Richard Russell 01 (May 08 - Dec 14)

[winston]

Richard Russell (Dow Theory Letters): Danger of deflation

“We’ve recently seen the greatest expansion of credit in history. It was a product of Asian and Mid-Eastern countries holding down the value of their currency by creating more of their own money and buying dollars. The Fed got into the act in 2003 when it held down Fed Funds to 1% for month after month. It was a wild expansion of money and credit. Now the party is over.

“The US and the economies of the free world run on credit. In the US it now takes six dollars in credit to produce one dollar in Gross National Product. Maybe the biggest problem today is that the banking system has become so traumatized that it is restricting credit. Today ‘nobody can get a loan’, the complete opposite of the situation which existed prior to the housing bust. The danger – constricting credit will impact heavily on the nation’s GDP. If that happens, say hello to a blistering recession.

“With credit being restricted, a second and very serious danger surfaces. That danger is asset deflation. The very thought of asset deflation sends chills of fear up Fed chief Ben Bernanke’s spine. Credit contraction, asset deflation – shades of the Great Depression.

“What’s the antidote for deflation? It’s print, print, print. What would gold’s reaction be to ‘print, print, print’? Gold’s reaction would be – rise, rise, rise.”

Source: Richard Russell, Dow Theory Letters, August 13, 2008.

[winston]

Richard suffered a mild stroke a few days ago...

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Richard Russell (Dow Theory Letters): On the eve of world deflation

“I believe we are on the eve of world deflation. I pulled out a headline from the August 5 Wall Street Journal headline – ‘INFLATION PACE IS FASTEST IN 17 YEARS’.

“Forget it, this is history – this is not what’s happening in the market. From what I see, the markets are telling us to prepare for hard times, and a global spate of the worst deflation to be seen in generations.

This is why gold has been sinking, this is why stocks have been falling – big money, sophisticated money, is cashing out, raising cash, preparing for world deflation. This is probably why Lowry’s Selling Pressure stays at its high, smart money is selling into the stock market, day after day. They’re raising cash in preparation for the hard times when deflation is in the saddle.

“Deflation is ushering in the new strong dollar. Big money sees deflation and the lower rates that go with deflation. Look, if you have five million dollars and you are only receiving 2% in interest on your money, that’s only an income of hundred thousand dollars on your five million. Big money realizes that in a deflation you need a mountain of cash to keep up your lifestyle.

“What I see is a coming world deflation, and I believe that’s the message the markets are sending. What’s the best stance in a deflationary situation? Lots of cash, and safe, solid, investments. Two areas that fit that requirement – US dollars and US Treasury paper.

What happens to stocks during deflationary times? They’re sold to raise cash.

What happens to business in deflationary times? It’s crushed by ever-lower prices.

What happens to the average citizen who’s loaded with debt during deflationary times? They’re battered unmercifully, as income buys less and less and as debt crushes them.

What happens to assets during deflationary times? They’re worth less and less and their sale brings in fewer and fewer dollars.

Isn’t the price of gold and oil already telling us that?

“I just finished reading The New York Times, Los Angeles Times and Barron’s and there isn’t a hint of what I’m writing about above in any of these publications. Unfortunately, these coming deflationary times will come as a complete surprise to most people.”

Source: Richard Russell, Dow Theory Letters, August 18, 2008.

[winston]

Richard Russell (Dow Theory Letters): Fear and panic spreading

“Fear and panic is starting to spread across Wall Street, Main Street and the world. Most investors have never seen market action like what we’re seeing now. This is real bear market action such as we’ve not seen since 1973-74. I expect this downtrend to end with an all-out panic-type crash. That would clear the air and serve to reduce the huge inventory of stock for sale. When the store of ‘stock for sale’ is emptied out, we will be close to the time when the institutional bargain hunters are ready to re-enter the market. That action will be characterized by a 90% up-day.”

Source: Richard Russell, Dow Theory Letters, October 7, 2008.

[winston]

Please remember, all these billions of dollars that the government is throwing at entities – all this money represents additional DEBT.

How the US dollar will hold up against this building-tower of debt is the question. Ultimately, the trillions of newly-created dollars could lead to hyper-inflation. Then why isn't gold reflecting the chances of hyper-inflation?

Gold is hitting new highs in terms of other currencies, Canadian, Australian, Russian, Britain, Europe, India, Turkey. But the strong dollar (artificially strong) has held back the dollar price of gold. Moreover, sales of "paper gold" or GLD has also served to hold back the price of gold.

In the end, gold will do what it's supposed to do, but true to the market, gold will not do what it's supposed to WHEN it's supposed to do it.

