chin today. June Dollar Index down a big 123 to 113.87. June euro up a large 142 and now clearly bullish at 91.52. June yen up .58 to 78.89 and close to turning bullish. June Swissie up .86 to 63.02.

    Bonds higher -- June long T-bond up 19 ticks to 102.24 to yield 5.54%. June 10 year T-note up 13 ticks to 105.26 to yield 5.06%. June muni futures up 16 ticks to 104.15.

    Gold rising steadily. Gold/Dollar Index at a new high of 274.44. June gold up 3.90 at 312.50 -- a new high for the move. July silver up 5 at 4.61. July platinum down .60 at 517.00. June palladium up 3.05 to 361.05.

    XAU gapping up 2.00 to 78.36, a new high for the move. AU up 1.57, AEM up .51, NEM up .53, PDG up .27, ABX up .16.

    I believe the huge short position in gold options and futures is being squeezed. So far, the commercials (dealers, mines) are wrong in their hedging and short sales.

    McClellan Osc. down a bit to plus 25.

    STOCKS -- My Most Active Index was down 5 to 424, right on its bear market low.

    NYSE 15 most actives today were -- EMC down .34 to 8.01, TYC up .50, CPQ up .24, LU down .10, AOL down .60 to 18.05 (ooph), GE down .05, HWP up .35, T up .19, AWE up .09, NOK down .73, SLR down .13, TXN down 1.49, C down .66, XOM down .21, NT down .10.

    And a few more -- WMT down 1.40 (not good), MER up .39, GS down 2.16, D up .33, XEL up .32, GM down .56, F down .01, FNM up .83, KBH up .43 (home building stocks still surging), CAT down .85, DIS down .43,CSCO down .50 to 13.14, PG down 1.29, DELL down 1.10, MSFT down 1.65 to 49.58 (that's' right, 49.58).

    CONCLUSION -- They (somebody) continues to sell the big blue chips, and that's bearish. Who is that somebody? Is it Japan, is it the pension funds, is it the hedge funds, is it my subscribers (just kidding). I don't like it when the big stuff goes down and the secondary stuff rises. Big Money sets the trend and big money is saying "bye bye" to this market.

    Guess that's about it for Friday.

    They're having a show of World War II planes at Gilespie Field here in San Diego, and I'm going there tomorrow to maybe stir up some old memories. Hope they have a few B-25s. If so, I'll lean up against one and maybe shed a tear or two. It's been along time, like 58 years.

    Will write a little tomorrow --


    Gold news from UBS Warburg --
    Gold: News: Kinross Gold will end its small hedging program by delivering into its small hedge-book due to the improving environment for the gold sector and for Kinross in particular. According to a
    press release, Kinross said that it had about 540'000 ounces of
    forwards and 200'000 ounces of sold calls as at the end of April 2002.
    Although we consider this position to be small compared to other
    hedge-books, it is further confirmation of the trend by gold producers to reduce hedging.

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