the dow~richard russell comments

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    September 28, 2005 -- News: Sales of new homes in August plunged 9.9%. Inventories of new homes for sales rose to 479,000 in August from 467,000 in July. The rate of inventories was the highest since June 2000. But the sale of existing homes surged 15.8% vs. a year earlier, the most since 1979.


    Once a week the Los Angeles Times publishes a special advertising section entitled "Nevada Living." The section is all about Nevada real estate. The section deals with ads for condos for sale in high-rise buildings still in the planning stage, or on the drawing boards. Other ads offer condos in buildings under construction, while still other ads feature codos for sale in buildings that have actually been built.

    The price of these condos runs mostly from $550,000 to $5 and $6 million. Trump is there touting his condos, and even Trumps ex-wife, Ivana, is in on the act with her own fabulous high-rise condo-collection. And I think to myself, this is typical of what's going on in the East, in California, in Florida and certainly in Nevada.

    I don't believe most of these buyers of half-million dollar and up condos know what they're doing. About 30% of all new purchases are on the basis or adjustable-rate mortgages, many starting with "come-on" interest rates of 1%. Frankly, I don't see how these buyers are going to hang on to their condos. When you buy a half-million dollar condo you're talking about annual costs of anywhere from 5% to 8% and even 10% a year.

    Once these buyers (many are "flippers" or just speculators) are hit with the full cost of upkeep plus mortgage payments, I don't think the majority of them will be able to hang on to their condos. I don't think these buyers will have the income to keep their high-priced condos. Furthermore, housing and condo rents will come down, and the condo crowd will wonder why the hell they ever got involved with condo madness.

    As I see it, we're heading for an epic bust in real estate and certainly condo-real estate -- probably within the next year or so. The situation is so flagrant that Alan Greenspan is issuing warnings almost weekly. Greenspan's special study at the Fed shows that borrowing against home values added a mind-blowing $600 billion to consumer's spending powers last year. And that $600 billion has been spent.

    And this from yesterday's Wall Street Journal, "Mr. Greenspan's remarks were among his most extensive to date on the scope and risks of the rise in housing prices and mortgage debt in the past decade, developments in which his own policies have contributed. Mr. Greenspan's remarks suggest that while in the near term higher energy prices may be the greatest threat to consumers, in the longer term, he sees a cooling housing market as a potentially greater threat."

    Translation: Greenspan is starting to sweat. He's well aware of the enormous housing bubble that his Fed policies have created, and now he wants to go on record as warning that a housing bust could have serious consequences, better known as a full-fledged disaster. In other words, if or when the housing bubble bursts, Greenspan once to be on record as saying, "I told you so."

    Britain and Australia have been about a year ahead of the US in the whole housing cycle. Right now the housing situation in both countries is simmering down. In the UK house prices peaked last summer with July prices up a huge 20% over July 2004. Home appreciation in the UK dropped to just 2.3% in August as GDP weakened as well. In Australia, it's the same story. Home prices peaked at plus19% in December 2004 and prices are now flat. At the same time, Aussie GDP growth has dropped from 4.5% to 1.9% year over year.

    But financing in the US has been much wilder and more "imaginative" than financing in either the UK or Australia. And the home boom in the US has been considerably larger. Somewhere ahead, the wild US home bubble is going to burst, and if the pattern of the Philadelphia Housing Index has any validity, the air could well be coming out of the US housing bubble before the end of this year.

    I'm showing daily charts below of three of the leading US home-builders.You don't have to be an expert chart analyst to see what's happening here. The stocks of all three look toppy -- they've all broken support, and all three are under distribution.

    What does it mean when the home-building stocks have topped out and are moving down? I think it means that the market believes that the peak of the home-building mania has close to being over. The best has been seen. Sure, the home-building stocks are the "early-birds'' of the building boom, but I take these three charts as a yellow-to-red flag for the real estate business. Let me put it this way, I wouldn't be buying a condo in Miami or Las Vegas or Manhattan or San Diego at this time. If I needed a place to live, I'd rent.

    As for the general stock market, what's lacking here is any real urge by investors to buy. I can see it in the lazy sideways movement of my PTI. I can see it in poor market breadth, even on days when the averages are higher. I can see it in the reluctance of Lowry's Buying Power to rally. I can see it in the drop-off of new highs.

