the dow ~ richard russell comments

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    As requested...

    I'm sorry that I'm unable to reproduce the dollar index chart referred to but I'm sure HC members know of numerous sites that allow you to see this. The index is sitting on critical support currently.

    September 17, 2003 -- Kamato Hongo of Japan is listed in the Guinness Book of World Records as the oldest living person. Kamato has just turned 116. She is known for her unusual habit of sleeping for two days running, and then staying awake for two days. Her favorite snack is unrefined brown sugar. Doctors look askance at both Kamato's sugar habit and her sleeping habit, both assumed to be unhealthy. But what do you tell a 116-year old woman, "You're not living right." ? Kamato enjoys a glass of saki during her waking hours. Asked about her secret of long life, Kamato answers, "Not moping around."

    Well, Richard Russell is not "moping around either." In fact, I spend a lot of time thinking, writing, reading, and I even climb on the Stairmaster three or four times a week while doing pilates and weights in between. And then I have a wife and five kids and five grandchildren to keep track of besides two ex-wives. Let me put it this way, "I just don't mope around." But will I live to be 116 like Kamato? I kinda doubt it, but what do I know?

    This nation (I'm referring to the United States of America) is in a funny situation. I shouldn't say "funny," let's just call it unusual. The nation is heading for a record $500 billion or more budget deficit next year. Everybody knows about it, and I'm referring to our politicians, but nobody seems to give a damn.

    Wait -- the Bush administration has an answer to the deficit problem. Their answer is that "We're going to grow the economy, and in that way we're going to grow out of the deficit." In other words, forthcoming prosperity is going to solve the deficit problem.

    But what's this? David. M. Walker, head of the General Accounting Office, the Congressional investigative arm, doesn't think that's going to do it. In an interview, Walker declared, "We need a wake-up call. We need to come to terms with reality. The gap is too great to grow out of the problem. Tough choices will be required."

    Is anyone listening to Mr. Walker? It doesn't seem like it. Bush and lawmakers from both parties are continuing to press for a $400 billion,10-year expansion of Medicare to provide prescription and drug benefits. Meanwhile, the Prez is asking for an additional $87 billion for Iraq and Afghanistan expenses, and then there are those tax cuts.

    Today's Financial Times (a British newspaper) runs a piece headlined, "Voters Will Rein in Bush's Ambitions." The article states, "In this world of a sole superpower with unchallenged military supremacy, and a newly assertive foreign policy, the only real restraint on US actions is the willingness of the US electorate to finance them. Given the state of the US economy, the restraint is likely to be felt soon. Whether it will be soon enough to upset Mr. Bush's re-election prospects largely depends on the skill of his opponents in making the economic case."

    The article ends as follows: "The economic implications of the current US foreign policy direction makes it politically unsustainable. The US will have to change course, either by bringing allies on board through genuine UN leadership on the nonmilitary aspects of the war, or by blundering towards an eventual abandonment of the strategy, as happened in Vietnam 30 years ago. Mr. Bush was a student then. Let us hope his memory serves him well."

    I think the above is pretty much the non-US view of the situation. What do US voters think? According to polls, voters are less and less enamored with the Prez and his staff. But the polls can be very unreliable.

    What does Richard Russell think? I think we've got a very stubborn bunch in Washington, a group that does not like to admit that it's made any mistakes. Thus, I believe the situation, and I'm talking about the military and the budget situation, will lead to a crisis. It will be a crisis, perhaps largely economic, that will rock the US to its foundations and bring this nation face-to-face with fiscal reality and the power of the markets.

    All the above said, let me repeat again that I have utmost respect for the markets. The markets take into account everything anyone knows about business, corporations plus social and political implications. The markets also take into account current psychology, sentiment, hopes and wishes.

    As I see it, the market has a big question to sort out and answer. The question is this -- Is this "economic recovery" for real, or is it just a mass of hype, based on government statistics which are skewed towards what the Fed and the administration wants the American public to hear? Let me put it another way -- will the US economy actually "grow" next year and the years after, and in this way will the US economy be able to grow us out of the huge deficits -- and thus follow the Bush script?

