It's not really my intention to paste Russell too often as I'm aware of copyright issues however in this report there are a number of significant ideas that might help people coming to this site for financial insight. In particular the reference to a return of the bubble for which we are seeing evidence here also. I found the the changing labour demographic interesting also...
August 22, 2003 -- Notice: I have revised my " Three Greatest Market Calls" on the home page to "Four Greatest Calls" (look under "Popular Articles.").To do that I've included Dow Theorist Robert Rhea's amazing call, written just a few weeks after the final low (July 8, 1932) of the worst bear market in United States history. In the piece, Rhea advised his followers to "buy heavily," amid an atmosphere that was so black and gloom-filled that many observers believed that the US might not survive in its current form.
Investors in 1932 had lost the great bulk of their assets, Wall Street was in tatters, and that year I remember seeing frightened, beaten men selling apples on many of the street corners in mid-town Manhattan.
These four pieces have never before been seen together. Actually, I doubt whether most professionals have ever seen even one of these articles, much less all four of them.
These articles demonstrate, by the way, that the Dow Theory, properly interpreted, has called the bottom of every great bear market since World War I.
Each day I go through 12 newspapers plus items all over the web including e-mails from my subscribers, and I try to pick out what's important or at least what interests me. So here goes --
Let's start with money. For the week ended August 11, M-3, the broad US money supply was up $15.3 billion. "Small potatoes" by recent standards, but hey, a billion dollars is still a billion dollars.
At the opening today, the Sept. Dollar Index was up .45 to 99.15. The dollar is heading for its biggest weekly gain against the euro in almost two-and-a-half years. It seems that the markets see the US economy as improving while Europe continues to stagnate with France and Italy in recession -- but Germany probably improving.
As for inflation, the differential between the yield on the bellwether 10-year note and the TIPS has widened to the year's high at 2.22. The yield differential is the bond market's appraisal of the average inflation rate over the coming ten years.
Treasury yields rose yesterday to nine-month highs. And on the Bloomberg I read, "Fed will raise interest rates by March, traders say; Economists disagree. Rising yields on interest-rate futures suggest the Fed will raise its target for overnight loans between banks in March, the first increase in almost four years." Russell Comment -- Maybe, we'll see. Obviously, it all depends on the economy.
And a warning from the front page of today's Wall Street Journal -- "Tech-Stock Surge Brings Back A Hint of the Late-1990s Frenzy." Russell Comment -- It seems (surprise) that the Journal is talking about a return of the bubble. And it is returning.
The ever-bullish Investor's Business Daily in today's edition give us one of its shrill headlines -- "Philly Fed Index Soars To A New 5-Year High; Factories Ramping Up. August Outlook Best Since '93."
You like irony? How about this. After giving the UN "the finger" prior to attacking Iraq, the Bushies are now asking the UN for help in governing Iraq. But there's a catch, the US will insist on being in charge in Iraq. So far, I don't think there are any takers on the US offer. Certainly Germany and France won't be sending "volunteers." These two, according to Rumsfeld, are "old Europe," a nick-name which I doubt they appreciated.
From the front page of today's Financial Times, "Washington's push for fresh UN resolution threatens to reopen divisions with Europe. The Bush administration threatened to reopen bitter divisions between Washington and some European countries in the UN yesterday, by pressing for a fresh UN resolution calling on the international community to 'do more' for Iraq."
And from page 3 of the Financial Times, "The US commander in charge of all forces in Iraq said yesterday -- American troops might not be brought homes once international peacekeepers are deployed in the war-torn country, a reversal that means that 150,000 US soldiers may stay in Iraq indefinitely."
Russell opinion -- as Bush's popularity ratings sink, the feeling is that the US is being run by a group of headstrong, ill-informed, miscalculating screw-ups, a group that is running into increasing trouble in the morass that we call Iraq.
And this from the Aug. 21 Christian Science Monitor -- "Retirees flood the job market. A record number, 21 million, Americans 55 year of age or older are now in the work force. Last month nearly another one million older Americans were looking for work. But individuals 55 years or older are the only group that has been able to find work. Many of this group has been forced to go back to work because of a drop in income due to job loss or sinking interest rates.
