Richard Russell 01 (May 08 - Dec 14)

[blid2def]

I'm a bit confused. Does Richard Russell write for the Gold Bug Letters or Dow Theory Letters? The four-letter word is mentioned in so many articles shared here that he might as well just post 2 words, "Buy Gold" in every article.

[winston]

Richard Russell (Dow Theory Letters), 84-year old doyen of investment newsletter writers, interprets the technical situation as follows:-

“The Point & Figure chart may currently be the most important single chart in the world. This is the DJ Industrial Average, and it’s in the act of testing its November 20 low. If the Dow violates its low, it will have confirmed the prior bearish penetration of the Transportation Average.

If that happens, the primary bear market will be reconfirmed. But if the Industrials stubbornly refuse to break to a new low, then the inference is that something else is happening. The inference is that the bear market may be forming a temporary bottom.”

“What I think we’ve seen, so far, is the end of forced selling. At this point, professionals are trying to gauge whether the huge market collapse of 2007-2008 has discounted the worst to come or whether ‘the worst’ still lies ahead,” said Russell. “The drama should be played out over the next week or so.”

Given all the cross-currents, short-term movements are almost impossible to predict and traders will simply have to remain level-headed and wait for Mr Market to show his hand, especially as far as the November 20 lows are concerned.

[winston]

The great Richard Russell on the $1,000 gold mark
From Dow Theory Letters:

On Friday, April gold closed over $1000 per ounce. That action made the newspaper. Two ads appeared in the NY Times noting "that gold closed near its all-time high, and therefore this is the ideal time to sell your old gold jewelry at peak prices." My reaction is that this is the time to refrain from selling any kind of gold, and if anything, this is a last chance to buy gold at advantageous prices.

Remember, gold is the only item that is bought out of fear and out of greed. At some point ahead, I believe that gold will "catch fire" and move up into a parabolic advance. Once over 1007.70, gold will have risen above all previous highs, and there will be no upside resistance to hold gold back.

[winston]

Greenspan's latest column

From Dow Theory Letters:

Greenspan again -- It's becoming painful to listen or read Alan Greenspan's constant squirming as he seeks to rewrite his incredible mistake in creating the disastrous the housing bubble. In yesterday's WSJ, Greenspan again claims that he "didn't do it." I was disgusted to see the Greenspan piece headlined, "The Fed Didn't Cause the Housing Bubble." Greenspan hides behind "the Fed." Of Course, Alan Greenspan was "the Fed." The title should have read "I, Alan Greenspan, didn't cause the housing bubble."

In his slimy fake apology, Greenspan resorts to ridiculous English. Sample from his apology: "The appropriate policy response is not to bridle financial intermediation with heavy regulation. That would stifle important advances in finance that enhance standards of living. Remember, prior to the crisis, the US economy exhibited an impressive degree of productivity advance......Adequate capital and collateral requirements can address the weaknesses that the crisis has unearthed."

Russell comment -- I ask, you, what the hell is Greenspan talking about? What a load of gibberish. He's trying to impress and overwhelm us with his erudition. C'mon, Maestro, at long last admit it -- you messed up the world by allowing and encouraging a housing bubble.

[winston]

Richard Russell: Bernanke wants mortgage rates at 3-4%; "massive assault"
From Dow Theory Letters:

Russell Comment -- They're calling it "The Rambo Fed." Bernanke is not fooling around any longer. He's playing all his cards. He's going to put a floor under housing and boost asset prices in an all-out attack on the bear market.

Bernanke wants to drive mortgage rates down and refinance housing at 3-4%. On the news, the dollar swooned, the Euro surged, the long T-bond exploded higher by six points, and the yield on the ten-year Treasury bond sank to 1.51%. Whew, what a day and what an announcement.

The Bernanke plan -- smother deflation with money and put a floor under housing. Bernanke will in no way accept deflation. The Fed will go all-out in printing Federal Reserve Notes in its massive assault on deflation. Bernanke will accept a collapsing dollar rather than a repeat of the Great Depression. Actually, the Fed would like a lower (not a crashing) dollar. A lower dollar would be inflationary, which is what the Fed wants.