    My answer is that I personally don't think it's going to happen, but I will readily defer to the markets. The Bush administration has taken the stance of "growth at any cost, no matter what the cost."

    The Russell position is this -- We're enjoying a Fed-created upward correction in a continuing primary bear market. The Fed's monetary manipulations plus the Bush administration's deficit-creations will ultimately render the bear market worse and more painful than would have been the case otherwise.

    In the end, the bear will have his way, and stocks will decline to the point where they represent "great values." My description of "great values" entails the Dow selling well below 10 times earnings while providing a dividend yield of 6% or more.

    I sincerely believe that before this bear market is over, we will experience circumstances that will drive stocks down to "great values." And because of the path taken by the Fed and this and previous administrations, if I had to guess I would guess that before this bear market is over stocks will descend to depths comparable to what was seen during 1942 and perhaps even in 1932.

    Right now, as I see it, the stock market is rising as a function of all-out expanding liquidity plus absurdly low manipulated interest rates, these two plus a major increase in defense spending. How long these three can work to bull this stock market higher, I obviously don't know.

    The best insurance against the bear market that I'm referring to, I believe, is physical gold. The second best insurance is ownership in the companies that produce physical gold, and by that I mean ownership (through purchase of stock) in gold mining companies.

    Years ago I coined the expression, "Inflate or die." Today I'm using an extension of that expression, the new cry is "Growth at ANY cost."

    I show above what could be the KEY chart in the current situation, and, of course, what you're seeing here is a daily chart of the Dollar Index. The Dollar Index has now declined below both its moving averages, and MACD (lower section of the chart) has turned bearish.

    The dollar is a barometer of the economic "health" of the US, and you must remember that many Asia nations are now actively buying dollars in order to keep the dollar "strong" and their own currencies "weak." So it is particularly significant that despite this manipulation, the dollar appears to be weakening.

    The Dollar Index is still well above its June low, but it will pay us to keep an eye on the dollar from now on. The first sign of major weakness in the dollar would be the Dollar Index breaking below its July 25 closing low of 95.52 on the Dec. contract. Today the Dec. Dollar Index was trading at around 96.50.

    TODAY'S MARKET ACTION -- A weak dollar and a dull stock market. My PTI was down 4 to 5339. The moving average was 5302, so the PTI remains bullish by 37 points.

    Dow was down 21.69 to 9545.65. One mover today, MO up 4.19 to 44.65 (a favorable tobacco decision).

    Crude keeps dropping. Dec. crude was down .50 to 26.97. This ain't inflation.

    Transports were down 12.18 to 2761.20.

    Utilities were down 1.22 to 245.09.

    There were 1572 advances and 1659 declines. Down volume was 52% of up + down volume so it was a mild down-day.

    There were 190 new highs and 13 new lows. My High-Low Index was up 177 to 1273.

    Total NYSE volume was 1.31 billion shares.

    S&P was down 3.34 to 1025.97.

    Nasdaq was down 4.15 to 1883.10 on 1.88 billion shares, a "distribution day."

    My Big Money Breadth Index was down 4 to 726,

    Dec. Dollar Index was down .97 to 96.15. Dec. euro was up 1.22 to 112.86. Dec. yen was down .05 to 86.29.

    German DAX was down 3 to 3561. Dec. Nikkei was down 165 to 10910.

    Bonds were sharply higher. Dec. 30 year T-bond was up 116 ticks to 108.19 to yield 5.11%. Dec. 10 year T-note was up 19 ticks to 112.14 to yield 4.19%. Bond market discounting "less inflation" or maybe a bit of deflation?

    Dec. gold up 2.70 to 377.30 and while it's correcting and consolidating, gold is not giving up much ground. Dec. silver up 6.2 to 5.29. Oct. platinum was down 4.20 to 692.50. Dec. palladium was down 5.45 to 217.25.

    Gold/Dollar Index ratio was up 6.70 to 392.40 (the higher this ratio, the more bullish for gold).

    One share of the Dow buys 25.30 ounces of gold.

    Gold advance-decline line was up 14 to 1279.