    I will say that the performance of the utilities is outstanding. Almost every utility stock that I've recommended is at or very near its high. The utilities have generally been considered defensive stocks, and investors generally bought them for yield. Unfortunately, due to their steady advance almost no utility now provides as much as a 5 percent dividend yield. The time of the fat utility yield seems to have passed. A few utilities that still sport decent yields are PGN -- 5.34%; EDE -- 5.5%; HE -- 4.46%; DUK -- 4.33%; CIN -- 4.41%; OGE -- 4.71%.

    Gold note -- I wrote a few days ago that the ratio of gold to oil was near a record low. In fact on August 5 the ratio did hit a record low of 6.2 or only 6.2 barrels of oil would buy an ounce of gold. This meant that gold compared to oil was at a record low. The ratio has now risen to a still very low 7.0. Gold continues to be ridiculously cheap compared with oil. The ratio has been as high at 38 in the past. The 40 year average ratio is 14. Is the gold-to-oil ratio valid? I think it is, and probably most valid at the extremes. We're at an extreme now.

    Valid or not, gold popped today, and with oil near its high, it just could be that gold is starting to catch up with oil, better known as "black gold." Just a thought, subscribers, just a thought.

    TODAY'S MARKET ACTION -- My PTI was up 6 to 5663. Moving average stays at 5649, so my PTI remains bullish.

    The Dow was up 16.88 to 10473.09. No movers today.

    Oct. crude was up 1.28 to 66.35.

    Transports were up 38.74 to 3656.25.

    Utilities were up 4.39 to 429.04.

    There were 1675 advances and 1612 declines.

    There were 159 new highs and 105 new lows.

    Total NYSE volume was 2.05 billion shares.

    S&P was up 1.23 to 1216.89.

    Nasdaq was down 1.02 to 2115.0.

    My Big Money Breadth Index was up 4 to 674.

    Dec. Dollar Index was down to .11 to 89.28. Dec. euro was up .12 to 120.75. Dec. yen was up .08 to 89.16.

    Bonds were higher with the Dec. long bond up 19/32nds to yield 4.50%. Dec. 10 year T-note up 3/32nds to yield 4.26%.

    Dec. gold up 6.90 to 473.10. Dec. silver up 7 to 7.40.

    Gold A-D up 18 to 1146.

    XAU up 2.38 to 112.25. HUI up 5.90 to 243.39.

    My Most Active Stocks Index up 1 to 399.

    McClellan Oscillator up 21 to -103.

    Sorry, I've got to stop here, trouble with T-I internet connection

    Conclusion is that gold is acting really well, oil doesn't appear to want to correct and the stock market continues to move sideways in a trading range, but note today AGAIN that breadth was poor, actually down by 105 issues. And we still had over 100 new lows today. Time to be very careful. Although gold and gold shares are overbought, I did add more NEM to my "collection."

    That's it for today -- and again sorry that I couldn't finish today's site the way I wanted.


    Bill Gary has been writing his "Price Perceptions" (mainly about commodities) for 37 years, and I've been reading his excellent analysis for years (1 800 231 0477). Bill calls 'em as he sees them, and I thought the following from his latest mailing was well worth repeating. These two paragraphs tell the story.

    "As long as foreign nations print money to buy dollars, and the US prints dollars to cover deficits, the world economic system is buoyed by liquidity. In other words, the rising tide of printed money continues to lift all economies.

    "Investors realize that holding any nation's currency is not a storehouse of wealth. The only method of maintaining wealth is to own stocks, real estate, or tangible items that are in demand. Some tangible items that have been in demand recently are crude oil, cement, copper and building materials. However, a few are beginning to realize that they must constantly shift from one asset to another in order to maintain wealth. The idea of holding gold for the longer term as a safety haven is just beginning to gain acceptance."

    Russell Comment -- Could anybody have said it better?

    By the way, Gary's last sentence confirms my thesis that gold is now in the second phase of its bull market, and probably early in its second phase. Bill Gary's words, "just beginning to gain acceptance" is, I believe, the story of where we are in the gold bull market.

