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Richard Russell Comments

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    Worth a read if you're a newbie and if you're a gold fan looking for some US companies worth a punt, Richard has some suggestions....

    If Russell is correct and it's my belief he is, then given the length of time it is taking to wean the public off their bullishness when things get really bad, it will take them a long time to recover from their bearishness. We could be in for a very long bear market...


    Richard's Remarks:


    The Wall Street Journal today talked about a "zooming" US economy. That's nice to hear. But the stock market is marching to a different drummer. The stock market is saying that something is dreadfully wrong. What could it be?

    Honestly, I'm not sure. Whatever it is has been sending my BIG MONEY indices down to new lows day after day. I've warned about this almost every day on this site. While secondary stocks have been pushing happily higher, the big money stocks have been steadily heading down. This is ominous action, because the big money leads.

    So what's wrong? Is it a derivative melt-down? Is it foreign selling of stocks? Is it a building liquidity crisis? Is it the consumer cutting back on his spending? Is it the collapse of the home building boom? Is it the top-out of the dollar?

    What the hell is it? Money wasn't running into the safety of T-notes and bonds today. Money was moving into gold shares.

    When you're standing on the railroad track and the 5:15 express is coming at you at 75 miles an hour you don't argue about whether the engineer knows what he's doing -- no, you get your fannie off the track as fast as you can. I've been telling my subscribers ever since September '99 that this is a primary bear market, and that it's time we got off the track.

    But for the benefit of new subscribers I'll say it once again -- this is a primary bear market. Get off the market track. Exactly why you should get off the market track we'll talk about later.

    One extraordinary factor in this market (and I've talked about this endlessly) is the ingrained bullishness of the stock-buying public. I just received the always-outstanding report, "Stockmarket cycles" by friend and ardent researcher, Peter Eliades. Peter writes, Even as this is being written, the Nasdaq Composite is down 69.7% from its all-time high.

    You must realize that these declines marked the second or third largest declines for a popular average in the history of United States securities markets. That kind of devastation would typically lead to extreme bearishness on the part of both investment advisors and investors. Not only has that NOT led to extreme bearishness, just the opposite has occurred. It seems that people have become so well brain-washed with the concept of long-term investing that the lower prices go, the more attractive they become to the typical investor.

    Peter also notes that the dates compiled by Investors Intelligence of New Rochelle, N.Y. shows that during almost the entire period from October 1998 to September 2001 (while the Nasdaq was collapsing) there was a plurality of bull over bear investment advisors -- this for 153 consecutive weeks.

    Adding to the above evidence, I note that this year in the month of March investors stepped up their commitments to common stocks -- in March $29.2 billions were added to equity mutual funds.

    The question is asked, "When or what will turn investors and advisors bearish?"

    My answer is time and losses -- plus the slow, painful realization that "in a bear market everyone loses and the winner is the one who loses the least."

    This year 2002 may go down as the third consecutive year of losses for the average investors -- and it is truly amazing that the stock-buying public continues to be bullish. It may take the current third year (assuming it ends as a down-year) and maybe even a fourth down-year before the investing public finally turns bearish.

    However, the more losses that are built up and the longer investors remains bullish, the worse the third and final phase of the bear market will be.

    I've written before that the bear's fondest hope is to head lower while taking greatest number of stockholders with him.

    But frankly, I never thought investors would remains this bullish for this long into the bear market. The sad part of it is that this process will ultimately cost America's ever-bullish investors far more than it would have -- had they simply turned bearish and sold out a year or so ago.

    A number of newer subscribers have asked about three stages of a bear market. First, you have to remember that the three stages are psychological phases, and they may or may have anything to do with the actual the price structure.

    The first phase of a bear market is the stage where stocks go down as they erase the foam and frenzy of the preceding bull market's top. In this first phase, investors remain hopeful and bullish, even in the face of the sagging market.

    The second phase is where stock go down as they reflect and discount deteriorating business conditions. Here individual stocks may suddenly collapse as adverse news emerges. The second phase is the longest phase of a bear market, sometimes lasting for years.

    The third phase of a bear market is the phase where stocks decline as investors sell, often for no other reason that they need the money. This is the liquidation, phase, the "give-up" phase. In the third phase blue chip stocks are thrown over, often because it's only the big blue chip that have a liquid market.

    All right, how about the phases of a bull market, which is where I think gold is? The first phase of a bull market is the accumulation phase. This is the phase where knowledgeable investors accumulate stocks with as little fanfare as possible. Stocks during the first phase of a bull market often act erratically, because their sponsorship is thin and sporadic. I believe gold is in the first psychological phase of its bull market.

