the dow~richard russell comments

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    Last night's report is interesting for gold bugs so here it is. Hi Dub...

    April 30, 2003 -- Ah, there's nothing like a market that opens on news. Today's news -- The euro surged to a four-year high against the dollar.

    Gold, of course, has been "watching" the weak dollar intently. In recent sites, I've been drawing attention to the "head-and-shoulders" bottom that has been forming in gold. Over the last few days I've stated that gold is "working" on the right shoulder of this pattern. The upside breakout from the head-and-shoulders pattern, I said, would come if June gold could rally above 337.50.

    This morning, as the June Dollar Index broke to a new low, June gold rallied over four dollars to a high of 339.00, then backed of a bit but tended to hold in the 337-338 area.

    Subscribers must note how tentative, how reluctant, the gold shares are to react to any better action in gold, the metal. This is typical action during the early phase of a bull market. It's obvious that the public is not in the gold shares (do any of your friends own gold or gold stocks?), and thus gold shares are being bought by only the most enthusiastic element of the "gold-bug" fraternity. This has meant that buying of gold shares has been tentative, sporadic and erratic.

    With years of denigration and bad-mouthing by the central banks of the world, the public is hardly going to turn bullish on gold in a matter of a few weeks or months. It's going to take a long period of "good action" by gold before the public and most funds become "friendly" to gold and gold shares.

    But there's a "good" side to this suspicion and antipathy toward gold. The good side is that gold stocks remain on the bargain counter. Remember, gold mining companies enjoy huge leverage as the price of gold rises. Their expenses remain roughly the same while the price of their product, gold, rises. This is the single reason for holding gold shares as well as the basic product, gold

    But again I want to warn subscribers that holding any item early in a bull market entails a test of nerves. A bull market wants to advance while taking the few possible number of investors with it. How does it do that? It does it by making it very damn difficult on your nerves to hold the right items.

    On yesterday's site I showed, using the Japanese example, how difficult it is to make money or keep from losing money in a bear market. The same thing is, and will be, true in this bear market. Look at these headlines in today's Investor's Business Daily.

    With War Mostly Over, More Americans Sense Brighter Times Ahead. Conference Board gauge shows growing optimism for the present and the future."

    Today, everyone's a cheerleader. And why not, cheerleading costs you nothing. And everyone's job is on the line, so why not cheer the economy? What the hell, maybe the optimism you're writing about or talking about will rub off on the market, and you're job will be safer or maybe your portfolio will struggle back to break-even again.

    And if you're wrong so what. Nobody ever got fired for being optimistic!

    Turning to the stock market, the question of whether the Dow will confirm by bettering its March 21 peak of 8521.97 has become less important in my mind. As days and weeks go by, the importance of a conformation becomes weaker. Finally, after a certain amount of time the confirmation principle totally loses its importance, and fades from the technical arsenal.

    Even now I'm wondering whether, if the Dow does confirm, it has much meaning from a confirmation standpoint. It would be a matter of interest if the Dow can rise to a new recovery high, but the real power of a potential confirmation, I believe, is about gone.

    Based on the McClellan Oscillator and the action of my Big Money Breadth Index, I suspect that we've passed the peak of strength for this rally. The market has exhaled, and we're nearing the time when the market will inhale.

    Bonds -- The recovery of the 30 year T-bond following its violent March decline has surprised even the biggest bond bull, and believe me, there haven't been many bond bulls around. The long bond has now recovered better than two-thirds of its March losses, and the bond is now well above its 50-day moving average.

    So you have to ask the question -- with a very weak dollar and the Fed talking about re-inflating, why has the long bond been rallying ever since its March 21 low?

    My answer is INCOME. People need income. They don't know much about corporate bonds or muni bonds, but they do know T-bills, T-notes and T-bonds. I really believe that the main reason for the long bond's rally is the desire by investors for the safest attractive income they can find. True, the 30 year T-bond only yields 4.77% today (free of state taxes), but as far as most people are concerned there's no credit worry, so what the heck -- buy the bond.

    Currencies -- Today saw the Dollar Index gap down to a new four-year low against the euro. Today could also be the beginning of a new leg down for the dollar. Today saw the euro gap up over 100 points to a new high.

