the dow~ richard russell comments

  1. 374 Posts.
    Full of fascinating stuff today so I'm posting it...

    February 11, 2003 -- Bush is increasingly "up against it." The NATO nations are stubbornly resisting an attack on Iraq. Despite a long list of "smaller nations" signing on behind Bush, the BIG GUYS -- France (the leader of the opposition), Germany, Russia, Belgium and even China are in favor of more inspection and no immediate attack on Iraq if, in fact, there should be any attack at all.

    I'll admit it, I have thought up to now that there was no way that Bush was not going to pull the trigger and go in to Iraq. Now I'm having second thoughts. Will Bush go against the wishes of the world's major powers? He could, believe me he could. I find it hard to believe that Bush after weeks and months of outlining the dangers of Saddam, I find it hard to believe that Bush will order the US military to pack up its gear and return to the US. It could happen, but I guess it would surprise me.

    So let me put it this way -- for the first time I believe there's at least a chance that Bush will hold off pulling the trigger. I'm on the fence, 50/50 -- I'm on the fence for the first time.

    As for Bush's economic and financial plans, I'm increasingly wondering whether they're going to be implemented. Today in the New York Times there appeared a full-age advertisement headlined, "Ten Nobel Laureates Say the Bush Tax Cuts Are the Wrong Approach. Along with this statement signed by the ten Nobel Laureates, there appears the names of hundreds of economists from across the nation who agree with the headline statement. I usually don't pay much attention to this kind of "political propaganda" or let's call it "economic propaganda," but I must admit that this was a powerful ad. I even took the time to read the ad all the way through.

    Usually, the stock market will provide hints as to whether the current major problems of the day will be solved positively or negatively. But my take on the stock market is that as of now it doesn't have any answers.

    The proof is in the very low volume on the exchanges. It's as if investors are saying (with their money, of course) that "We don't know what the hell is going on. We don't know whether The US is going to war or not, we don't know whether the Bush tax plans are going to be law or not, we don't know whether terrorists will strike or not, we don't know whether the economy is getting better or worse, we don't know whether the Fed's policies will ever click in or not, we don't know whether the October market low will hold or not -- WE JUST DON'T KNOW ANYTHING."

    What do we know about the action of the stock market? We must know something, and we do. We know that we are still in the "good six months" of the year, and we know that the "good six months" end around the end of April.

    We know that the market has declined for four weeks in a row, and you'd think it was due do for "a rest" or a rally.

    We know that the McClellan Oscillator has hit what appears to be a low, and that it has lifted off that low. The Oscillator is still in negative territory, but it's oversold status is slowly being worked off. When the Oscillator is "tired" of being in the negative zone, the Oscillator will rise above zero, and the bulls will then have a "go" at the market.

    We know that my PTI has remained in its "sell" zone, well below its moving average

    We know that my Big Money Breadth Index and my Most Active Stock Index have both dropped below the level of their October bear market lows.

    We know that all the major stock averages are bearishly below their declining 50-day moving averages.

    We know that the urge to buy stocks is at an extreme low. We know that because Lowry's Buying Power Index is at it's lowest level in over five years. And we know that the urge to sell is slowly increasing, because Lowry's Selling Pressure has lifted substantially above the extreme low that it recorded on January 13.

    We know that volume indications are negative in that on rallying days the percentage of up volume as against up + down volume remains unimpressive.

    Let me put it this way. I believe volume will be the main indication of which way the market is fated to go. If volume starts to pick up as the market rises, that will be a positive sign. Conversely, if volume tends to increase as the market head lower, that will tell us that stocks are being distributed.

    So expect me to pay particular attention to volume as I examine market action daily on these sites. Price action is always critical, but for the immediate future volume may be the KEY.

    Each day I report on volume indications on the NYSE. Recently, volume indications based on up + down volume have been running in the 65% to 75% levels on both the upside and the downside.