    The second phase of a bull market is where the public gradually enters the market, mostly in reaction to rising prices. Volume tends to increase steadily as the second phase progresses. In the second phase, business prospers and the public gradually turns bullish.

    The third phase of a bull market sees the public enter wholeheartedly, and the frenzy to "get in the market" takes on often surreal proportions. Volume increases dramatically during the third phase as rumors fly and as tales of "new riches" dot the pages of newspaper and magazines. During the third phase of a bull market seasoned investors distribute their stocks even as the public buys them. The third phase is the mark-up phase for stocks, even as it is also the distribution phase for informed investors.

    You want to know how investors are doing in this bear market? A member of the NYSE just sent me this list. It's a list of the stocks held by the largest number of account at America's largest broker, Merrill Lynch. This is how these stocks have done so far this year.

    A shocker? Be my guest!.

    AOL down 43.8% this year.
    AT & T down 23.6%.
    ATT WRIS. down 37.8%.
    AVAYA down 47.9%.
    CISCO down 27.4%.
    Citigroup down 12.3%.
    EMC down 40.4%.
    ExxonMob up 3.3%.
    GenElect. down 20.9%.
    Home Dep. down 8.8%.
    Intel down 15.5%.
    IBM down 32.4%.
    Johans.Jn. up 7.3%.
    Lucent down 30.2%.
    Merk down 5.6%.
    Miscrosoft down 25.2%.
    Oracle down 39.0%
    Pfizer down 7.8%.
    Tyco Intl. down 63.2%.
    Verizon down 15.0%.

    Yeah, this is a bear market, believe me it is. And the above statistics don't include today's action.

    TODAY'S MARKET ACTION -- It was nasty.

    My PTI was down 6 to 5296 with the moving average at 5324. The PTI is firmly and decisively in its bear mode.

    The Dow "took it in the gut" in the last hour, down 198.59 to 9808.04. This is the upteenth time the Dow has dived below the 9978 halfway level of the bear market decline. The 50% Principle is again fully operative, and it's saying that the Dow could test its September low of 8235.

    The Dow broke sharply below its 200-day MA today.

    Movers today were IBM down 5.78, MMM down 2.78 and UTX down 2.29.

    June crude (Iraq exporting oil again) was down .50 to 26.12.

    Transports were down 40.15 to 2703.41.

    Utilities were up .21 to 307.07.

    There were 1033 advances and 2125 declines -- up-volume was 192 million and down-volume was 897 million.

    There were 212 new highs and 52 new lows.

    Total NYSE volume was 1.11 billion shares.

    S&P was down 21.21 to 1052.22.

    Nasdaq, breaking 1600, was down 34.61 to 1578.42 on 1.75 billion shares.

    My Big Money Breadth Index was down the full 10 to 812, taking it to its lowest level since last October 3 (its September 21 low was 774).

    June Dollar Index was up .09 to 113.96. June euro was down .09 to 91.41. June yen was down to 78.65.

    Bonds were slightly lower. The 30 year T-bond was down 2 ticks to 102.21 to yield 5.5%. The June 10 year T-note was down 4 ticks to 105.23 to yield 5.08%. June muni futures were up 2 ticks to 104.17.

    June gold was down a dollar to 311.50.July silver was down a fraction to 4.61. July platinum was down 1.20 to 515.80. June palladium was down 3.95 to 355.00.

    XAU closed up 1.28 to a new closing high of 79.54. It's obvious that the stocks are leading the metal, and it's obvious that money continues to pour into the gold shares. But who's buying. Oh, I know, it's just Richard Russell's subscribers (only kidding, only kidding).

    NEM up .34 to 30.28, closing above 30 for the first time. AEM up .72 and really acting well, AU up .54, PDG up .18, ABX up .43.

    The Gold/Dollar Index ratio was at 273.56. You want to speculate on the gold cheapies, try BGO, KGC and GLG. I own all three. . Remember, if or when the public gets "gold fever," they'll buy the cheapies because the cream of the gold shares will be too expensive.

    McClellan Oscillator was down to minus 40 today.

    STOCKS -- My Most Active Stock Index was down 11 today to a new bear market low of 413.

    The 15 most active on the NYSE were TYC down 2.30 to 19.35, AOL down .80 to 17.25 (what's the AOL division worth -- nothing?), GE down .73 to 30.97, L down .49, HPQ (the new combo) up .78, EMC down .31 to 7.70 (do you believe these prices?), LU down .15, IBM (big blew!) down 5.78 to 76.00, NOK down .53, T down .16, AWE down .17, C down 1.86, XOM down 1.34. NT down .20, MU up .17.