    The US is a nation running a budget deficit of over 5% of GDP and a trade deficit of over 5% of GDP. Moreover, the US is spending countless billions in establishing itself as the world's most powerful military establishment.

    Europe has been squirming in the face of US military power and the US claim to world supremacy. But as I've been saying, the US has an Achilles Heel. The Achilles Heel is the dollar.

    The US retains one mighty advantage. It produces the world's reserve currency. The US can spend its head off, importing the goods of the world, and in return the US pays its foreign friends off by printing dollars. And the question, the great question, is -- how much longer will the world be the US's sucker? How much longer will the world give up its goods and merchandise in return for fantasy money that is produced by the US at NO COST?

    My own instinct is that we're drawing nearer and nearer to the time when the power of the dollar will be challenged by the euro. In fact, the dollar's power is being severely challenged as I write.

    You don't have to take my word for it. I just ran a chart of the euro against the dollar. The dollar hit its peak of strength in June 2001. The dollar has been declining against the dollar ever since. Today the dollar is at its lowest level against the euro in four years.

    The great danger is this -- at some point ahead the dollar may lose it reserve currency status. That may not be official, but it will occur in reality. Other nations will prefer euros to dollars. If or when that happens, the US will find itself in major trouble -- and US military superiority won't be the answer.

    Europe under the leadership of France, Germany and Russia are biding their time, but they've been chaffing under pressure of the "mighty US world military leadership." The European economy is larger than the US economy. Europe isn't spending itself into insolvency on its military. The Germans will not tolerate inflation. Europe has a positive trade balance. The euro is surging against the dollar. Follow the money, dear subscribers, just follow the money.

    In the background is China with its currency tied to the dollar. As the dollar sinks, Chinese exports become even more competitive. China's aim is to be the single great power in Asia. China, like many Asia nations, is accumulating gold.

    Gold throughout history has migrated to where the power is. Somewhere ahead the Chinese renminbi will be made convertible. Somewhere ahead I believe the renminbi will be backed with gold. If this happens, the renminbi could easily become the world's strongest and most wanted currency. Remember, the Chinese have a gold coin of their own. It's called the panda. The Chinese know gold. They've known gold and respected gold for thousands of years.

    Hello Alan -- Greenspan tried to sound optimistic in his appearance before Congress today. He expects "a better pace of growth" as soon as business starts to expand. What was interesting, I thought, was the market remained down during Greenspan's talk. What the market took away was that the Fed will probably not lower interest rates in the near future. What was clear was that the "Maestro" has lost his "master of the world" status. The aura is gone.

    TODAY'S MARKET ACTION -- Try, try, try again. And again a Dow failure. My PTI was up 3 to 5264 with the moving average at 5238. PTI remains bullish.

    The Dow closed down 22.90 to 8480.09. There were no movers in the Dow.

    June crude was down .56 to 25.80.

    Transports were up 7.99 to 2408.87.

    Utilities were up .62 to 224.82.

    There were 1957 advances and 1310 declines. But up volume was only 53% of up + down volume. A "churning" day.

    There were 132 new highs and 15 new lows. My High-Low Index was up 117 to minus 6981.

    Total NYSE volume was a large 1.65 billion shares.

    S&P was down .93 to 916.91.

    Nasdaq was down 6.99 to 1464.31.

    My Big Money Breadth Index was unchanged for the third day in a row at 694. Haven't seen this in a long time. Is this resistance?

    June Dollar Index was whacked, down .73 to 97.47. June euro surging, up 1.03 to 111.52. June yen up .68 to 84.23. June Canadian dollar up .45 to 69.57. June Swissie up .31 to 73.82. Seems all currencies moving up against the dollar.

    German DAX up 33 to 2942. June Nikkei up 15 to 7770.

    Bonds strong with the June 30 year T-bond up 30 ticks to 114.01 to yield 4.77%. June 10 year T-note up 19 ticks to 115.04 to yield 3.85%. Top-grade munis now yielding more than Treasury paper. Munis a bargain compared with other bonds.