    TODAY'S MARKET ACTION -- My PTI was down 6 to 5211 with the moving average at 5237. The PTI remains in its bear mode.

    The Dow was down 77.00 to 7843.11. Only three Dow stocks moved more than a point, KO down 1.06 to a lowly 39.00, PG down 1.68 to 83.19 and UTX down 1.36 to 62.62.

    March crude was up .90 to 35.44 -- gettin' up there.

    Transports were down 16.36 to 2128.28.

    Utilities were down 3.92 to 196.85 (ominous, I think).

    There were 1279 advances and 1987 declines. Up volume was 391 million and down volume was 888 million. Down volume was 69% of up + down volume, a "lazy" down-day.

    But there were 41 new highs and 107 new lows. My High/Low Index was down 66 to minus 7330.

    Total NYSE volume was 1.30 billion shares, and this was another "distribution day."

    S&P was down 6.76 to 829.21.

    Nasdaq was down 1.17 to 1295.51 on 1.29 billion shares, also a "distribution day." And remember what I said about volume -- it will tell the story. The 50-day MA for the Nasdaq is just about to cross below the 200-day MA, turning the Nasdaq to the bear side.

    My Big Money Breadth Index was down 6 to 641, at its bear market low.

    March Dollar Index up .09 to 100.57 (see story on the dollar by Dr. Richebacher at the end of these remarks). March euro down .11 to 107.21. March yen was unch. at 82.61.

    March Nikkei was up 80 to 8560. German DAX was up 40.91 to 2627.

    Bonds were only slightly changed, the March long T-bond was up 2 ticks to 112.10 to yield 4.85%. The March 10 year T-note was up 7 ticks to 114.12 to yield 3.95%.

    April gold was down 1.20 to 363.00. March silver was down 3, to 4.57. April platinum was up 2.10 to 669.00. March palladium was up .95 to 252.00.

    Gold/Dollar Index ratio was down 1.70 to 360.80.

    XAU was up 2.45 to 74.56 (it bounced off its 200-day MA, which stands at 71.83. HUI was up 4.58 to 137.74 and well above its 299-day MA, which stands at 126.62.

    Gold advance-decline line was up 18 to 1119.

    ABX up .43, AEM up .53, AU up 1.51, GFI up .56, GG up .36, GLG up .56, HMY up .76, NEM up .86, MDG up .74, RGLD up 1.30, SIL up .38.

    STOCKS -- My Most Active Stock Index was down 7 to a new bear market low of 129 and indicating distribution.

    The 15 most active stocks on the NYSE were -- SRP down .79 (once a fine utility, sad), AOL down .15, GLW down .05, EP down .50, GE down .13, EMC down .16,C down .79, PFE down .41,CPN up .51, NT down .01, NOK up .19, JPM down .01, MOT up .11, HD down .32 to 21.26, TXN up .25.

    Few more -- GM down .31, FNM down 1.21, AIG up .44, MER down .40, GS down .69, KSS up .55, TGT up .20, WMT up .23, DD down .55, KO down .54, MMM down .59, DELL up .43,CSCO up .32, INTC up .07, MSFT down .94 to 46.44, ED down 1.01, SO down .32, TE down .33, KSE down 1.08, TXU down .45,HDI down .41, MRK down .39. The collapse of the utilities is scary.

    VIX was down .35 to 37.35 but showing that option-writer are still very much on their guard.

    McClellan Oscillator is at minus 124 today and still deep in negative or oversold territory. A higher market is overdue, but this is a primary bear market so all bets are off. Best to be OUT of this market and building cash.

    CONCLUSION -- If you're a bull, I don't know how you could take any comfort from today's action. It was another "distribution day" and my Most Active Stock Index hit a new bear market low. My Big Money Breadth Index sat right on its low. There are just very few buyers out there, and the sellers are getting increasingly nervous.

    Maybe it'll be better tomorrow. Yeah, mebbe.

