Richard Russell 01 (May 08 - Dec 14)

[winston]

Richard Russell's take on the B.S. stress tests

From Richard Russell's Dow Theory Letters:

After the much-publicized but secret stress tests, it turns out that a number of our top 19 banks need another $75 billion if they want to stay alive.

What's happened to the incompetent bank presidents and financial officers of these cursed banks? Have any of them been fired? Heck no, because the US is being run for the bankers. If a few big banks go down, the US will cease to be as a nation. Right? And that goes for the bank presidents.

Now it turns out that the president of the most important of the Fed banks, the prez of the New York Fed has quit, due to the fact he had a "relationship" with Goldman. Yeah, he used to be a Goldman director. Am I living in the United States of Goldman?

[winston]

MUST READ rant from Richard Russell on Goldman, the Fed, and the public By Richard Russell in Dow Theory Letters:

I read about what's going on in the Fed and the Treasury, and I can't believe it. Friedman, former president of the powerful NY Fed, (he's also a director of Goldman) buys 52,600 shares of stock in Goldman Sachs, and he's accused of a conflict of interest. Friedman quits - but where does he quit? Why I'll be damned, he quits his Fed job - and chooses to remain a Goldman director. What a surprise!

It's now obvious that the Fed and the Treasury want, above all, to save the banks. Everything else is secondary. It's also increasingly obvious that the bankers own the nation and that Goldman Sachs runs the nation and the banks. The whole thing is so flagrant that my head spins. And what Goldman doesn't control, the Pentagon controls.

How about this - AIG, the insurer which has been bailed out four times by the government to the tune of $180 billion has been named the "worst company in America" by readers of consumerist.com run by Consumer Reports. Some voters voted for Comcast as the worst until they heard that AIG, after receiving bail-out money, paid out big bonuses to employees. Considering AIG's wrong-way investments, giving out bonuses was disgusting and disgraceful. Will these guys stop at nothing in their greed?

How does Wall Street and these companies get away with these outrages? They get away with it because the public doesn't have the vaguest idea of what's happening or what Wall Street is doing.

[winston]

Richard Russell: The two markets you should be watching this month

By Richard Russell in Dow Theory Letters:

A dull day on the stock market, but I see a lot of excitement elsewhere. Dollar sinking, and the bonds sinking with the buck, but I thought the big story was the breakout of GDX.

My PTI was unchanged [yesterday]. This together with declining volume suggests the market is losing upside momentum. We had a 90% upside day yesterday with no follow through today. The market seems to sense the danger of a new high in the Dow unconfirmed by the transports. Thus the market backed off today and surveyed the scene.

The real drama is being played out by the dollar and the bonds. As the bonds back off, interests rates rise which is the last thing the Fed wants. As I've said before, "everything is alright as long as the bond market says it is."

The bond market no longer says it is. Keep one eye on the dollar and the other on the bonds.

[winston]

The great Richard Russell: We are near the mania phase in gold
By Richard Russell in Dow Theory Letters:

Every major primary bull market takes place in three sentiment phases. The first phase of the gold bull market occurred around 1999 to 2005. This was the "dirt cheap" phase of gold when only the true believers assumed positions. Old timers probably remember back in 2000 when I wrote that the listed gold shares were so ridiculously cheap that they could be bought and "put away" as perpetual warrants.

The second phase of the gold bull market started around 2005 and is still in force. This is the phase where the seasoned professionals and a few more sophisticated funds take their positions. It is in the second phase where we see the most painful secondary corrections. And it is in the second phase where the public first notices the persistent rise in gold. In the current area, gold is just starting to attract the attention of the public.

Every major primary bull market that I have studied or lived through ends up with a wildly speculative third phase. This is the phase where the public and the crowd rushes head-long into the market. We saw this last in the years around 2000 when people bought any kind of tech stock. "I don't care what it is, if it's tech, just get me in!"

My belief is that we're now nearing the beginning of the third speculative phase of the great gold bull market...

[winston]

Richard Russell (Dow Theory Letters): Dollar’s death cross

“The Cross-over - Below is the US’s current ‘problem child’. And yes, it’s the fading ‘almighty dollar’. The Dollar Index is shown below on the daily chart. After its recent three-month collapse, the dollar is oversold and ready to rally a bit. But now the 50-day MA has crossed below the 200-day MA, the ‘death cross’. The cross-over point will represent a strong resistance level on any dollar rally.

“The evil progression - a sinking dollar puts pressure on bonds. Declining bonds drive interest rates higher. Rising interest rates mean rising mortgage rates. Higher mortgage rates puts pressure on the purchase of new homes. Housing represents collateral for almost everything in the US economy.”

[winston]

By Richard Russell in Dow Theory Letters:

It's clear (at least to me) that Obama is following the path Roosevelt took during the Great Depression.

In 1933, the government devalued the dollar by 41% by raising the official price of gold from $20.67 to $35 an ounce. Devaluation makes debt easier to handle. In a devaluation, the dollar value of debt remains the same, but all other assets would be worth more (in nominal terms) whether it was a house, a stock, a car or an ounce of gold.

