russell's latest: a must read

  1. 374 Posts.
    March 7, 2003 -- What's the news today? If you watched the Prez's news conference last night you probably saw it the way I did -- war is very close. Bush is still as determined as ever to attack Iran.

    This morning it was announced that the US lost 300,000 jobs in the latest period, the most in 15 months. The market seemed surprised, but why it was surprised is beyond me, since corporations have been reporting new lay-offs daily. Expect consumer buying to start to slump.

    Then it was announced that two of Bin Laden's 17 or so sons had been captured. The market erupted with glee, turning positive.

    The dollar plunged to a four-year low against the euro today. I guess that winds up today's vital news.

    Confession -- OK, I goofed big-time. After writing about five closed-end funds with high-yields, I can't believe it but I neglected to list the five funds. Here they are, but please check them out on before buying. They should be bought as a set of three, four or preferably five.

    Here are the five closed-end funds. MMA, DUC, FAX, DSU, FTD. Look 'em up. Please check 'em out on the charts before buying.

    Lessons and Learning -- I exchange subscriptions with dozens of other investment services. Some tend to be right -- most tend to be wrong. I spend more time studying the wrong services than the right ones. Why? Because I learn more from other people's mistakes than I do from other people's right calls.

    What do I learn from the wrong services? I try to learn WHY they went wrong. Here's what I've found.

    The number one reason these advisories are wrong (and stay wrong) is that they fail to understand the meaning of the primary trend of the market. They don't understand the concept that once the primary trend of the market turns down, one way or the other, the bear trend going to run to conclusion.

    I find some of the best popular and most "respected" and even some of the most expensive services don't understand this basic concept. They've never understood Dow Theory, they've never done their homework -- instead they listen to the news and read the government reports and try to figure when the news will turn up and bail them out of their mistakes.

    The second reason the advisors run into trouble is just plain stubbornness. They decide that the market or the economy "must turn up" for some dopey reason, and they hold to that view regardless of what happens. Or they hold to the view that the "Fed has always done this or that" and therefore the same medicine will work again. But their basic problem is stubbornness. Stubbornness is another words for "cessation of thinking."

    The third reason for mistakes is that the advisors fail to understand the bull market techniques don't work in a bear market. These wrong advisors insist on applying the techniques in this bear market that they used (for decades) in the bull market. Doesn't work. Won't work. Result -- disaster.

    A fourth reason that so many go wrong is impatience. The don't understand that old standby -- "The market always does what it's supposed to -- but never when." Example -- the bear market halts its decline for a month or even a few months. "Ah," say the perma-bulls, "See, the market's stopped going down. The bear market is over." They buy stocks and after a few weeks the primary bear trend resumes and the perma-bulls lose their money.

    Enough -- let's turn to today's market.

    I want to start again with my main bear market barometer, the moving averages of the Dow. As of today, the 200-day moving average of the Dow stands at a new bear market low of 8537. Today the 50-day MA of the Dow stands at 8176. The spread between the two has now increased to 361 points, widest yet.

    The primary trend of the market continues down. The secondary trend of the market continues down.

    Yesterday I noted that the McClellan Oscillator had formed four declining tops and that the Oscillator had sunk below zero into negative territory again. This was poor action. But I'll be most interested to see how the market closes today.

    Also, yesterday my Most Active Stock Index broke to a new bear market low. The Most Active Stocks provide important hints as to what important money is doing. So far, I'd have to conclude that Big Money is moving OUT of this market.

    Yesterday Lowry's Buying Power Index broke to its lowest level in six years. There is very little urge to "buy" in this market. That allows stocks to fall of their on weight.

    Opinion -- Here as the Dow is within 410 points of its October low, the implications are momentous. A violation of the Dow's bear market low of 7286.87 could easily trigger a waterfall or even a crash. The main European markets are down across the board today. The losses in Europe have been huge.

    Obviously I can't prove it, but I sense an all-out push to hold the Dow above the 7286 level, and at the same time even as the dollar sinks to new lows there seems to be major a manipulation to knock gold down.

    These moves have come at a critical time. They've come at a time when Bush is on an all-out campaign to try to convince the UN "partners" that he is on the right path, and that they should not block his way with a veto. The last thing Bush needs now is a plunging stock market and a surging gold price. I believe that today "someone" (the government?) has gone all-out to hold the stock market up and to knock the price of gold down.

    One concept that subscribers should understand. Once the primary trend of an time such as gold or the stock market is established, the more activity or manipulation against the primary trend, the stronger the primary trend becomes.