    Signing off from a very rainy Tuesday here in the great American Southwest (and man, do we need rain).


    Russell Comments -- The US is running a 5% trade deficit and a 5% budget deficit. We need $1.5 billion of foreign money coming in every day, seven days a week, to keep the "Good Ship US" afloat. How can this situation continue? The Russell opinion -- it can't.

    Oh yes, on top of all the above, the US is contemplating a war plus lowered taxes? In my life, I've never seen anything like this combination.

    I listened to the Senate hearing with Fed Chairman Greenspan. It was a change and a surprise to hear Greenspan not only harshly questioned and openly attacked by some Senators. One Senator actually asked Greenspan to resign. The Greenspan aura has disappeared. He's no longer the "Great God Greenie," watching over all of us.. Nope, today he's just an egotistical little mumbler, blaming everything including his mistakes on the nation's fear of war.

    Statistics to ponder over -- The price of a Seat on the NYSE has dropped for the fourth straight time, now at $1.75 million, down 12.5% on the latest sale in December. The price of a NYSE Seat is considered to a bellwether for the financial sector.

    In the year 2002 eleven million US workers were employed in manufacturing. This compares with twenty-one million who were employed by the US government.

    Fullermoney, a top advisory out of London ( starts its January 31 report as follows -- "Why China may swoop on the world's available gold supply. China's foreign currency reserves are soaring as it becomes the global manufacturer of last resort. . . . China's obvious choice is to buy more gold while the price is low. Faced with a declining US dollar and an all but certain upward revaluation of the yuan at some future date, China has been buying gold recently. In December it bought approximately $1 billion in gold, increasing its bullion reserves by 16.08 million ounces in November 2002 to 19.29 million ounces at year-end. Will China buy more gold? Of course. If the country's monetary officials are smart, as I presume. Who wouldn't in their position?

    "Could China swap most of its dollar reserves for gold? No, there isn't enough gold available. How much gold could China buy at a reasonable price? That depends on two factors -- what Chinese monetary authorities regard as a reasonable price, and how quickly everyone else catches on to the fact that China wants to boost its bullion reserves significantly. Why should China bother to buy gold at all if it can't buy enough to offset its dollar exposure? Because the price of gold is likely to appreciate significantly in terms of all fiat currencies over the next decade or two, even allowing for interest rates. In contrast, the supply of gold increases very slowly.

    "Bullion's advance in the 1970s was fueled by investors, mainly in the US and Europe. Today, they have just begun to buy gold, led by a few private individuals and hedge funds. The main private buyers during gold's new secular bull market, which has only just commenced, will come from the US, Asia, especially Japan, and lastly Europe. However, the greatest demand for gold over the next 10 to 20 years could come from China and other countries with substantial foreign reserves.

    Russell Comment -- I have the greatest respect for the writer, David Fuller. I also want subscribers to take in Fuller's very long-term view of gold. He's talking in terms, not of week or months, but of years. Therefore, subscribers who buy or own gold should think in the same time period. Remember, gold is one of our only long-term defenses against the proclivity of the Fed to endlessly grind out billions, even trillions, of fiat dollars.


    by Kurt Richebächer

    Russell comment -- Dr. Richebacher was former head economist for Germanay's Dresdner Bank. And he knows his stuff -- I've known him for years -- he's an Austrian school economist who believes that two and two will always equal four.

    Entering the New Year, the dollar's fate is definitely the single most
    important question for the world economy and world investors. It is really
    the greatest wild card in the world economic outlook. After a very slow
    start, the dollar's decline has been gaining momentum. But where will it
    end? Could last year's dollar retreat turn into a dollar crash, possibly
    with disastrous implications for the U.S. financial markets if not for the
    whole financial system?

    On Dec. 31, 2002, the euro traded against the dollar at $1.05, up from
    $.8915 at year-end 2001, reflecting a gain of 17.8%. Compared to its earlier
    peak of less than $86, the U.S. currency has lost altogether 22%. For
    European investors, these currency losses are adding hugely to their heavy
    losses on U.S. stocks.