How our creditors who own trillions of dollar in their reserves will react to a dollar devaluation I really don't know, but a devalued dollar is a lot better than nothing. The Bernanke Fed is trying desperately to bring back inflation, and devaluing the dollar is the surest and quickest way to inflate.

[winston]

One major reason why people own gold is that gold can't go broke. Gold can't go broke because it has no counter-parties or liabilities against it. Gold can't go broke because gold is pure wealth. Sure gold can go down in price in terms of a currency, but gold CAN NOT GO BROKE.

This is the crucial fact hat the "dollar-bugs" fail to comprehend. This is the reason why sophisticated wealthy people own large quantities of gold. Gold represents eternal unquestioned wealth.

Wealthy people do NOT hold gold for appreciation. They don't care about the price of gold today or tomorrow. That is not why they hold gold.


–Richard Russell,
Dow Theory Letters

[winston]

Richard Russell: Competitive devaluations to spur on gold

“Every nation wants to export. The obsession to export has resulted in filling the world with products, things, and merchandise of every kind. There’s a world overflow of products, and the result is deflation. Just too much stuff being manufactured. Buyers from importing nations can’t handle it all. The result is asset deflation.

“One reason why every nation wants to export is to lift employment. Nothing scares politicians like unemployment. Why? Because unemployed workers VOTE just the way employed workers do. The lesson - if you want high employment, learn to export. Exporting creates jobs. China and Asia learned that lesson, and they captured world export markets with the help of one valuable item - low wages - that along with no Social Security, no medical, no pensions, no anything, just plain low wages with none of the extras.

“Ooops, I left something out. What I left out was the big second advantage - cheap currency. Every nation, particularly the exporters, wants a cheap, competitive currency. The US is no exception. Obama tells the world that the dollar is a strong, hard currency, but the dollar has been weak. The administration’s policy is to talk a “hard dollar” but hope for a soft dollar.

“The result of all this is competitive devaluations. Nations no longer devalue their currencies against gold, they simply print oceans of their own currencies, and with that paper they buy dollars, hoping to raise the price of dollars against their own currencies. The result is a growing sea of fiat junk paper.

“The greater the world ocean of fiat paper, the higher gold goes. You see, gold is the secret, unstated world standard of money. Gold can’t be devalued or multiplied out of thin air. So as the various currencies of the world decline in relation to each other, gold stands alone. It can’t be cheapened or devalued or bankrupted. While the currencies of the world decline in purchasing power in relation to each other, they all decline in purchasing power against gold. In other words, as time passes, it requires more of each currency to purchase one ounce of gold.

“In the meantime, the US continues to spend outrageously, not only running up debts for the present but also for the children of the future. The US deficits and national debt will run into the multi-trillions in coming years.

“How will these monster debts ever be paid off? They’ll be paid off by devalued dollars, they’ll be paid off by additional borrowing, they’ll be paid off by inflation, they’ll be paid off with higher taxes and probably a VAT tax, they’ll be handled by projecting them into the future for other administrations to struggle with.

“As they say in New York, ‘all right already, so what do we do about it?’.
“Short and medium term, you want dollars, as many of them as you can save. Long-term you want gold. Somewhere ahead gold will come into its own. I can’t time gold, but I can identify the time when gold is ready to ‘take off’. When gold climbs above 1,004 it will be the signal for the beginning of the third phase gold rush. What I’m saying is forget quick profits in gold, forget timing gold, just own some.

“The way the world is going, ‘gold will be the last man standing’. Gold will be wanted because unlike everything else, gold can not go bankrupt. Gold has no debt against it, gold is not the product of some nation’s central bank. Gold is pure intrinsic wealth. It needs no nation to guarantee it. Gold is outside the paper system.”

Source: Richard Russell, Dow Theory Letters, June 25, 2008.

[winston]

The legendary Richard Russell: Dividend environment worst over 40 years

From Richard Russell in Dow Theory Letters:

Talk, talk, talk. What good is it? Better to follow the money. When do you know for certain that a corporation is doing better and feeling optimistic? Answer -- when it starts paying a dividend or when it raises its dividend.

The second quarter of 2009 was a dismal one for corporate dividends. Standard & Poor's recorded an all-time low of 233 dividend increases plus resumptions and extras. During the April through June period, the 7,000 publicly-owned companies that S&P follows, were down 45.8% in dividend increases from a year ago.

Actually, 250 corporations cut or completely omitted dividends in the second quarter compared with 97 for the same period last year. This was the worst showing since the 272 cuts and omissions in the second quarter of the 1958 recession. Companies hate to cut or omit their dividends since such action places a black mark (unreliable) on their stock.

[winston]

How to protect your savings in the coming devaluation By Richard Russell in Dow Theory Letters:

The US will be running trillion-dollar deficits for years to come. How will these debts be paid off? The answer is that they won't be paid off, future US administrations will attempt to get rid of the debts via inflation and through rising taxes. It's unthinkable that the US will attempt to renege on its debt.

As new trillions of dollars are created by the Fed, the dollar is under "stealth devaluation." In the choice between deflation and dollar-devaluation, the Fed has clearly chosen the path of dollar devaluation.

The investor's defense against the Fed's decision -- gold.