    Why is this? Take the stock market. The primary trend is down. Every rally, every upside correction, every intra-day pop puts stocks in weaker hands. The people who buy stocks on these counter-primary trend advances are buying stocks against the primary trend. Ultimately, they'll be forced to sell these same stocks at lower prices. But during the counter-trend rallies, stocks are moving from stronger hands to weaker hands.

    The same process applies to gold. We're now in the first or early phase of the gold bull market. Every time gold dips, every time some central bank or some manipulator dumps gold, the metal moves out of weaker hands and into stronger hands. Finally, gold establishes a rock-bottom base. The weak hands have either been knocked out of the market -- or sold out or scared out.

    Once that happens, gold will be ready to move higher and ultimately into its second phase. The second phase is the phase where the public finally becomes interested in the item. But we are not near the second phase yet. Skepticism towards gold, fear of buying or holding gold, is the condition of the market at this time.

    Actually, picture yourself as a large investor who wants to accumulate gold. You're convinced that gold is cheap, a bargain below 400. The last thing you want at this time is higher gold. You are patient, you're in no hurry. What you really want in this area is the cheapest gold possible for your dollars. In fact, you welcome any scare, any manipulation, any action, which might knock gold down and allow you to buy more gold at what you consider bargain prices.

    TODAY'S MARKET ACTION -- Today was a rumor-filled and rumor-motivated market. My PTI was up 6 to 5222 with the moving average at 5230. The PTI continues bearish.

    The Dow was up 66.04 to 7740.03. Only one mover today, JNJ up 2.00 to 55.30.

    April crude was up .78 to 37.78 and pushing towards the fabled 40 bucks a barrel.

    Transports were up 26.41 to 2042.48.

    Utilities were down .05 to 200.66.

    There were 1796 advances and 1447 declines. Up volume was 64% of up + down volume.

    There were 74 new highs and 186 new lows. My High/Low index was down 112 to minus 8258, the lowest since the end of November.

    Total NYSE volume was 1.36 billion shares.

    S&P was up 6.79 to 838.89.

    Nasdaq was up 2.40 to 1305.29 on 1.40 billion shares.

    My Big Money Breadth Index was up 10 to 648.

    March Dollar Index was down .42 to 97.95, a new low. March euro was up .46 to 10.15, new high. March yen was up .39 to 85.63.

    March Nikkei was down 185 to a 20 year low of 8130.

    Bonds were higher -- June 30 year T-bond was up 11 ticks to 114.30 to yield 4.67%. June 10 year T-note was u 8 ticks to 118.05 to yield 3.62%.

    April gold was down 6.00 (what with the dollar down?) to 350.90. May silver was down 6 to 3.60. April platinum was down 4.40 to 680.60. June palladium was unch. at 239.05.

    Gold/Dollar Index ratio was down 5.10 to 357.70 but still above its 50-day MA.

    Gold advance-decline line was down 15 to 1089.

    XAU was down 2.30 to 67.44. HUI was down 3.06 to 125.54.

    ABX down .37,ASA down .94, GFI down .545, GG down .30, AEM down .39, GLG down .24, KGC down .09, NEM down 1.13, RANGY down .47, RGLD down .23.

    STOCKS -- My Most Active Stock Index was up 5 to 106.

    The 15 most active stocks on the NYSE were -- GE up .35, F down .22, MO down 1.48 (new law suit), PFE up .61, GLW up .26, AOL up .33, NOK down .27, C up .36, XOM up .18, JNJ up 1.90, EMC up .09, TXN down .03, HD up .44, MOT down .05, NT up .02.

    Few more -- GM down .09, FNM up .92, MCD up .21, JCP up .18, KSS up 1.26, WMT up .72, MAY up .40, GPS up .55, COST up .40, AIG up .18, GS up 1.06, ED up .08, SO down .13, QCOM down .20. AMZN up .28, YHOO up .10, CSCO down .25, MSFT up .29.

    VIX was down .60 to 35.65, option-writers remain on their guard.

    McClellan Oscillator turned weakly up to a plus 8. The market continues in a weak and hesitant state.

    CONCLUSION -- A news oriented day with hedge funds working like made to get on the right side of -- well of something. Volume indications were confused -- the last three days saw volume indications in the 60s meaning no real conviction either way.

    I'll use the time-honored sign off of Dow Theorists over the last 90 years. "The primary trend continues down until proved otherwise."