    The dollar index topped out a year ago. Starting very hesitantly and
    gradually, its fall has distinctly gathered momentum in recent months.
    Considering the resistance of the trade deficit and the worsening economic
    situation in the United States, it is plainly time to ponder a protracted
    decline of the dollar and its broader implications. What could stop the
    dollar's slide? And what could happen in financial markets if the dollar's
    slide proves unstoppable?

    As for the first question, it is established experience that trade balances
    respond to changes in the exchange rate with enormous sluggishness, if at
    all. During 1985-87, the deficit continued to soar, even though the dollar
    virtually collapsed. In essence, such a deficit reflects an equal excess of
    domestic spending over domestic output. But currency depreciation, by
    itself, affects neither of the two. To reduce its trade deficit, the United
    States would need to lower consumer spending. But that is precisely what the
    government and Federal Reserve are desperately trying to prevent, as it
    implies recession and rising unemployment.

    While sharply slower U.S. economic growth in 2003 may moderately improve the
    trade deficit, the worsening economic news would frighten foreign investors
    even more. It is, in actual fact, one of our key assumptions concerning the
    dollar that an unexpectedly poor performance of the U.S. economy and its
    stock market in the current year will act as the catalyst that will finally
    break the illusions about the U.S. economy and the dollar.
    While the indulgence of foreigners to invest in the United States is
    incredible, sharply lower capital inflows are effectively depressing the
    dollar. With this in mind, the second question becomes paramount. What will
    happen if the dollar continues its irresistible decline?

    Up till now, the dollar's decline has been orderly, for an obvious reason.
    Inertia rules - there remains a fixed, very negative image of the European
    economy and its currency versus a fixed, very positive image of a dynamic
    American economy trumping the trade deficit with a superior growth
    performance. The result is a still-predominating view in the markets that
    the euro's rally is narrowly limited, while the dollar's next recovery is
    only a question of time.

    Yet this faith in the dollar's impending rebound must be fading. Its decline
    is ominously gaining speed. The usual explanation is the war in Iraq. In the
    past, though, the dollar used to enjoy safe-haven status. In actual fact,
    there are plenty of other reasonable explanations for a weak dollar. Most of
    them are not new. But what is new is the proliferating bad news about the
    U.S. economy, putting its expected recovery into question. In short,
    confidence in the U.S. economy's growth prospects is cracking.

    Could the dollar's orderly decline turn into a chaotic decline, capsizing
    the financial markets? Look back to 1987, a year in which American and
    foreign investors did lose their nerve about the falling dollar. For several
    months, this loss of confidence spelled disaster for U.S. stocks and bonds.
    Yet it proved a brief crash, which ended in a soft landing for the dollar
    and the markets. As such, it seems a comforting experience.
    On closer look, it is not. Today's economic and financial conditions in the
    United States are incomparably worse than they were in 1987-89. Economic
    growth is much slower today, the trade deficit is much higher and interest
    rates are much lower.

    But there is yet another factor that makes a great difference: unprecedented
    exposure to the risk of a falling dollar. Both foreign holders of dollar
    assets and American holders of euro- denominated assets have much at stake.
    The important point is that both groups have principally abstained from
    covering their exchange risk. Strong expectations to gain from a strong
    dollar or from a weak euro prohibited any hedging. When will foreign
    investors and American borrowers finally give up on the strong dollar?
    There is a widespread assumption that there exists a "normal" level of the
    dollar against other currencies, from which it will not diverge too far or
    for too long.

    But no such level exists. The dollar is effectively out of control. There is
    no way to predict where it may bottom. This is a measure of the
    macroeconomic costs of allowing an external disequilibrium to become so
    large and to accumulate for years. The dollar's fate no longer lies in the
    hands of central banks or private banks, but in the hands of many millions
    of fickle private investors.

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