    June gold was up 5.40 and completing its base. Gold now above its 200-day MA and its 50-day MA for a "buy" signal. July silver up 8 t 4.65. July platinum up; 5.20 to 599.30. June palladium up 3.65 to 156.00.

    Gold/Dollar Index ratio was up 8.40 to 348.50 and now above its 200-day and 50-day MAs.

    Gold advance-decline line was up 14 to 1075.

    XAU up .94 to 65.30. HUI up 3.20 to 124.69.

    ABX up .05, AEM down .03, ASA up 1.43, GG up .32, GLG up .64, HMY up .24, NEM up .68, RGLD up .35.

    STOCKS -- My Most Active Stock Index was up 3 to 180.

    The 15 most active stocks on the NYSE were -- TYC up .19, MIR down .04, PFE up .04, AWE down .07, NT up .04, EMC down .34, CPN up .30, GE up .13, AOL down .02, C up .35, F up .11, GLW down .06, MOT down .05, JPM up .36, XOM up .37.

    VIX was up .24 to 23.77 and option-writers still complacent.

    McClellan Oscillator was up 1 to 114. Time's runnng out on the positive cycle for the Oscillator.

    CONCLUSION -- Dow doesn't want to break out, market doesn't want to go down. Today was not an impressive day with upside and downside volume almost even. I think market's strength is ebbing, but as usual, I want to see more.

    Tomorrow's the first of May. I remember kids dancing around the May-pole in New York's Central Park in those long ago innocent days. Now the kids are more likely to be watching TV and learning how to dance around a chrome pole. Ah well, as they used to tell us in those great old news shorts, "Time Marches On."

    I'm receiving so many great e-mails that the mind boggles. A few are featured below. Thanks, guy and gals, many thanks




    When this rally started, Lowry's was dubious. Then came the buy signal on March 17, after which the market went sideways for awhile (or down if you bought Q's). Then a weaker burst up. Lowry's recommended the "averaging in" approach for those too timid to plunge on the 17th, which by now is everybody. The last buy advisory was just before the recent two-day sell-off. So if you averaged in, where are you now as we approach the top? Should have plunged on the 17th? Should have bought more in early April?
    The trouble with bear market rallies. Are the gains worth the pain?
    Yet, today's Lowry's report favored higher prices in the months ahead.
    And John Hussman has just gone positive on market climate for the first time since early 2000 or so.
    Double wow.
    On top of that, earnings "season" is almost over and we are entering what Fred Hickey calls the no-news period, when prices were run up for a few weeks even during the steepest declines of the last two years. (Hickey has made a bundle, according to his reports, on the short side since 2000. I think his May issue will arrive somewhat charred at the edges.)
    However, the Nasi and Nysi are at or above levels where the market has turned down in the past. Perhaps the imminent ISM will do the trick. But if this truly is a mini-bull market in the making, then the drop from overbought conditions on these two indices to seriously oversold may be aborted, as happened in March from the December top.
    I am wondering if just as certain buy/sell signals of the bull market were no longer reliable during the bear (put/call ratios, for example), perhaps the reverse will be true now.
    I am reminded that bull markets ignore bad news, which certainly happened Monday and today following the GDP disappointment Friday.Will the ISM be bought the next day too? Will the 6-month "bad" period for the market be bought?
    I looked again at the VIX numbers for the mid-90s. A reading of 23 would be considered at the top of the range. Complacency was about 10.
    The weekly and monthly charts on the Ndx are extremely positive, and the Spx is getting there.
    Barring what are coyly referred to as a negative exogenous event, it certainly looks like we are set up for one of those huge Japan-style rallies. The one that boomers have been praying for as their monthly 401 statements piled up unopened. The one that will bring "the little guy" back in when he sees "they" are finally right: the decline is "over." October 2002 was "the bottom" and buy-and-hold will be rewarded...with at least a "get-even."
    All we need is a Dow 8521.97 close.



    Russell Comment -- Well, maybe. See next e-mail and my reply. By the way, Fred Hickey is terrific.