    See you all tomorrow with my latest ideas (and I don't have a lot),

    Your faithful servant,


    The piece below appeared in the Atlanta Journal-Constitution on 9/29/2002. I thought it was a very important article and well worth reading.

    The president's real goal in Iraq

    Bookman is
    the deputy
    page editor
    of The Atlanta

    The official story on Iraq has never made sense. The connection that the Bush administration has tried to draw between Iraq and al-Qaida has always seemed contrived and artificial. In fact, it was hard to believe that smart people in the Bush administration would start a major war based on such flimsy evidence.

    The pieces just didn't fit. Something else had to be going on; something was missing.

    In recent days, those missing pieces have finally begun to fall into place. As it turns out, this is not really about Iraq. It is not about weapons of mass destruction, or terrorism, or Saddam, or U.N. resolutions.

    This war, should it come, is intended to mark the official emergence of the United States as a full-fledged global empire, seizing sole responsibility and authority as planetary policeman. It would be the culmination of a plan 10 years or more in the making, carried out by those who believe the United States must seize the opportunity for global domination, even if it means becoming the "American imperialists" that our enemies always claimed we were.

    Once that is understood, other mysteries solve themselves. For example, why does the administration seem unconcerned about an exit strategy from Iraq once Saddam is toppled?

    Because we won't be leaving. Having conquered Iraq, the United States will create permanent military bases in that country from which to dominate the Middle East, including neighboring Iran.

    In an interview Friday, Defense Secretary Donald Rumsfeld brushed aside that suggestion, noting that the United States does not covet other nations' territory. That may be true, but 57 years after World War II ended, we still have major bases in Germany and Japan. We will do the same in Iraq.

    And why has the administration dismissed the option of containing and deterring Iraq, as we had the Soviet Union for 45 years? Because even if it worked, containment and deterrence would not allow the expansion of American power. Besides, they are beneath us as an empire. Rome did not stoop to containment; it conquered. And so should we.

    Among the architects of this would-be American Empire are a group of brilliant and powerful people who now hold key positions in the Bush administration: They envision the creation and enforcement of what they call a worldwide "Pax Americana," or American peace. But so far, the American people have not appreciated the true extent of that ambition.

    Part of it's laid out in the National Security Strategy, a document in which each administration outlines its approach to defending the country. The Bush administration plan, released Sept. 20, marks a significant departure from previous approaches, a change that it attributes largely to the attacks of Sept. 11.

    To address the terrorism threat, the president's report lays out a newly aggressive military and foreign policy, embracing pre-emptive attack against perceived enemies. It speaks in blunt terms of what it calls "American internationalism," of ignoring international opinion if that suits U.S. interests. "The best defense is a good offense," the document asserts.

    It dismisses deterrence as a Cold War relic and instead talks of "convincing or compelling states to accept their sovereign responsibilities."

    In essence, it lays out a plan for permanent U.S. military and economic domination of every region on the globe, unfettered by international treaty or concern. And to make that plan a reality, it envisions a stark expansion of our global military presence.

    "The United States will require bases and stations within and beyond Western Europe and Northeast Asia," the document warns, "as well as temporary access arrangements for the long-distance deployment of U.S. troops."

    The report's repeated references to terrorism are misleading, however, because the approach of the new National Security Strategy was clearly not inspired by the events of Sept. 11. They can be found in much the same language in a report issued in September 2000 by the Project for the New American Century, a group of conservative interventionists outraged by the thought that the United States might be forfeiting its chance at a global empire.

    "At no time in history has the international security order been as conducive to American interests and ideals," the report said. stated two years ago. "The challenge of this coming century is to preserve and enhance this 'American peace.' "

    Familiar themes

    Overall, that 2000 report reads like a blueprint for current Bush defense policy. Most of what it advocates, the Bush administration has tried to accomplish. For example, the project report urged the repudiation of the anti-ballistic missile treaty and a commitment to a global missile defense system. The administration has taken that course.

    It recommended that to project sufficient power worldwide to enforce Pax Americana, the United States would have to increase defense spending from 3 percent of gross domestic product to as much as 3.8 percent. For next year, the Bush administration has requested a defense budget of $379 billion, almost exactly 3.8 percent of GDP.

    It advocates the "transformation" of the U.S. military to meet its expanded obligations, including the cancellation of such outmoded defense programs as the Crusader artillery system. That's exactly the message being preached by Rumsfeld and others.

