richard russell, page-2

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    Russell On Global Affairs & the Markets

    It's "to hell with the UN -- we're going in, baby, and say hello to Pax Americana. It's a dirty job but somebody's gotta do it -- the US is to be policeman to the world."

    France and Russia are ready to use their veto to block passage of a new Security Council resolution authorizing force against Iraq-- but Colin Powell announces we're going to war without the US backing if necessary. At a meeting in Paris foreign ministers of France, Russia and Germany said they would not "let a proposed resolution pass that would authorize the use of force." China backed that statement today.

    Russell opinion -- Saddam Hussein's role model has always been the ruthless-killer, Joseph Stalin. I believe Saddam is a murderous, psychopathic dog, and this war could be justified on that thesis alone, Saddam (given free reign) could easily become a menace to the world. An alternative to war would be to keep say 500 UN inspectors in Iraq permanently. It would be a lot less expensive than war, but it might not work. So is war the right way to go? I don't know, but having been in combat myself and seen men blown to pieces, I'll always have a prejudice against war.

    That, my dear subscribers, is the story. Let the war begin.

    What about the economy?

    Hey good news. St. Louis Fed. President William Poole said the odds of a double-dip recession in the US remains small. Right, you dunder-head, we can't have a double-dip recession because we never got out of the single dip. Surprise, we've been in a recession all along.

    Today the US Labor Dept. reported that claims for unemployment have jumped to 430,000, highest for the year. This doesn't include all the workers who's unemployment pay has run out, leaving them jobless with no income at all.

    Here in the Golden State, the deficit hole gets deeper by the billions of dollars. According to the State Controller, the amount of money California will needed to keep the government running into the next fiscal year has jumped to $11 billion. This is an increase of one-third over the most recent official estimate. Fiscal analysts warn that banks may soon be reluctant to lend the state money and could impose strict conditions on how California operates before doing so.

    Confused? Discouraged? Angry? Unhappy? Brace up, we'll always have the markets. So let's see what they're saying.

    It's only half an hour after the opening, but as I look at my screen I see that the Dow is down 80 points. But it's early, and I have no idea who we'll close.

    I do know how the moving averages are doing. Today the declining 200-day MA of the Dow stands at a new bear market low of 8550. The faster-moving 50-day MA of the Dow stands at 8194. The spread between the two has widened to 356, widest yet on the decline. On a trend basis, the Dow's decline is accelerating.

    If the Dow continues steadily down, it will, in due time, take the rest of the market with it. This jibes with the action of my Big Money Breadth Index and my Most Active Stocks Index, both of which have already plunged to new bear market lows below their October lows.

    The US isn't the world, so what about the rest of the world? The European STOXX index of 50 leading European stocks just sank to its lowest level since April 1997. That doesn't sound so good.

    I quote the Japanese Nikkei every day. Japan's is the world's second largest economy. Looking at the monthly chart of the Nikkei, we see a steady decline to new lows over the last few weeks. The high for the Nikkei was set in late-1989 at just below 40,000. At it recent low of 8250 the Nikkei has low 79% of its value.

    How about Germany, the third largest economy in the world? From its high of 38951, the D-J German Index has crashed to a February 27 low if 11655 -- a seven year low. This represent a loss of 70%.

    In comparison, from its bull market high of 11722 to its October low of 7286 the Dow has lost 37.8% of its peak value. So are Germany and Japan leading the way down, or is the Dow saying that "enough is enough"? Obviously there's no way of telling.

    However, my own studies tell me that the bear market in the US is still nowhere near completed. We've got a long way to go, and people are getting impatient.

    In the next Dow Theory Letter I'll be going into the question of the Dow in detail. And it will not be a happy experience, I'm sad to say.

    One of the huge problems for many of my subscribers, I'm sure, is "Where can I get some income? I can't live on 1% yields from money market funds or zero-dividends from stocks."

    All right, I've come up with an interesting list of stocks, all of them closed-end funds. A closed-end fund is a fund of securities that trades just like any other stock. The fund may at any time sell above or below net assets, unlike open-end or mutual funds which sell at net assets.

