Richard Russell 01 (May 08 - Dec 14)

[winston]

Richard Russell (Dow Theory Letters): There is still too much complacency

“(1) There’s still too much complacency. Many commentators are saying that the market is at a major bottom. Many analysts are talking about stocks being on the bargain counter – most are offering lists of stocks to buy. This isn’t the atmosphere I’d expect if we’re moving into a major market bottom.

“On a short-term basis the stock market is severely oversold. We should be close to some kind of a short-term rally. This could dovetail with a short-term correction in the price of oil.

“(2) The D-J Transports are still holding above their January 17 low of 4,140.29. I have no idea whether the Transports will continue to hold or not. It would be a huge plus if the stock market can become extremely oversold (in a major way) while the Transports are still holding above 4,140.29, but I’m beginning to doubt whether that’s going to happen.

“(3) I can’t get the October-November time period out of my mind. So many major declines have ended during October-November, I’m wondering if this decline is going to end during the fourth quarter as so many others have.

“(4) The 1942 and 1949 major bear market lows ended with the Lowry’s Buying Power Index and Selling Pressure Index about 100 points apart with Selling Pressure the dominant Index. The brutal 1974 market bottom ended with the two indices 250 points apart. Currently, Selling Pressure is over 520 points above Buying Power, and I imagine today’s greater volume and more stocks traded is partly responsible for the higher figure. At any rate, this is the largest negative spread in the 75 years of Lowry’s.

“Still, it’s amazing that the spread between Buying Power and Selling Pressure is now so huge. And it is still widening. Logically, somewhere ahead the spread must terminate – every trend has its limit. And at that ‘limit’ point, the stock market will have reached its long-sought bottom.

“How will we recognize that bottom? One way is that following a final wash-out, the tide will turn, and the big institutional money will rush back into the market. This will often produce a 90% up-day. At that juncture, we will see heavy volume on the upside. The whole tenor and feel of the market will change. We’re not there yet.

“(5) I have no idea what might set off or cause any future bull market. It might even be basically a foreign bull market which simply ‘rubs off’ on the US. I don’t know how it might work. I just think that somewhere ahead a new mighty bull market is waiting. But, of course, we have to get through this current bear market first. And so far, there’s little to suggest that the bear market is over.”

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

[winston]

Richard Russell (Dow Theory Letters): Market’s bottoming process could take several years

“I talked to Paul Desmond (head man at Lowry’s) yesterday. He said that one reason for the huge spread between the Selling Pressure Index and the Buying Power Index (compared with spreads in the past) has to do with the massive increase in NYSE volume over recent years.

“Paul also offered the opinion that the lows of this market maybe take place over an extended period of time such as the extended low base of 1980 to 1982. And I agree with Paul – I’ve been thinking the same thing. The problems now imbedded in the US (and the world) economies are so severe that it could take several years of a bottoming process before the next bull market can get started.”

Source: Richard Russell, Dow Theory Letters, July 11, 2008.

[winston]

Richard Russell (Dow Theory Letters): Is the decline over?

“So is the decline over? Anything is possible, but we still have not seen the kind of action that has ended almost every bear market of the last 75 years, according to the Lowry’s studies. These previous declines have been characterized by a series of 90% down-days, with the last 90% down-day quickly followed by a 90% up-day.

“Since the May peak, we have seen only two 90% down days – June 6 and June 26. As I said, the ‘normal’ situation at the final bottom of a true bear market is a 90% down-day quickly followed by a 90% up-day. So far, this has not occurred.

“Will this decline (or bear market, if that’s what you want to call it) end in a different way? I’ve said that I can’t see the market hitting bottom until at least the financials stop declining. Did the financials make the crucial turn to the upside yesterday? We should know shortly.”

Source: Richard Russell, Dow Theory Letters, July 17, 2008.

[winston]

Richard Russell (Dow Theory Letters): Dollar is Achilles Heel of US economy

“I said it three years ago, I said it two years ago, I said it a year ago, I said it six months ago, and I’ll say it again today. The Achilles Heel of the United States is the dollar. The reserve status of the US dollar is absolutely critical to the health of the US. If the dollar begins to lose it’s reserve status, the US economy will be in shambles.

“Gold is now on the move. It’s taking more and more dollars to buy an ounce of real money – gold. This is the market’s way of saying that it trusts the value of the dollar less and less. You may like gold as I do, but the rising trend of gold is a red flag for the health of the United States. The rising dollar price of gold is telling us that both the US economy and the dollar are in trouble.