    It urges the development of small nuclear warheads "required in targeting the very deep, underground hardened bunkers that are being built by many of our potential adversaries." This year the GOP-led U.S. House gave the Pentagon the green light to develop such a weapon, called the Robust Nuclear Earth Penetrator, while the Senate has so far balked.

    That close tracking of recommendation with current policy is hardly surprising, given the current positions of the people who contributed to the 2000 report.

    Paul Wolfowitz is now deputy defense secretary. John Bolton is undersecretary of state. Stephen Cambone is head of the Pentagon's Office of Program, Analysis and Evaluation. Eliot Cohen and Devon Cross are members of the Defense Policy Board, which advises Rumsfeld. I. Lewis Libby is chief of staff to Vice President Dick Cheney. Dov Zakheim is comptroller for the Defense Department.

    'Constabulary duties'

    Because they were still just private citizens in 2000, the authors of the project report could be more frank and less diplomatic than they were in drafting the National Security Strategy. Back in 2000, they clearly identified Iran, Iraq and North Korea as primary short-term targets, well before President Bush tagged them as the Axis of Evil. In their report, they criticize the fact that in war planning against North Korea and Iraq, "past Pentagon wargames have given little or no consideration to the force requirements necessary not only to defeat an attack but to remove these regimes from power."

    To preserve the Pax Americana, the report says U.S. forces will be required to perform "constabulary duties" -- the United States acting as policeman of the world -- and says that such actions "demand American political leadership rather than that of the United Nations."

    To meet those responsibilities, and to ensure that no country dares to challenge the United States, the report advocates a much larger military presence spread over more of the globe, in addition to the roughly 130 nations in which U.S. troops are already deployed.

    More specifically, they argue that we need permanent military bases in the Middle East, in Southeast Europe, in Latin America and in Southeast Asia, where no such bases now exist. That helps to explain another of the mysteries of our post-Sept. 11 reaction, in which the Bush administration rushed to install U.S. troops in Georgia and the Philippines, as well as our eagerness to send military advisers to assist in the civil war in Colombia.

    The 2000 report directly acknowledges its debt to a still earlier document, drafted in 1992 by the Defense Department. That document had also envisioned the United States as a colossus astride the world, imposing its will and keeping world peace through military and economic power. When leaked in final draft form, however, the proposal drew so much criticism that it was hastily withdrawn and repudiated by the first President Bush.

    Effect on allies

    The defense secretary in 1992 was Richard Cheney; the document was drafted by Wolfowitz, who at the time was defense undersecretary for policy.

    The potential implications of a Pax Americana are immense.

    One is the effect on our allies. Once we assert the unilateral right to act as the world's policeman, our allies will quickly recede into the background. Eventually, we will be forced to spend American wealth and American blood protecting the peace while other nations redirect their wealth to such things as health care for their citizenry.

    Donald Kagan, a professor of classical Greek history at Yale and an influential advocate of a more aggressive foreign policy -- he served as co-chairman of the 2000 New Century project -- acknowledges that likelihood.

    "If [our allies] want a free ride, and they probably will, we can't stop that," he says. But he also argues that the United States, given its unique position, has no choice but to act anyway.

    "You saw the movie 'High Noon'? he asks. "We're Gary Cooper."

    Accepting the Cooper role would be an historic change in who we are as a nation, and in how we operate in the international arena. Candidate Bush certainly did not campaign on such a change. It is not something that he or others have dared to discuss honestly with the American people. To the contrary, in his foreign policy debate with Al Gore, Bush pointedly advocated a more humble foreign policy, a position calculated to appeal to voters leery of military intervention.

    For the same reason, Kagan and others shy away from terms such as empire, understanding its connotations. But they also argue that it would be naive and dangerous to reject the role that history has thrust upon us. Kagan, for example, willingly embraces the idea that the United States would establish permanent military bases in a post-war Iraq.

    "I think that's highly possible," he says. "We will probably need a major concentration of forces in the Middle East over a long period of time. That will come at a price, but think of the price of not having it. When we have economic problems, it's been caused by disruptions in our oil supply. If we have a force in Iraq, there will be no disruption in oil supplies."

    Costly global commitment

    Rumsfeld and Kagan believe that a successful war against Iraq will produce other benefits, such as serving an object lesson for nations such as Iran and Syria. Rumsfeld, as befits his sensitive position, puts it rather gently. If a regime change were to take place in Iraq, other nations pursuing weapons of mass destruction "would get the message that having them . . . is attracting attention that is not favorable and is not helpful," he says.