    When you buy a mutual fund your money goes directly to the fund, and when you sell a mutual fund it's the fund that pays you. Some mutual funds charge a fee, and some charge no fees at all.

    When you buy a closed-end fund it's exactly the same as buying stock in GE or Ford. You're buying the stock on the exchange, and you pay whatever your broker charges for commissions.

    At any rate, the following are a list of closed-end funds which pay dividends of 5% or in some cases much more.

    Before you buy any of these stocks please look them up on There you can see the pattern and the dividend yield of each. The following five stocks should be bought ideally in a package of five, but if not five at least three. You can buy any amount of these, but I would keep the amounts equal -- $1000 of each, $3000 of each, $5000 or each -- it's your call.

    Two tax-free closed-end funds might also be considered. They are NUV and BMT. Look these up on as well.

    Finally, there's one other closed-end fund that I find interesting. It's CHN, the China Fund. This fund invests in the stocks of Chinese companies within China. This closed-end fund pays no dividend but it's action is excellent. If China is the world's "coming economy," this fund may be the way to participate. Check it out.

    Of course, a big question is whether to be in anything rather than cash (or foreign currencies) or gold and gold stocks. I honestly can't give you the ultimate answer, but if you buy any of the above closed-end funds I'd keep them to no more than 10% of your assets.

    Gold -- Looking at the daily chart of April gold, it appears that following the sharp correction following the February 5 peak of 384.50, gold tumbled. But it looks as though April gold has formed a double bottom in the 345 area. Gold has been climbing higher since it's last low of February 28 at 345.00.

    The rising 200-day MA of April gold stands today at 330. The rising 50-day MA stands today at 357.30. Any close above 357.30 would constitute a "buy signal."

    Incidentally, at gold's recent high of 384.50 its 200-day MA was at 326. This means that gold was 15% above its MA. As a rule, when any item if at 10% or more above or below its 200-day MA, that item is "stretched."

    Currently, gold is 7% above its 200-day MA, and I continue to believe that there is a 80/20 percent chance that the correction is over.

    As an aside, Canada's gold reserves last month dwindled to half a million ounces, down am amazing 97% from its levels of 1980. In a monthly update released last month, Canada's Dept. of Finance announced that it sold 90,588 ounces of gold or about 15% of its reserves. "The proceeds were used to buy other foreign currency securities," said a government official.

    Russell Comment -- These central bank idiots were selling real money laboriously dug out of the ground for fiat paper that can be created "out of thin air" by other central banks.

    This is the kind of mentalities that run the world's central banks. Our defense -- do the opposite of what they are doing, which means, BUY gold.

    CONCLUSION -- More of the "water torture" game, drop, drop, drop -- the market keeps dropping.

    Amazing that there are still more bullish than bearish advisors. I've never seen anything like it. Is there anything that will turn investors bearish? Remember that it was two years after the Dow Theory bear signal before people on CNBC and FNN would even refer to it as "a bear market." I noticed that even the great white father, Louis Ruykeyser now refers to it as "the bear market." I guess that makes it official. About time, Louis.

    Item -- my mother used to date Louis' father. Of course that was a long, long time ago.

    The Prez has another press meeting tonight. Wonder what he's going to say? British are now wavering on war -- Blair under extreme pressure from his constituents and from Parliament.

    It's getting hot (temperature) in Iraq, and soldiers are getting impatient. In war you're either bored to death or scared to death. I would guess that our troops are at the bored to death stage.

    Well, that concludes my ideas and observations for Thursday. I don't get a good feeling about Friday, but as I've so often confided to my subscribers -- "What do I know?" And the shameful answer, "Not much."

    Richard Russell
    Editor-in-chief - DOW THEORY LETTERS

    March 8, 2003

    The inimitable and venerable Mr. Russell gained wide recognition via a series of over 30 Dow Theory and technical articles that he wrote for Barron's during the late-'50s through the '90s. Through Barron's and via word of mouth, he gained a wide following. Russell was the first (in 1960) to recommend gold stocks. He called the top of the 1949-'66 bull market. And almost to the day he called the bottom of the great 1972-'74 bear market, and the beginning of the great bull market which started in December 1974.

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