    Dear Mr Russell,
    I don't remember where I read this but it was some years ago when I was reading from an article concerning Dow Theory. I believe the author was quoting Mr. Rhea and he was talking specifically about one index confirming the other. The point of the article was concerning a time frame in which one index should confirm the other. I'm not saying this properly but what I am struggling to say is that I believe that the author was stating that if the Trannies were not confirmed by the Industrials, or visa versa, in a certain time period then it seriously compromised the Theory's ability to tell the next direction of the market. In other words, since the Transports made a new high so long ago, even if the Industrials were to close above the 8521 point now it would seriously diminish the validity of the argument that the market was now in a new bull phase.
    Have you ever read this in any of your studies of the great Dow Theorist? I thought it would make for interesting discussion.


    Russell Comment -- There's no prescribed time regarding confirmations. The most authoritative action occurs when both Averages, Industrials and Transports, penetrate preceding points simultaneously. Conversely, the longer the time elapsed prior to a confirmation, the less authoritative the confirmation. It's really a matter of intuition and experience.

    In the current situation, I think a confirmation by the Dow would be very diluted as far as bullish conclusions are concerned, Too much time has elapsed. Furthermore, a belated confirmation by the Dow at this point would come in the face of a very overbought market. Let me put it this way -- I wouldn't be particularly impressed at this point if we finally got a confirmation by the Dow above 8521.97. I'm more impressed by the fact that over a month has gone by and the DID NOT get a Dow confirmation. In other words, the lack of confirmation, I now take, as an increasingly bearish factor.

    Dear Richard,

    WOW! "IBM boosts dividend 7%" was the featured headline on AOL today. And do I need income!!!! So I click on the story. Quick! Big Blue raised it's quarterly dividend from 15 cents to 16 cents. (huh?) "The eighth raise since 1996 for a total increase of 156%." 156%? Omigosh I better look into this. Let's see 8500 bucks from Treasury Direct which yields a miserly 1.14%, buy 100 shares and I get? 64 bucks a year. Darn, not even enough for dinner for two at my favorite restaurant. But still 156% increase in eight years! So what's IBM yielding now? 3/4 of 1%?!?! Hey, my lousy 90 day bills are yielding 65% higher than IBM. Now I feel much better. I might even ask some nice lady to dinner tonight.

    But I keep wondering how Big Blue could have boosted the dividend 6%?

    D. Mulvihill


    A friend just e-mailed me from the US mainland. Said he was at the airport in Beijing headed to Hong Kong and had to take a temperature test to get on a plane. Some prospective passengers were opting not to take the test as if they failed they were immediately transported to a quarantine hospital where if you didn’t have SARS you would likely catch it.
    He passed and took the plane that was less than half full, found the HK airport eerily empty and his 5 star hotel 20% occupied. On arrival in Tokyo later in the week the same weird feeling as the place was also almost empty. On departure to the US he claimed that he was almost the only one in the Narita departure lounge. And the plane to LA was less than 30% full. He was the only one in First Class.

    This has to have major implications for the Asian stock market eventually as tourism and business travel are such a large part of the GDP of the region. Best, Loy


    Follow the money, and you'll never go wrong. And there's one whopping load of money involved with putting Iraq back together, see below -- Russell


    Halliburton: All In The Family
    April 27, 2003

    After dropping more than 28,000 bombs on Iraq, the United States has now begun the business of rebuilding the country.

    And it promises to be quite a business. With at least $60 billion to be spent over the next three years, the Iraqi people won't be the only ones benefiting. The companies that land the biggest contracts to do the work will cash in big-time.

    Given all the taxpayer money involved, you might think the process for awarding those contracts would be open and competitive. Well, so far, it has been none of the above. And the early winners in the sweepstakes to rebuild Iraq have one thing in common: lots of very close friends in very high places, correspondent Steve Kroft reports.

    One is Halliburton, the Houston-based energy services and construction giant whose former CEO, Dick Cheney, is now vice president of the United States.

    Even before the first shots were fired in Iraq, the Pentagon had secretly awarded Halliburton subsidiary Kellogg, Brown & Root a two-year, no-bid contract to put out oil well fires and to handle other unspecified duties involving war damage to the country’s petroleum industry. It is worth up to $7 billion.

    But Robert Andersen, chief counsel for the Army Corps of Engineers, says that oil field damage was much less than anticipated and Halliburton will end up collecting only a small fraction of that $7 billion. But he can't say how small a fraction or exactly what the contract covers because the mission and the contract are considered classified information.