    Kagan is more blunt.

    "People worry a lot about how the Arab street is going to react," he notes. "Well, I see that the Arab street has gotten very, very quiet since we started blowing things up."

    The cost of such a global commitment would be enormous. In 2000, we spent $281 billion on our military, which was more than the next 11 nations combined. By 2003, our expenditures will have risen to $378 billion. In other words, the increase in our defense budget from 1999-2003 will be more than the total amount spent annually by China, our next largest competitor.

    The lure of empire is ancient and powerful, and over the millennia it has driven men to commit terrible crimes on its behalf. But with the end of the Cold War and the disappearance of the Soviet Union, a global empire was essentially laid at the feet of the United States. To the chagrin of some, we did not seize it at the time, in large part because the American people have never been comfortable with themselves as a New Rome.

    Now, more than a decade later, the events of Sept. 11 have given those advocates of empire a new opportunity to press their case with a new president. So in debating whether to invade Iraq, we are really debating the role that the United States will play in the years and decades to come.

    Are peace and security best achieved by seeking strong alliances and international consensus, led by the United States? Or is it necessary to take a more unilateral approach, accepting and enhancing the global dominance that, according to some, history has thrust upon us?

    If we do decide to seize empire, we should make that decision knowingly, as a democracy. The price of maintaining an empire is always high. Kagan and others argue that the price of rejecting it would be higher still.

    That's what this is about.

    Dear Mr. Russell...

    You are DEAD ON about Congress and its abrogation of its power to
    declare war! Whilst you and I may differ on the advisability of an Iraq
    conflict, we totally agree about the dismal performance of Congress in its
    Constitutional responsibilities. After WWII, Congress ceased declaring war
    and instead began using specific "resolutions" to authorize military
    engagement, usually giving great discretion to the President. Now they've
    abandoned even that. While we've all heard the argument that this was to
    enable the President to act quickly in crisis, I believe it's far more
    likely that members of Congress simply don't want to be on public record as
    "voting for war," fearing it would be criticized as inhumane. So they pass
    statements of support (or whatever) and toss the ball for declaring war -
    and the blame - into the Presidential court. And Presidents, being
    executives, are always more than eager for the power to "execute",
    Constitutionally or otherwise.

    The real problem in all this is simply that it's unconstitutional. If
    the Constitution is "broken" and needs fixing, then it should be amended in
    the proper manner. But governmental leaders realize such amending would
    never withstand the ratification debates. So they do precisely what they've
    always done in such situations: either they ignore the Constitution or they
    redefine everything into new terms that obfuscate the issues. And the
    nation suffers. If a war is justified, it will withstand the war debate in
    Congress - after all, that's why the Constitution placed such power within
    Congress. By avoiding that debate, a cloud settles over the whole business,
    and divisions result. The President is isolated as merely leading some
    hawkish faction, members of Congress say whatever they please for political
    spin without ever being held to account by a real vote on war, and the
    public is left to wonder what's fact and fiction. The media and our enemies
    have great sport amidst the confusion, and a fragmented and bewildered
    public inevitably grows more disenchanted with the "system".

    Immediately after 9-11, Congress should have thoroughly aired the
    terrorism issue facing the US, and it should have produced a Constitutional
    declaration of war (or something similar) that provided a clear but general
    definition of who would be viewed as "our enemy" in the current terrorist
    crisis and what latitude the President would be given to engage those kinds
    of enemies, up to and including the waging of full war where needed. That
    declaration was never presented and its provisions were never debated, in
    large measure by using the phony excuse that one can't declare war without
    specific countries to name in the declaration. Instead a weak enabling
    resolution was passed that left nearly everything undefined and to the
    President's discretion. Is it any surprise he sought and is exercising that

    And that is my last point: the real blame for this mess lies squarely
    and solely at the feet of Congress. It alone possesses the Constitutional
    power to declare war; if it relinquishes that to the President, it only has
    itself to blame. Presidents will ALWAYS seek greater executive power - it
    makes their job easier, and it strokes their ego. It is up to Congress,
    using the Judicial branch when necessary, to confront the power demands of
    the President. What is most sobering to me is that it appears Congress
    itself utterly fails to understand our Constitution and the concept of
    checks-and-balances... and that bodes greater ill for this nation than all
    the Osamas and Saddams the terrorist world can ever crank out.


    Jim R.
    Fort Wayne, IN

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