    When gold recently rose to a 17 year high, it made the news in every newspaper in the nation. That probably caught the public's attention. And it probably caused a small number of Americans to think about, or even buy, a few gold coins.

    But as gold works its way higher, and as central bank inflation continues, the "great unwashed public" will become increasingly more concerned with protecting their purchasing power and protecting what wealth they still possess. Thus fear of loss of wealth and purchasing power will continue to power the great bull market in real money -- gold.
    What is it costing the US to bring freedom and democracy to Iraq and Afghanistan? According to the Pentagon Controller, The price tag for the war in Iraq is now running at $5.6 billion a month. Add $700 million a month for Afghanistan. Then there's $200 billion for the disaster in New Orleans, and we have a budget that's close to "out-of-control." Including the total to date for Iraq, the US has spent $224 billion for the global war on terror or nearly two-thirds of the $350 billion that Congress has approved.

    So far, in the years that he's been in office, President Bush has yet to veto a single spending bill. And the beat goes on.

    Rita causes record damage to oil rigs

    By Carola Hoyos in London, Sheila McNulty in Houston
    and Thomas Catan in Johannesburg
    Financial Times of London
    Published: September 27 2005 20:14

    Hurricane Rita has caused more damage to oil rigs than
    any other storm in history and will force companies to
    delay drilling for oil in the US and as far away as
    the Middle East, initial damage assessments show.

    ODS-Petrodata, which provides market intelligence to
    the offshore oil and natural gas industry, said it
    expected a shortage of rigs in the US Gulf this year.

    “Based on what we have right now, it appears that
    drilling contractors and rig owners took a big hit
    from Rita,” said Tom Marsh of ODS-Petrodata. “The path
    Katrina took was through the mature areas of the US
    Gulf where there are mainly oil [production]
    platforms. Rita came to the west where there is a lot
    of [exploratory] rig activity.”

    Ken Sill of Credit Suisse First Boston said: “Early
    reports indicate numerous rigs are missing, destroyed
    or have suffered serious damage and several companies
    have yet to report. Rita may set an all-time record.”

    The US Coast Guard said nine semisubmersible rigs had
    broken free from their moorings and were adrift.

    This damage could not have come at a worse time for
    oil companies and consumers. US crude futures on
    Monday fell 37 cents to $65.45 a barrel in midday
    trading in New York as refineries that were evacuated
    before the onset of Rita returned to operation.

    Earlier in the day, Ali Naimi, Saudi Arabia's oil
    minister, said the market had not taken up the 2m
    barrels a day of spare capacity the Organisation of
    the Petroleum Exporting Countries offered last week.
    Speaking in Johannesburg, he blamed high oil prices on
    a lack of industry infrastructure, including rigs and
    refineries, rather than oil reserves. Rigs, which are
    movable and are used for exploration and development,
    were in short supply before hurricanes Katrina and
    Rita blew through the US Gulf in late August and

    High oil prices and the desperate search for new oil
    supplies needed to meet rampant demand from the US and
    China have made rigs difficult to find and expensive
    to hire. Rigs cost $90m-$550m to construct, depending
    on how sophisticated the structure and how deep the
    water in which it will drill. A rig ordered today is
    unlikely to be ready before 2008 or 2009, analysts

    As a sign of just how precious rigs are becoming to
    the market, Anadarko, the biggest US independent oil
    company, this week set a record by committing to a rig
    six years in advance; commitments in the past were
    made months ahead of time rather than years.

    Initial reports from companies are ominous. Global
    Santa Fe reported it could not find two of its rigs.
    Rowan Companies reported four rigs damaged, with two
    having moved, one losing its “legs” and the fourth
    presumed sunk. Noble has four rigs adrift, with two
    run aground one into a ChevronTexaco platform.

    From an e-mail received this morning.

    Greenspan and his cohorts are a barrel of laughs. They know
    exactly what would happen if Congress decided to cut
    spending and balance the budget. After Roosevelt was
    re-elected in 1936, his advisors told him we ought to
    balance the budget. They did, and lo and behold, the nice
    recovery of 1936 was cut short and we were plunged back into
    the depression again, only to be saved by WW2. Who do they
    think they are kidding. I guess we know the answer to that

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