"In the past two years, interest income has fallen about $26 billion. Says Challenger, Gray & Christmas, a Chicago-based outplacement firm, "Among workers 40 to 59 which includes the leading edge of the baby-boomers, more than half, 53 percent, have saved less than $100,000 for retirement -- a far cry from the $1 million most financial planners say is the minimum needed to live comfortably in retirement."
I just received a little pamphlet ("Ron Paul's Freedom Report") from probably the only Congressman who dares to tell the truth -- he's Republican Ron Paul of Texas. On the cover of the pamphlet I read, "Neo-conned, A Call to Arms." On the back of the pamphlet in large letters I read, "Government is bigger than ever, and future commitments are overwhelming. . .Total US government liabilities are $43 trillion, while total net worth of US households is just over $40.6 trillion. The country is broke, but no one in Washington seems to notice or care."
On to the markets -- The stock market's been in a trading range since June, but within that trading range there have been a lot of whipsawing and a lot of violent moves.
I'm writing this an hour after today's opening. The market opened with the S&P futures up 850, the dollar up strongly, bonds up 23 ticks, and from all appearances it looked as though this was going to be a good, if not a very good, day on the upside. But by the end of the first hour the bellwether S&P futures were up only 150, breadth had turned negative by a differential of 630, and the Dow was up by only 19 points.
This is a tougher market than usual to write about, and I often wish that I could just write about the market at the close of the session rather than my usual early talk about a market that can swing either way by the close.
Bulls can point to the breakout of the Dow and the Transports to new recovery highs along with good volume indications. Bears can point to the poor sentiment indications including a VIX that closed in the 19s for three days running, plus advisory sentiment which has showed more bulls than bear for months on end.
OPMs -- I've been thinking about today's WSJ headline regarding the tech-stocks bringing back "a hint of the late-1990s. frenzy." What the Journal really means is that the "bubble" is returning.
And I wonder how and why? And the answer, I'm convinced, is that stocks are now very much in the hands of professionals, and these professional to a degree never see before are competing with OTHER PEOPLE'S MONEY. Can you imagine any seasoned investor buying stocks, many of which have never earned a dime and never paid a dividend -- can you imagine these same money managers buying these stocks for their own account?
Stocks that have no earnings and have never generated any earnings have doubled and quadrupled. Thousands of stocks that have never paid a dividend have risen for no apparent reason other than the pros have bid them up. Remember, in investing today the pros are mainly concerned with relative performance against the S&P. If the S&P is up 8%, you're a winner if your fund is up 10%. If the S&P is down 10%, you're a winner if you fund is down 5%.
Back in the '40s and early '50s a good stock worth buying was a stock with a long history of positive earnings, a stock that sold for around 10 times earnings and a stock that paid a well-covered dividend of around 6%. In those days, stock yields were above bond yields.
Will those days ever return? Maybe or maybe not, but I do think we'll see times when the market will be closer to those old "valuation" days than anyone today thinks possible. In all history, there's never been a cycle when stocks have not ultimately returned to levels that we call "great values."
TODAY'S MARKET ACTION -- My PTI was down 8 today to 5307. The moving average is at 5288, so the PTI remains bullish by 19 points.
The Dow after hitting a new high this week, ended down today by 74.81 -- to 9348.87. There were no movers in the Dow today. I thought the action this week was kind of "strange." The S&P did not confirm this week's new high in the Dow.
October crude was down .04 to 31.84.
Transports were down 40.09 to 2641.56.
Utilities were down 3.01 to 236.56.
There were 1016 advances and 2241 declines. Down volume was 74.4% of up + down volume.
There were 249 new highs and 18 new lows. My High-Low Index was up 231 to 9490.
Total NYSE volume was 1.30 billion shares.
S&P was down 10.22 to 993.05.
Nasdaq was down 12.24 to 1765.31 on 1.68 billion shares.
My Big Money Breadth Index has lagged this rally all along -- and was down 3 today to 690.
Sept. Dollar Index was up .28 to 98.98. Sept. euro was down .41 to 108.79. Sept. yen was up .15 to 85.15.
German DAX was down 16 to 3549.
Bonds were higher. Sept. 30 year T-bond was up 28 ticks to 107.03 to yield 5.24%. Sept. 10 year T-note was up 18 ticks to 111.08 to yield 4.45%. The 30 year fixed mortgage rate is 5.95% but can very from state to state.