[winston]

Richard Russell (Dow Theory Letters): Why I am bullish on gold

“I started building my gold position in 1999. At the time gold was flat on its fanny well below 300 - what few gold mining shares were still alive were selling under $5. I wrote at the time that many gold shares were so cheap that you could buy them as if they were perpetual warrants. My gold position now is comparable to my market position back in 1958. My gold position represents maybe 30% of my total worth. Why have I done this again?

“For the following reasons:

(1) I believe gold is in a major or primary bull market. I believe the gold bull market is currently in its second phase. This is the phase where sophisticated and seasoned investors and the funds enter the market. I don’t believe the public is in the gold market to any extent. They are interested and watching the action, but they do not have the nerve to buy gold. In fact, the public doesn’t know how to buy gold, although ads are now appearing telling them of the ‘wonders’ of gold and how they can buy the coins (at huge premiums over spot gold).

(2) If there is only one bull market in progress, it will attract broad new coverage and attention - just as Thursday’s $70 rise in gold did.

(3) I believe the bear market in stocks will continue erratically and the deflationary trends will persist. This will drive Fed Chairman Bernanke up the wall, and I think he will stop at nothing (including massive printing of dollars) in his effort to halt deflation.”

Source: Richard Russell, Dow Theory Letters, March 20, 2009

[winston]

Richard Russel (Dow Theory Letters): What are the signs of a final bottom?

“Will the evidence come from the D-J Averages? I think it might. At the final bear market bottom, we should see:

(1) a dramatic non-confirmation by either the Industrials or the Transports (this is what occurred in 1974).

(2) or we might see an extended ‘line’ in the Averages, in which the Averages fluctuate within a 5% zone for many weeks on low volume. At some point both averages will surge higher on increasing volume.

(3) Values - We will see blue chip stocks selling ‘below known values’ with P/E ratios at single digits and the yield on the Dow near 6%.

“In the area of the final bear market lows, public attitude towards stocks and the stock market will be black-pessimistic and even angry. Wall Street will be despised and denounced as a scam. Actually, we are beginning to see just a bit of that via the highly-publicized debate between Jim Cramer and John Stewart, in which Stewart literally calls both Cramer and Wall Street a fraud.

“Already the public is turning against Wall Street, and, of course, the Bernie Madoff scheme only adds to the public anger against the ‘crooks of Wall Street’. Already, the ‘buy and hold’ creed (religion?) is being denounced along with the image of stocks as wealth-building vehicles. Warren Buffett is being tarred and feathered - Berkshire Hathaway lost billions of dollars over the last year, despite Buffett’s cheer-leading role a few months ago when he announced that he was buying stocks.

“Taking it to the present, the big question is whether we have already seen the bottom of the bear market and whether the recent strength in the market is the beginning of a new bull market. My opinion is that the latest rally is part of a bear market correction - not the beginning of a new bull market. The primary trend was recently re-confirmed as bearish when both the Industrials and the Transports broke to simultaneous new lows.

“One hint as to where we are is that prior to a major low, Lowry’s Selling Pressure Index (supply) turns down while their Buying Power Index (demand) leads on the upside. This did not occur at or near the recent lows.”

Source: Richard Russell, Dow Theory Letters, March 16, 2009.

[winston]

From Dow Theory Letters:

Subscribers know that I often refer to the stock market as a nasty animal. Actually, the market is always in a bull or bear phase. I don't know whether you've ever seen a bull fight. When I first moved to San Diego in 1961, I would ride my motorcycle to the bull fights in Tijuana every Sunday. I can tell you that there's nothing more dangerous and terrifying than an angry fighting bull.

I imagine an angry bear is much the same. There's nothing cute or sweet about an angry bull or bear. As a matter of fact, fighting bulls are a different breed than your ordinary bull. A fighting bull is brave and relentless. He likes nothing better than to sink his horns into the chest or the groin of the matador. Wall Street has named the two phases correctly. Neither bull markets nor bear markets were created to make you money. Actually, the opposite is true.