    More, more -- JPM down 1.28, BAC down 1 .21 (Banks and brokers are swooning, which is not good), MER down 2.32, MWD down 2.95, GS down 3.38. Of the 6 home builders that I follow, all six were down today. And what does that mean? Here are three KBH down 1.72, LEN down 2.11, CTX down 2.50. GM down .68, WMT (the big one) down 1.26 to 53.99, DIS down .71, JNJ down 1.33.

    One thing is clear. They're selling the big blue-chip stocks. Who's "they." I dunno, but big investment money tends to deal in the big blue-chip stocks. You do the math -- and the implications.

    CONCLUSION -- It's going on three years since the September 1999 Dow Theory bear market signal. The bear is behind schedule.

    In a bear market, values deteriorate through time.

    What we're seeing now, I believe, is the bear starting to make up for lost time.

    Well, I'm about written out for today, so I'll say,

    Adios, except for my usual banter below --


    About Japan from the latest May 4 London Economist.

    "In the first quarter of this year gold imports rose almost six-fold over a year earlier, to some 41,000 kilos. Customers, says Tadashi Kizu, marketing manager at Ishifuku Metal, the third largest dealer in precious metals in Japan, are coming in with wads of cash and walking out with gold bars. Gold futures are also doing brisk business. Trading volumes so far this year are three times greater than they were last year.

    Gold has become a safe haven for investors who are concerned about Japan's wobbly financial institutions and economy. Investors dislike equities, which have fallen steadily for at least a decade. They worry that the country's rising national debt might eventually cause a fall in the value of government bonds. They are uneasy about putting money into foreign-denominated assets, after suffering from volatile currency swings in the past.

    And to top it off, says Itsuo Toshima, regional director at the World Gold Council, some of today's buyers of gold also had their fingers burned when they put saving into money market funds with such safe investments as the paper of Enron, Argentina, and Mycal, a supermarket that went bust last September.

    The biggest reason, however, for the latest rush to gold, is the lifting of the government's blanket protection of bank deposits on April 1st, leaving savings accounts of over $76000 unprotected. Depositors used to be reluctant to invest in commodities such as gold, because they yielded no interest. But now that big banks have lowered interest rates on deposits to 0.001%, depositors often pay more in transaction fees than they earn in interest.

    Japanese investors have traditionally turned to gold in times of trouble. Gold imports rose in 1997 when Yamaichi Securities, then the country's fourth largest brokerage, collapsed, and again later when two big banks went under. Since few believe that Japan's financial woes are over, expect more gold sales in the coming months."

    I have an extraordinary number of Wall Street professionals as subscribers. What they think and write therefore tends to be of unusual interest. Here's an email received yesterday, Sunday.

    You write simply one of the best market letters I have ever read, to concur with Philip C.'s e-mail, you never predict,but I know you trade(win or lose).

    I am a Managing Director in Equities at a ____ _____ _____ bank and I'm horrified by what I've seen for the past several years in terms of the inexorable pile of garbage promoted by analysts, who simply are plying for investment banking details. When I have questioned them on various topics such as stock option accounting, Tech firm spin-ins (when a company gives start-up money to a new company, places it's own people in those companies to run them with gigantic equity stakes in the seedling, only to buy the company later on which in turn makes those equity holder(s) very wealthy,e.g Cisco) the analysts simply say that "we know they do this but it's very common to do so", I then ask is this ethical, and their response is "my job is not to judge the merit of such tactics",

    I implore them to be different from every other analyst and take that step, I literally get hung up on the phone call. Asking the same analysts why Companies make pension plan assumptions higher than the risk free rates and then apply that overage to operating expenses (it was the opposite in the 70's) when in fact the returns for the past several years have been negative, I ask again is that ethical? I am told that "everyone does that" e.g.'s IBM, GE. My mother always used to say to me "if your friends say it's OK to jump off a bridge, does that mean you should do it?".

    The analysts at my firm generally don't answer my calls anymore, or reply to my E-mails, so be it. As for todays P/E's the only quantifiable part of the equation is the P. The E is sketchy due to some very creative accounting, write-offs, pooling of accounting methods etc. The stated P/E of the S&P 500 just may be 40+, but it also may well be 400+ in actuality. Philip C should also take a look at Fred Hickey's High Tech Strategist,because this man not only writes, but he trades as well. Love your Newsletter, couldn't go a day without it.


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