the dow~richard russell comments

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    May 15, 2003 -- Mucho news today. From Bloomberg -- Europe is on the brink of recession as economies in German, Italy and Netherlands contract.

    Industrial Output in the US falls 0.5%.

    The Philadelphia Factory Index falls to minus 4.8 -- this is the third consecutive month that this index has declined. A negative reading means that more business deteriorated more than it improved.

    US Producer Price Index falls 1.9%, the most on record; the Core rate drops 0.9%.

    Initial Jobless Claims fall to 417,000, the 13th straight week above 400,000, and the number of Americans collecting unemployment benefits rises to the highest since November 2001. The ranks or workers who have given up looking for jobs rises to a 20 year high.

    Senate Republicans edge towards a narrow majority in favor of tax cuts.

    Headline in todays' Financial Times, "Weak Data Drive Deflation Fears."

    Headline from today's New York Times, "Yield on 10-Year Treasury Note Hits 45-=year Low of 3.52%."

    Quote from James Glassman, senior US economist at J.P. Morgan. "You couldn't ask for a more positive financial environment to get the economy going." Russell Comment -- He's serious; he's referring to surging liquidity and historic low interest rates.


    So much for the news. Now what are the markets saying? As I write an hour after the opening the stock market is higher, bonds are slightly lower, market breadth is good, the June Dollar Index is up 20 points and June gold is up just over two dollars.

    The stock market is seriously overbought. It's been floating up on a rising tide of Fed-created liquidity. Can liquidity alone reverse a primary bear market? The Russell answer is "No," any more than increasing doses of cocaine can keep a doper going.

    The readily available bank credit has to be spent. The US consumers are "spent out," and corporate America is suffering from overcapacity with factory usage sinking into the low 70% area.

    Our brave champions at the Federal Reserve continue to wrestle with the specter of deflation, and so far the results are open to question. One of the best forecasters of Fed success or failure is the 30 year Treasury bond. These long-term bonds are extremely sensitive to anything hinting of inflation. Today the "long bond" has rallied to a new high and it yields around 4.5%. If real deflation envelopes this nation, I would expect these bonds to sell down to yields of 3% to 3.5%.

    And, of course, another inflation/deflation barometer is the price of gold, which has been rising steadily from its recent secondary low recorded on April 7 at 320.

    June gold is selling this morning at 353-355, but of course, I don't know as I write where gold will close. June gold runs into heavy supply in the 350 to 360 area. If June gold can rise to 360, I would expect a little backing off. Such action would form a powerful "head-and-shoulders" bottom. Then a rise above 360 could point gold towards its recent high in the 390 area.

    The 200 day MA for June gold stands today at 334. Just above the 200-day MA stands the 50-day MA at 336.90. The 50-day MA has been moving sideway, but it will turn up any day, and when it does it will put gold in its full "bullish mode."

    As subscribers know, I've been waiting for the McClellan Oscillator (which is in its eighth week above zero) to correct by dropping below zero. The Oscillator has a base at plus 50 where it has found resistance to further decline. I think any closing below 50 in the Oscillator will quickly send the Oscillator down to zero and below. Once the Oscillator drops below zero it will be telling us that the majority of NYSE stocks have lapsed into downtrends. At that point, we'll be able to judge the internal strength of weakness of this market.

    TODAY'S MARKET ACTION -- Market is grinding higher, but caution is needed. Seven out of ten insider trades are now on the sell side.

    Nevertheless, my PTI was up 4 to 5278. Moving average is at 5246 and the PTI remains bullish.

    The Dow was up 65.32 to 8713.14. There was one mover, good ol' MMM up 2.69 to 125.85.

    June crude was down .42 to 28.74.

    Transports were down 20.83 to 2436.79.

    Utilities were up 3.90 to 230.65.

    There were 2029 advances and 1244 declines. Up volume was 68% of up + down volume.

    There were 254 new highs and 4 new lows. My High-Low Index was up 250 to minus 4708.

    Total NYSE volume was 1.42 billion shares.

    S&P was up 7.38 to 946.66.

    Nasdaq was up 16.48 to 1551 on a big 1.94 billion shares.

    My Big Money Breadth Index was up 4 to 688 and lagging the main averages.

    June Dollar Index was up .75 to 95.49. June euro was down 1.18 to 113.74. June yen was down .22 to 85.99.

    Bonds were mixed; June long T-bond was up 1 tick to 118.13 to yield 4.49%. June 10 year T-note was down 4 ticks to 117.13 to yield 3.58%.

    June gold was up .30 to 352.80, which shows impressive strength for gold because the dollar was also up strongly today. Until very recently, gold has decline when the dollar was up. July silver dropped 9 to 4.78. July platinum was down 1.90 to 652.50. June palladium was up .65 to 159.15.

    Gold/Dollar Index ratio was down 2.30 to 369.80.

    Gold advance-decline line was down 3 to 1139.

    XAU was up .78 to 72.23. HUI was up .20 to 135.31.

    ABX up .40, ASA up .28, GLG down .21, GG down .14, HMY up .48. MDG down .22, NEM was up .10, PDG down .08, RANGY down .19, RGLD down .67.

    In a bull market, first one stock, then the next, then a third, then the first go up. Ultimately almost all stocks will rise. In the first phase of a bull market, usually the blue chip stocks rise. In the third phase, all stocks rise and the junk stocks blow off on the upside. That's the way it will go with gold.

    Just received David Fuller's "Fullermoney" report out of London (www.fullermoney.com). Fuller is one of the best chart readers and market analysts that I have come across. He specializes in point & figure charts, and has a great sense of history. Fuller's comment on gold in this issue -- "Gold is forming its first step above the base, in the very early stages of a secular bull market."