    Under normal circumstances, the Army Corps of Engineers would have been required to put the oil fire contract out for competitive bidding. But in times of emergency, when national security is involved, the government is allowed to bypass normal procedures and award contracts to a single company, without competition.

    And that's exactly what happened with Halliburton.

    “We are the only company in the United States that had the kind of systems in place, people in place, contracts in place, to do that kind of thing,” says Chuck Dominy, Halliburton’s vice president for government affairs and its chief lobbyist on Capitol Hill.

    He says the Pentagon came to Halliburton because the company already had an existing contract with the Army to provide logistical support to U.S. troops all over the world.

    “Let me put a face on Halliburton. It's one of the world's largest energy services companies, and it has a strong engineering and construction arm that goes with that” says Dominy.

    “You'll find us in 120 countries. We've got 83,000 people on our payroll, and we're involved in a ton of different things for a lot of wonderful clients worldwide.”

    “They had assets prepositioned,” says Anderson. “They had capability to reach out and get sub-contractors to do the various types of work that might be required in a hostile situation.”

    “The procurement of this particular contract was done by career civil servants, and I know that it's a perception that those at the very highest levels of the administration, Democrat and Republican, get involved in procurement issues. It can happen. But for the very most part, the procurement system is designed to keep those judgments with the career public servants.”

    But is political influence not unknown in the process? In this particular case, Anderson says, it was legally justified and prudent.

    But not everyone thought it was prudent. Bob Grace is president of GSM Consulting, a small company in Amarillo, Texas, that has fought oil well fires all over the world. Grace worked for the Kuwait government after the first Gulf War and was in charge of firefighting strategy for the huge Bergan Oil Field, which had more than 300 fires. Last September, when it looked like there might be another Gulf war and more oil well fires, he and a lot of his friends in the industry began contacting the Pentagon and their congressmen.

    “All we were trying to find out was, who do we present our credentials to,” says Grace. “We just want to be able to go to somebody and say, ‘Hey, here's who we are, and here's what we've done, and here's what we do.’”

    “They basically told us that there wasn't going to be any oil well fires.”
    Grace showed 60 Minutes a letter from the Department of Defense saying: "The department is aware of a broad range of well firefighting capabilities and techniques available. However, we believe it is too early to speculate what might happen in the event that war breaks out in the region."

    It was dated Dec. 30, 2002, more than a month after the Army Corps of Engineers began talking to Halliburton about putting out oil well fires in Iraq.

    “You just feel like you're beating your head against the wall,” says Grace.
    However, Andersen says the Pentagon had a very good reason for putting out that message.

    “The mission at that time was classified, and what we were doing to assess the possible damage and to prepare for it was classified,” says Andersen. “Communications with the public had to be made with that in mind.”

    “I can accept confidentiality in terms of war plans and all that. But to have secrecy about Saddam Hussein blowing up oil wells, to me, is stupid,” says Grace. “I mean the guy's blown up a thousand of them. So why would that be a revelation to anybody?”

    But Grace says the whole point of competitive bidding is to save the taxpayers money. He believes they are getting a raw deal. “From what I’ve read in the papers, they're charging $50,000 a day for a five-man team. I know there are guys that are equally as well-qualified as the guys that are over there that'll do it for half that.”

    Grace and his friends are no match for Halliburton when it comes to landing government business. Last year alone, Halliburton and its Brown & Root subsidiary delivered $1.3 billion worth of services to the U.S. government.
    Much of it was for work the U.S. military used to do itself.

    “You help build base camps. You provide goods, laundry, power, sewage, all the kinds of things that keep an army in place in a field operation,” says Dominy.

    “Young soldiers have said to me, ‘If I go to war, I want to go to war with Brown & Root.’"

    And they have, in places like Afghanistan, Rwanda, Somalia, Kosovo and now Iraq.

    “It's a sweetheart contract,” says Charles Lewis, executive director of the Center For Public Integrity, a non-profit organization that investigates corruption and abuse of power by government and corporations. “There's no other word for it.”