Old timers are fond of saying, "The trend is your friend." The trend may be your friend, but I can tell you that the stock market is not your friend. I've said this before and I'll repeat it - the stock market is not for the average investor. As is the case with Las Vegas gambling, stick with the stock market long enough and it will take your money and leave you chagrined and angry. In my experience, if you deal with the stock market over any length of time, you will end up poorer and more frustrated than when you started.

The stock market was created to distribute equities to the public, not to make them rich.

[winston]

You Don't Know What's Going on If You Don't Read This By Dr. Steve Sjuggerud

"People are absolutely not positioned for hard times," Richard Russell told the crowd Saturday night. "The present bear market will get much tougher."

Richard Russell famously called the bottom for stocks in December 1974. He told readers of his newsletter, Dow Theory Letters, to buy... after stocks had fallen roughly in half in the preceding two years. During those two terrible years, Richard recommended his readers hold 100% of their money outside of the stock market.

On Saturday night, I attended a tribute dinner for Richard, who's been writing his newsletter since 1958. I figured it'd be a small affair... an occasion for investment newsletter writers like me to acknowledge the guy who taught us all how to do it right. Turns out, over 400 people showed up. Newsletter writers came to California from as far as South Africa and Europe to show their respect. It was a "who's who" of newsletter writers over the last 50 years.

Richard shined during a question-and-answer session. Famous newsletter writers quizzed him like star-struck kids. The 84-year-old showed he's still at the top of his game in the investment world.

One writer asked how he "knew" we'd hit bottom in late 1974... even though everything looked terrible. And he asked how that time compared to today. Russell replied...

The psychology was right... When I turned bullish, I got angry letters from people telling me I was wrong. The psychology today is totally different. People are very quick now to turn bullish, as we've seen lately. In a real bear market like '74 or the Depression, people don't think it can get better like they still think now.

I lived through the Depression. You could not get a job no matter what you tried to do. Today it's a lot easier. You can get a job. The last three generations haven't seen hard times. They're not prepared.

Richard remembers bread lines stretching for many blocks. He remembers the Empire State Building going bankrupt. He has good memories, too... seeing Babe Ruth hit a home run... and sneaking out to see now-legendary jazz musicians.

He got the biggest cheers with his answer to this question: "If you were in charge of the country, what are the top three things you'd do to turn this country around?"

Richard replied, "I wouldn't do a thing. I'd let the bear market take its course. The fixes won't work. They prolong and compound the problem. And they're costing us trillions."

The crowd went nuts. Russell and the newsletter crowd are strong believers in taking personal responsibility and in saving your money. Today's government "fixes" go against both of those beliefs.

Bill Bonner is behind the world's largest investment newsletter publishing business (including my publisher). Bill gave Russell the ultimate compliment... He told the crowd:

"I still read rich Richard every day. I feel like I don't really know what's going on in the financial world if I haven't read him."

Richard Russell is a hero in our little business. In 1974, he called the bottom of the bear market. Here in 2009, we now have a bear market worse than 1974. Russell is not calling the bottom here yet.

Last month, I told you "permabear" Jeremy Grantham was turning bullish, calling for stocks to rise over the next seven years. He may be right… but it's a bold call to go up against Richard's 50 years of Wall Street experience.

[winston]

If you're long stocks, make sure to read this from Richard Russell

From Richard Russell in Dow Theory Letters:

...Was March 9 the ultimate bear market low?

The essence of Dow Theory has to do with VALUES. At the March low the price/earnings ratio for the Dow was 25.79 and the dividend yield for the Dow was 3.99%. For the S&P 500 the P/E was 28.38 while the dividend yield was 2.98%.

Consider the following -- this bear market has, so far, qualified as a MAJOR bear market. Stock values, across the board, are down 50%. Most major bear markets in history have taken stocks down to the point where price/earnings for both the Dow and the S&P are below 7, while at the same time dividend yields are at 6% or higher.

I would expect this bear market, regardless of intervening rallies, to end with stocks selling at "great values," meaning P/E ratios well below 10 and dividend yields in the 5-6% area. We've seen nothing like that so far. All of which makes me believe that we are now simply in a bear market correction