– Richard Russell
Dow Theory Letters

[winston]

The Federal Reserve system was created outside the constitution, it was never put forth as an amendment to the constitution nor has its constitutionality ever been reviewed by the Supreme Court.

Through the machinations of the Federal Reserve, trillions of intrinsically worthless Reserve Notes have served to create a gigantic bubble in almost all assets since WWII or certainly since 1971 at which time Nixon took the US completely off the gold standard and put the US and the world on the paper fiat money system.

I keep thinking that the current ghastly bear market is the market's way of undoing all the damage we have suffered from fiat currency, inflation, and the excesses that accompany it.

Where will it end? It may end when the cupboard is bare and the last traces of fiat money are destroyed. Ironically, the bankers who thwarted the express wishes of the Founding Fathers are now watching their power being destroyed by the primary trend of the market. Fiat money has been used previously, but never before has it infected the monetary system of the entire world. It seems we are now paying the price for our incredible passivity and ignorance.

– Richard Russell
Dow Theory Letters

[kennynah]

the truth is that any printed money not backed by any real assets, is FIAT money....and this happened the moment US govt decided to move away from Gold Standards, unfortunately

[winston]

Believe it or not, I now consider gem-quality diamonds a form of money.

With the advent of the GIA certificate, one can now price a diamond fairly reasonably and accurately – as such diamonds have become monetized, they are a legitimate and very portable form of money. Gold is not truly portable because it is too heavy. Moving across a border with 1000 gold coins is impossible. Moving across a border with a million dollars worth of gem-quality diamonds is very possible.

I follow the diamond market closely. The Russians have been big buyers of large, expensive diamonds. Why? The Russian ruble has recently declined to record lows. The ruble has dropped three times in five days, to a level that has not been seen since 2003.

The central bank of Russia does not, normally, allow the ruble to drop more than 1% in one day. Yet, the ruble has shed more than 20% against the dollar since its high in early August. So is it any wonder that wealthy Russians are putting their rubles in diamonds?

– Richard Russell
Dow Theory Letters

[winston]

Richard Russell (Dow Theory Letters): Campbell - housing to trough in 2012

“I read a great deal about real estate, and I follow real estate trends closely. By far the best real estate guidance that I’ve come across is Robert Campbell’s ‘The Campbell Real Estate Letter’. Nothing I’ve read compares with Campbell’s great record.

“Robert uses an unusual and unique combination of fundamental and historical material along with his own specialty of technical analysis in real estate timing. Bob Campbell called the exact top of the real estate cycle in his report of August, 2005.

“What does Bob Campbell say now? He notes that historically, housing prices fall by an average of 35% after a financial crisis. He further states that he believes housing across the land will fall by another 8% from here to the final low of the housing cycle. And when will the low come? Campbell states that using five years as the average length of a housing downturn, ‘we can expect the US housing market to trough in the year 2012. Robert expects housing to fall to the prices that existed back in 2001.

“Writes Campbell, ‘And as I’ve stated in previous letters, this is where the problem arose: borrowers took on far more mortgage debt than they could ever pay back, and that’s why the real estate prices are crashing, and we are witnessing the destruction of the biggest credit bubble in history. And in the absence of dramatic increases in household incomes that are needed to service this massive amount of mortgage debt - all the bailouts in the world are unlikely to stop housing prices from eventually reverting back to the 2001 pre-bubble years - or close to it.’”

Source: Richard Russell, Dow Theory Letters, January 15, 2009.

[winston]

The global economic slowdown and credit crunch have hit demand for Russian exports. Moscow's indexes have dropped 70% and left business cutting jobs in defense.

The ruble has been devalued for the 13th time in two months. The world battle for exports, with the help of cheap currencies is on. They call it competitive devaluations, and the whole picture is not lost on gold.

The move is starting – to move to hard assets. The hardest of all assets is gold. Gold, in case you forget, is pure wealth, it's the only money with no debt against it or without a counter-partner.

Gold needs no nation or central bank to attest, by fiat – that it's money.

– Richard Russell

[winston]

I don't know if you've noticed it, but the nature of the gold action is beginning to change. Previously, when gold rose, the next day traders would take profits and gold would correct. But April gold was up 25.90 [Thursday], and instead of taking profits [on Friday] gold was up again – and sharply.

As I said, the gold action is changing – what's happened to the profit taking? Gold buyers have stopped taking profits, they are buying and sitting with their gold. Physical gold has now been swept off the market. Coins are only sold by dealers with big premiums over spot – that is, if you can find a dealer who has any gold coins at all.

A few sites ago, I wrote that I believe gold and silver are finally moving into their third (speculative) phase. Seasoned investors are thinking in terms of the demise of the dollar and of all fiat money.

– Richard Russell