Dec. gold was up 2.50 to 364.30. Sept. silver was up 5.2 to 4.99. Oct. platinum was down 3.50 to 702.30. Sept. palladium was up 8.15 to 195.15.
Gold/Dollar Index ratio was up 1.40 to 368.00 (the higher this index, the more bullish for gold and gold shares).
One share of the Dow buys 25.66 ounces of gold
Gold advance-decline line was down 14 to 1246,
ABX down .06, AU down .44, DROOY down .03, GFI down .06, GG down .07, GLG down .07, HMY down .07, NEM down .73, RANGY up .56, RGLD down .28, WHT down .06.
XAU was down 1.25 to 86.78. HUI was down 3.00 to 180.71.
Gold shares correcting after the A-D line, XAU and HUI all hit new highs this week. That's OK, we don't want the shares to "blow off" here.
STOCKS -- My Most Active Stock Index was down 3 to 234.
The 15 most active stocks on the NYSE were -- SGP down 1.52, PFE down .29, AMD up .50, TXN up .77, HPQ down .42, EMC down .24, GE down .33, NT down .03, MU up .08, MOT up .09, C down .79, AOL down .03, TSM up .09, AGRb up .05, NOK down .04.
VIX was up .74 to 20.27, and the VIX action is bearish here -- below 20 for three days and now starting to climb.
McClellan Oscillator was uncharacteristically down 86 today to plus 55. But it's still in positive territory.
CONCLUSION -- It was a rather strange and unusual week, and I had trouble "getting with it." Something was bothering me, and something was bothering the market.
It has to do with the financials. The financial stocks now comprise about 22% of the S&P 500, but the financials contributed about 40% of the profits in the S&P 500. This market has been depending heavily on the action of the financials and profits from the financials. For instance, we saw where mortgage activity contributed almost all of GM's profits this year. GM made almost nothing on its car business.
I note that many of the big bank stocks such as JP Morgan and Citigroup are in clear head-and-shoulders top formations, and it wouldn't take much for these stocks to break down in an important way.
The chart below is from the great DecisionPoint site, and here we see the large potential head-and-shoulders top forming in the financial group. What does this mean, and why is it happening? I'm not sure, but I know one thing -- if the financial group breaks down it would be very bearish for the entire market and for the economy.
We do know that many institutions were hurt by the big break in the bond market. Somebody had to be on the other side of the bond picture -- was it the big banks. Just a thought, just a thought.
The Dow recorded a new closing high for the advance this week, then sold off and closed up just 27 points for the week. It's enough to make me nervous. Ah well, we'll know more next week -- and then it's onward into September.
Sorry folks I can't paste the chart but it really does look like a triple top or H&S. Signing off, but I'll have a few comment on the Saturday site.
Russell .................................................
Yesterday and this morning I received over 100 e-mails all suggesting that I write it the way I see it -- in my own way and in my own words. So I guess that's what I'm going to do. A sampling below typical of the kind of letters I've been receiving. ..................................................................................................................................................................................................................
Hello Russell:
Every word out of the Bush Administration is a lie. The American public is asleep at the wheel. You are wise enough to see it & comment on it. Your common sense is legendary. To hell with the readers who criticize you. They're sleepwalkers. Your certainly called it right in your Bush commentary yesterday. M. Wheelock
Your letter today says that you are receiving some complaints about your political views. Well, let me tell you, as a 12 year resident of Saudi Arabia and a Vietnam veteran, I think your comments about the US in Iraq are right on the money.
And thanks for your gold stock recommendations. I am well into positive territory thanks to you.
I run a company that markets a number of personal growth programs and seminars I've created. The company has grown to the point where it's rather large for such a company ($8M in sales, and growing,with over 110,000 customers in 172 countries). I have a rather personal connection with many of my program participants, and have extensive written and spoken communication with them (newsletters, teleconferences, books, articles, etc)--probably as much as you do with your subscribers, but not as often.
No matter what I do or say, there are always a few people who complain. I've even had people complain because I sent them something worth $50 for free! I've decided to do whatever I think is best for the majority of customers, and the rest can complain their heads off if they want to (and apparently they do want to). Catering to such people is a waste of time and a losing proposition.