    Lewis says the trend towards privatizing the military began during the first Bush administration when Dick Cheney was secretary of defense. In 1992, the Pentagon, under Cheney, commissioned the Halliburton subsidiary Brown & Root to do a classified study on whether it was a good idea to have private contractors do more of the military's work.

    “Of course, they said it's a terrific idea, and over the next eight years, Kellogg, Brown & Root and another company got 2,700 contracts worth billions of dollars,” says Lewis.

    “So they helped to design the architecture for privatizing a lot of what happens today in the Pentagon when we have military engagements. And two years later, when he leaves the department of defense, Cheney is CEO of Halliburton. Thank you very much. It's a nice arrangement for all concerned.”

    During the five years that Cheney was at Halliburton, the company nearly doubled the value of its federal contracts, and the vice president became a very rich man.

    Lewis is not saying that Cheney did anything illegal. But he doesn't believe for a minute that this was all just a coincidence.

    “Why would a defense secretary, former chief of staff to a president, and former member of congress with no business experience ever in his life, not for a day, why would he become the CEO of a multibillion dollar oil services company,” asks Lewis

    “Well, it could be related to government contracts. He was brought in to raise their government contract profile. And he did. And they ended up with billions of dollars in new contracts because they had a former defense secretary at the helm.”

    Cheney, Lewis says, may be an honorable and brilliant man, but “as George Washington Plunkett once said, ‘I saw my … seen my opportunities and I took them."

    Both Halliburton and the Pentagon believe Lewis is insulting not only the vice president but thousands of professional civil servants who evaluate and award defense contracts based strictly on merit.

    But does the fact that Cheney used to run Halliburton have any effect at all on the company getting government contracts?

    “Zero,” says Dominy. “I will guarantee you that. Absolutely zero impact.”

    “In fact, I wish I could embed [critics] in the department of defense contracting system for a week or so. Once they'd done that, they'd have religion just like I do, about how the system cannot be influenced.”
    Dominy has been with Halliburton for seven years. Before that, he was former three-star Army general. One of his last military assignments was as a commander at the Army Corps of Engineers.

    And now, the Army Corps of Engineers is also the government agency that awards contracts to companies like Halliburton.

    Asked if his expertise in that area had anything to do with his employment at Halliburton, Dominy replies, “None.”

    But Lewis isn’t surprised at all.

    “Of course, he’s from the Army Corps. And of course, he’s a general,” says Lewis. “I’m sure he and no one else at Halliburton sees the slightest thing that might look strange about that, or a little cozy maybe.”

    Lewis says the best example of these cozy relationships is the defense policy board, a group of high-powered civilians who advise the secretary of defense on major policy issues - like whether or not to invade Iraq. Its 30 members are a Who's Who of former senior government and military officials.

    There’s nothing wrong with that, but as the Center For Public Integrity recently discovered, nine of them have ties to corporations and private companies that have won more than $76 billion in defense contracts. And that's just in the last two years.

    “This is not about the revolving door, people going in and out,” says Lewis. “There is no door. There's no wall. I can't tell where one stops and the other starts. I'm dead serious.”

    “They have classified clearances, they go to classified meetings and they're with companies getting billions of dollars in classified contracts. And their disclosures about their activities are classified. Well, isn't that what they did when they were inside the government? What's the difference, except they're in the private sector.”

    Richard Perle resigned as chairman of the defense policy board last month after it was disclosed that he had financial ties to several companies doing business with the Pentagon.

    But Perle still sits on the board, along with former CIA director James Woolsey, who works for the consulting firm of Booz, Allen, Hamilton. The firm did nearly $700 million dollars in business with the Pentagon last year.

    Another board member, retired four-star general Jack Sheehan, is now a senior vice president at the Bechtel corporation, which just won a $680 million contract to rebuild the infrastructure in Iraq.

    That contract was awarded by the State Department, which used to be run by George Schultz, who sits on Bechtel's board of directors.

    “I'm not saying that it's illegal. These guys wrote the laws. They set up the system for themselves. Of course it's legal,” says Lewis.

    “It just looks like hell. It looks like you have folks feeding at the trough. And they may be doing it in red white and blue and we may be all singing the "Star Spangled Banner," but they're doing quite well.”

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