    XAU was up .72 to 93.15. HUI was up 3.75 to 200.65.

    ABX up .56, ASA up .28, AU up .64, BGO up .10, DROOY up .21, GSS up .17, HMY up .38, NEM up .24, PDG down .03, RANGY down .06, RGLD down .59. WHT up .02.

    Today's winners, DROOY up 7.02%, CDE up 6.67%.

    STOCKS -- My Most Active Stock Index continues to act well, up 7 today to 298.

    The 15 most active stocks on the NYSE were -- NT up .12, LU up .01, MO up 4.23, AMD up .27, PCS up .18, AOL up .25, MU up .56, GE down .24, PFE up .18, C up .24, XOM down .80, MOT down.24, GLW up .06, HPQ up .01, CE down .63.

    VIX was up .31 to 19.62.

    McClellan Oscillator was down 30 to plus 53. I don't particularly like the pattern of the Oscillator. It has now carved out a series of three lower peaks.

    CONCLUSION -- I continue to like the action of gold and silver. Dow closed 41 points above the critical 9504 level. Let's see what the rest of the week brings. Selling pressure in stocks was mild today, and bonds were strong and above their 50-day moving average. The KEY to the picture ahead could well be the dollar, which was weak today, this despite the Asian central banks' struggle to keep the dollar strong (and their own currencies weak).

    Tomorrow, dear subscribers, looking forward to tomorrow.


    I sense that behind a lot of what goes on in Washington is the shadowy figure of Vice President Dick Cheney. Instinctively, I don't trust this guy. He was formerly head of Halliburton Corp. Cheney has received hundreds of thousands of dollars from Halliburton, although on NBC's "Meet the Press" Cheney declared, "I have no interest in Halliburton of any kind and haven't had now for over three years."

    But Cheney's financial disclosure filing with the Office of Government Ethics listed $205,298 in deferred salary given to him by Halliburton in 2001, and another $162,393 in 2002. The filing indicated that he is scheduled to received more payments in 2003, 2004, and 2005.

    In the meantime, Halliburton, the oil service company, received a huge no-bid contract for oil reconstruction work in Iraq, this while Cheney was still receiving money from Halliburton.

    The whole thing is open to questions, wouldn't you say? Furthermore, I think the whole Bush family's close ties to Saudi Arabia is open to question. But that's just me, and I'm a very suspicious guy.
    The pink slip report -- R.J. Reynolds will eliminate 40% of its jobs, which means 2,600 employees will get their walking papers.

    Housing starts dropped 3.8% in August but remained close to a 17-year high. Russell opinion -- rising home prices and refinancing have been the keys to consumer spending

    Underlying U.S. Inflation Slows to 37-Year Low

    Tuesday, September 16, 2003; 4:10 PM

    By Eric Burroughs

    NEW YORK (Reuters) - Underlying U.S. consumer prices rose at the slowest annual rate in 37 years in August, the government said on Tuesday in a report that highlighted the Federal Reserve's worries about "undesirably low" inflation.

    The main Consumer Price Index rose 0.3 percent in August, below economists' forecasts of a 0.4 percent gain despite a surge in energy costs, the Bureau of Labor Statistics said.

    The core CPI, which strips out the impact of volatile food and energy prices, rose just 0.1 percent on the month. On a year-over-year basis, the core CPI, which is viewed as a better gauge of inflation trends, slowed to a 1.3 percent rate in August from 1.5 percent in July.

    The data suggested the economy is not yet safe from the dangers of deflation even as it enjoys a burst of growth. For that reason, the Fed repeated at a policy meeting Tuesday that it would keep its federal funds rate at a 45-year low of 1 percent for a "considerable" amount of time.

    For the past year, the annual rate of core inflation has been cut almost in half, dropping from 2.4 percent to its current low, not hit since 1966. Some Fed officials, like Governor Ben Bernanke, have said the large amount of slack in the economy means that pace will ease further next year.

    To prevent the inflation slowdown from turning into a persistent decline in prices, or deflation, Fed officials have vowed to keep interest rates low or cut them more, if needed.