I suggest you keep doing exactly what you've been doing, and follow your own instincts, rather than try to adjust to the complainers, since I'm sure 99% of us enjoy every word you write.
And, though I actually don't agree with a fair amount of your political opinions, I enjoy reading them.
Thanks for all you do.
Bill Harris Centerpoint Research Institute www.centerpointe.com) Hillsboro, Oregon ..................................................................................................................................................................................................
Dear RR. Please continue your format. You save me from buying 100 newspapers and 50 magazines. Although I am a Life Long Republican, I think we are in trouble and we need a person to sort through the baloney and make some sense out of what is happening. A very happy subscriber from Or. Co. CA. ..................................................................................................................................................................
Dear Mr. Russell,
I STRONGLY recommend that you ignore your subscribers who object to your political views and comments. If they are dissatisfied, then they can drop their subscriptions and you will be 'no worse for the wear.' As a long time reader, the things I miss the most today are your trenchant comments on political, cultural, social and other events that were such an important part of your newsletters years ago that came every two weeks. There are just not enough of them in your current writings. "What Russell thinks about.." is seldom a part of my conversations with friends who also read your writings; that is a big loss for me for your authority to give us your opinions was never questioned. There were times when I strongly disagreed with you (e.g. I never loathed Clinton as much as you did). However, I always recognized that you were just as much entitled to your thoughts and opinions as I am. If I were in your shoes, I would be boiling mad at those people who write to you asking that you stifle your freedom of speech. There are fewer and fewer people left in this country who gave as much as you did during WWII to protect the freedoms of this country. NO ONE is more entitled to freedom of speech than you are. I think you should tell your subscribers 'to shove it' if they object to your exercising your freedom of speech. I "pay" for your opinions on the markets but I BEG YOU to not stop giving us your opinions on other matters. Few people are as widely read as you are. Your opinions are valuable. If I disagree with you, I need to take a long, hard look at my own opinions. I must ask myself if they are based on as much reading as you do and as much data about life as has come from living as many years as you have not to mention all the data that crosses your 'desk' and is filtered through your fine brain on a daily basis. Anyone with an ounce of sense knows that politics and economics are closely intertwined. Those who don't have just not studied history and belong in the category of "ignorant fools."
I hope you will stop apologizing for your political, social, and cultural (to name a few) opinions on "Life in these United States."
You could always add a disclaimer, if you feel you need to (and I don't think you need to but you may) tell prospective as well as renewing subscribers a bit more about the nature of what their subscription covers. You could say something like this: "The commentary you will receive on both a daily (except Sundays and holidays) and every three weeks basis is a distillation of Richard Russell's analysis of the markets and all those things that influence markets including political events, other national and international affairs, cultural and societal events and changes. Mr. Russell will also, from time to time, give you the benefit of his opinions on all the above. It is well-known that Mr. Russell fought hard to preserve freedoms, including the freedom of speech, for all of us during World War II. Mr. Russell is comfortable exercising his freedom of speech in his writings and hopes that readers may benefit from his opinions. However, he recognizes that such opinions may run counter to your opinions and beliefs. All this and more is what you get when you subscribe to Dow Theory Letters."
Jim Hawkins ................................................................................................................................................
Mr Russell, I for one subscribe to your letter because of the advice, insight, expertise and STYLE. The letter is YOU and I pay for your views - financial, political, social whatever - and not a version that has been manipulated or molded by others. For the 10 complainants remember there are 9990 satisfied readers. Do your own thing - independence is a rare commodity in this country. Thanks for enriching my day 6 times a week. Regards AJAO
Put your political opinions up front, in the middle, or any place you want! I like to read whatever you write, and that's why I subscribe. Don't cramp your style for a few tight asses.
Discussing and analyzing the economy while ignoring the effects of politics would be like purchasing a house while ignoring the neighborhood. Please do not take heed to such mindless criticism. I sincerely hope that you never hold back on communicating your brilliant views so as to placate a few overly sensitive subscribers. I have subscribed to and enjoyed Dow Theory Letters ever since I met you in Professor Nye's class at SDSU in 1972. While I'm sure that you will never temper your remarks, I just had to get my two cents in. Thank you again for all the education, enjoyment, and yes, wealth, you have given me over the years.