    As I see it, the big money is now buying gold the metal. The gold stocks won't really take off until the public finally recognizes that there's a gold bull market. This could take quite some time. Right now it's accumulation time for gold shares.

    STOCKS -- My Most Active Stock Index was up 3 to 207.

    The 15 most active stocks on the NYSE were -- LU up .06, MOT up .18, AOL up .49, NT up .02, CA up 2.04, AMR down .43, TGT down 1.34, GE down .11, EMC down .14, PFE up .34, HD down .33, TYC up .24, DYN up .36, PCS down .09, CNP up .74.

    I believe a lot of late comers are now chasing the tech stocks, fearful of missing out on the move. Note how many tech stock are filling the 15 most active list at this point.

    VIX was down 1.098 to 21.67 and complacency is rising.

    McClellan Oscillator virtually unchanged today -- up 10 to 77. Watch for a close below 50. That would break support and, I believe, send the Oscillator rapidly down through zero.

    CONCLUSION -- Stock market still pushing but remember, the Dow closing high was on May 12 at 8726.73, which is above today's close; Transports were down today. Next week will be the ninth week that the McClellan Oscillator will be above the zero line, meaning that the market is now very overbought.

    Liquidity remains massive and rates are at 45 year lows. So far it has floated stocks higher, but it remains to be seen whether it will float the US economy higher. The housing bubble continues to bubble, you can almost hear the fizz. Mmmm, doesn't bubble rhyme with trouble?

    I will return.

    Russell

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    Greeting to my old pal, Sir Harry Schultz (he's also my son Ryan's Godfather. Harry, I've finally got you on the daily site. So greeting again, Uncle Harry.
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    This is from today's Financial Times -- Don't worry if Saddam Hussein's weapons of mass destruction never turn up. Don't worry if he had neither the capacity nor the intent to threaten the US or his neighbors. Don't worry if Iraq was not in breach of the United Nations resolutions.

    The war, we are now told, can wholly be justified by the horrors Mr. Hussein inflicted on his own people, the latest evidence of which was found this week in a mass grave south of Baghdad. The war was a legitimate 'humanitarian intervention,' tough, ugly, but defensible. We did the right thing -- just as we did in Kosovo, as we eventually did in Bosnia, and should have done in Rwanda.

    Russell Comment -- Saddam was a sadistic murderer, responsible for the death and torture of thousands. But what's our policy, do we next attack Iran, Syria, Saudi Arabia, and two or three nations in Africa?

    Now the trouble starts in Iraq where probably the majority of Iraqis want the US out. The cost of "democratizing" Iraq is going to be huge. And the expenses, in my opinion, are just starting. Also, US soldiers will be in Iraq for years.
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    Richard:

    Perhaps you could share your thoughts on the nightly web report regarding the following. There is speculation that the Fed may again reduce short term rates at the upcoming June meeting. You have written you think Greenspan will do anything to avoid deflation.

    I believe if the Fed reduces rates any further, they will destroy the commercial paper market. It is my understanding that already, 12 money market funds have had to shut down because their expenses exceeded their yield to investors. The money market sub accounts in a number of variable annuity contracts is actually delivering a negative return to investors. These problems will only get worse if the Fed Funds rate is reduced to 1% or possibly 0.75%. If there is no market for commercial paper, how are major corporations going to run?

    If Greenspan and his fellow Fed governors think that lowering rates further is going to jump start the economy, they are stupider than I think. Your thoughts would be appreciated, and to say the least, interesting.

    Regards,
    B. Kargenian

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    Richard,
    As Sen. Dirksen used to say a billion here, a billion there. Pretty soon you're talking about real money. A billion is hard to envision, but if a million dollars in $100 bills is only 10 inches high, a billion is as tall as the Empire State Building.

    L. White

    Dallas, TX

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    Hello Richard and staff,

    The cheapest way I have found to buy name brand drugs that do not have generic equivalents is through www.canadapharmacy.com.
    I take 10 mg lipitor for cholesterol so I asked my Dr. for a prescription for 20 mg and I split the tablets in half, (there is only a small price differential between the two doses) and buy online from Canada. I faxed the prescription and about 10 days later came my sealed bottle of name brand Lipitor. By using this method my costs were reduced by nearly 75%!!!!! I will never buy from a local outlet again.

    Costco 20mg 100 tablets = $301.47
    Canada 20 mg 90 tablets = $170.00


    I remember a wise old man who once said that the Internet would be deflationary and squeeze profits. Good call RR.

    Steve P.

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    Hi Richard

    Everything your subscriber wrote is correct, in my experience.

    A few years ago my wife bought the generic version of Feldene (An anti
    inflammatory - Pfizer makes the branded version). We got it in Costco,
    where we paid around $7.00 for 30 tablets. We also needed milk, and as
    unlikely as it sounds, they were out. On the way home we stopped at
    Waldbaums, a local supermarket chain now owned by A & P, to get the
    milk. Since I had just gotten the Feldene I was curious to see how much
    Waldbaum's pharmacy would charge. I felt since Costco usually charged less
    than Waldbaums it would probably be $10-$12. I was actually quoted $65,
    which I found hard to believe. When I asked the pharmacist whether that
    was the generic or branded product he assured me that I was saving $25 by
    buying the generic, since the Pfizer version was $90.

    This made me curious about the pricing, and over the next few weeks I got
    the price in Walgreen's, CVS, and Genovese, a local chain now owned by
    Eckert. There were all in the mid $30's. Since I assume they don't pay
    any more for it than Costco charges me, you have to wonder what they add to
    the process that gives them the right to charge 5X their cost for the product.

    Incidentally, a month or 2 ago the WSJ did the same kind of survey for
    generic Prozac. Needless to say, Costco was the leader, charging, I think,
    $.20 per tablet vs close to $2.00 at CVS.

    Stan Light


 
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