    "For the United States, the disinflationary trend continues. This portrays an economy operating with a lot of slack, that is, unused capacity. As a result, the Fed will continue to be concerned with the risk of deflation," said Sal Guatieri, senior economist at BMO Financial Group in Toronto.

    "Therefore it will continue to hold interest rates low despite expected strong growth in the quarters ahead," he said.

    The unemployment rate stands near a nine-year high of 6.1 percent and the economy shed 93,000 jobs last month. The industrial sector is using only 74.6 percent of its capacity, a 20-year low, and most economists believe that until economic growth expands briskly for several quarters to soak up that slack, inflation will keep declining.

    Part of the reason is that productivity remains so strong, meaning companies can efficiently make more goods and offer services without hiring, and even continue to get rid of workers. Economists fear that ongoing lay-offs could cut short the current rebound.

    "You could still have growth for a while without any job growth," said Anthony Karydakis, senior financial economist at Banc One Capital Markets in Chicago. "If you don't have any employment growth, you're not going to have enough income growth to sustain the recovery down the road."


    Mr. Russell:

    Your remarks today (9/16) on the market and gold were very timely and thought-provoking for me. On the markets because, as you said, you call 'em as you see 'em and I much appreciate that kind of investment advice in what I consider to be a brutal investment environment right now. I wholeheartedly agree with you that the stock market is insanely overvalued and I can't justify even trying to get aboard a rally. I am close to retirement and I just don't have enough time to recover from a large loss. There is just too much risk for me in the stock market. I have ridden the bond bull for years but since the bond market blow-up in July, the Treasury market also now has too much risk given the potential rewards. Investment choices are becoming very limited.

    Your comments on gold today were especially timely because I have been very undecided about the gold market for some months now. I have a relatively small core holding in physical gold and have seriously considered following your advice to put 1/3 of my liquid assets into physical gold and gold stocks but haven't been able to pull the trigger on it. The reason is because I have this feeling of deja vu regarding the gold market... like it's late '95 - early '96 all over again. When gold screamed to $418 in January 1996 I was convinced we were headed to new highs and into 4 digit prices for gold. I don't have to tell you what happened. We cratered at $252 about 4 years later. I keep asking myself if this is late '95 - early '96 all over again?

    I have bought, sold and even done some futures trading in gold off and on over the past 24 years. I've won some and lost some. There is so much bullish sentiment right now among those that follow gold that it is eerie... like I've been here several times before. I read innumerable articles on various internet sites about the Federal budget deficit, trade deficit, how fiat currencies are all doomed to end up as confetti, Fed money printing, etc. etc. etc. and I say to myself... yikes, been there, done that, do I want to do this again? I remember reading Howard Ruff's "How To Prosper During the Coming Hard Times" in 1979 in which he said most of what I'm reading today in dozens of articles on gold on the internet. I've read many, many similar books with the identical theme over the past 24 years. So your comments today to Gordon C. that timing is everything struck a huge chord with me.

    Your friend John Magee was exactly right... don't tell me what to buy, tell me when to buy it. Of course I know you can't do that, nobody can. But you are so right in that it looks like this economy and the dollar could blow up tomorrow, but it has looked that way several times over the past 24 years that I keep asking myself... what is different about today vs 1982, 1987, 1994, or early 1996 that would justify loading up on gold? Long term, we all know where the dollar is going; i.e., the way of all fiat currencies... it will become worthless paper.

    Having said that, I am also mindful of what Lord Keynes said; 'In the long run, we are all dead." There is just no way to know if we'll muddle along this way for another 2, 5, 20, or 50 years. I have thought the end of our economic system as we now know it was close so many times over the past 24 years that the end-of-the-world doom and gloom just doesn't have the impact any more that it used to. Among your 10,000 subscribers, I can't be the only one who feels this way. In fact, I have to believe that you have often felt this way yourself in the past about various markets or investments. What do you say to an investor like me?

    Terry Swift

    Russell Comment -- What do I say to an investor like you? I say, "keep on truckin'." And don't take a position you can't sleep with, because sure as shootin' it will end up costing you money.

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