“The US is the only nation in the world that can print the currency that its own debt is denominated in. That’s an unbelievable ‘gift’. But the US has been doing too damn much printing and too much debt creating. The world recognizes this, and it’s systematically moving away from dollars. Nations are now creating Sovereign Wealth Funds that buy tangibles while at the same time they’re getting rid of unwanted dollars.

“Right now almost everything from stocks to the Dow to homes to food is losing value relative to gold. I tell you it’s ominous. And it’s all the more ominous because 95% of analysts and economists don’t recognize or understand what’s going on. They’re ignorant of the message that rising gold is sending us, and worse – their ignorant of the very meaning of gold.”

Source: Richard Russell, Dow Theory Letters, July 15, 2008.

[winston]

Richard Russell (Dow Theory Letters): Cheap oil not coming back

“… what about oil? I’ve been expecting a top in oil (see daily chart below). Yesterday, for the first time since last February oil broke below its 50-day moving average.

I believe there’s a good chance that we’ve seen the highs for oil. Yesterday was the third day in a row that oil sank by over $4 per day. The final cap on oil will come if oil drops to the 120 level.

“So should you hang on to your gas-eating SUV or your yellow Hummer? My advice, ‘No, cheap oil will not come back. Cheaper oil – yes. Cheap oil – no.’”

[winston]

Richard Russel (Dow Theory Letters): Is bull still alive?

“… could we be watching a vicious but erratic correction in an ongoing bull market? As far as I’m concerned, this is the multi-trillion dollar question of the day and the month and the year.

Because if this is a correction rather than a primary bear market, then this market could tend to hold, and this market could be building a base. And if so, then 18 billion shorts will begin to get squeezed.

And if this market is in the process of building a base, then the big money will begin, slowly and subtly, to re-enter the market.”

Source: Richard Russell, Dow Theory Letters, August 1, 2008.

[winston]

Richard Russell (Dow Theory Letters): Message to foreign creditors

“We owe our foreign creditors billions of dollars. Furthermore, our foreign creditors already own hundreds of billions of dollars. And our foreign creditors’ big worry, among other worries is – what happens if the dollar really tanks? Foreign holders of US dollars have already lost billions due to the slumping dollar. Yet, above all, the US needs our creditors holding on to their dollars and buying ever-more US bonds. What to do?

“Do you remember Treasury Secretary Paulson rushing all over the world — Beijing, Moscow, Berlin, Tokyo – you name it. What was he doing? I think he was beseeching our creditors, ‘Look, you’ve got to help us and at the same time help yourself. Hold on to your US bonds, hold on to your Fannie and Freddie paper, keep buying our paper and our bonds. If you don’t, we’re all facing a catastrophe.

“‘The dollar on a purchasing power parity is ridiculously cheap now. And as soon as possible, we’ll raise rates and that will strengthen the dollar. In the mean time, we’ll talk the strong dollar. And we promise that we will not let the dollar hit the skids. A stronger dollar will help us and help you. Just hold our bonds, hold our paper, and keep buying our bonds. Furthermore, we’ll allow your Sovereign Wealth Funds to buy our assets. Buy all of the US you want. But rest assured, WE WILL DEFEND THE DOLLAR.’

“In my opinion, that was the deal. That was the reason why Paulson was running all over the world with his secret message.”

Source: Richard Russell, Dow Theory Letters, July 30, 2008.

[kennynah]

i think it is very possible that paulson did just that....anyways...until the world starts de-pegging from USD....it is held hostage by the US economy....

a case of all eggs in one basket here....

Or maybe one last travelling trip on ah kong's expenses before he steps down in Jan09. Hahaha. Who know's?

[iam802]

Japan have this poision pill.

If I recall correctly, they are one of the largest US bond holders.

If the bond market fails, won't Japan suffer big time?

Paulson is at most delaying the impact. I am just thinking, what will (or can) trigger USD to strengthen?

[kennynah]

it's all relative imo....a currency in itself has no "valuation"....it is only cheap or expensive relative to other major currencies....ie..major pairs...eur/usd, usd/yen, gbp/usd, etc...

so, while the common sense will dictate that a stronger dollar can be achieved through a firmer US economy, in a short term, this is not always necessary. for example, if eurozone were to start lowering their CB rates...then, relatively, it is now going to make eur/usd pair cheaper....hence strengthening USD.... but this is nothing to do with a stronger US economy...it's just forex at play...

there are of cos many other factors that will impact how USD performs...such as a battered Crude Oil price...other than US economic strength