The Godfather of newsletter writers, Richard Russell, summed up our situation as follows, “crumbling.” Again I will repeat what I have always liked about Russell is that he likes to focus on the big picture. What is the big picture? Here are a few snippets from his latest commentary...
August 21, 2010
KWN Blog
Richard Russell:
On to the markets. The stock market is crumbling -- actually crumbling before our very eyes.
...I'm saying that half the issues in the Dow, the NYSE, S&P and NASDAQ have now sunk below their important 200-day moving averages. And the same is true of the big stock averages.
And the incredible thing is that even as the stock market is falling apart, the experts and the media are taking in and believing the government reports, and they think everything is bright and sunny.. It's as if they can't see or take in what the market is doing -- the whole financial world seems to be brain-washed...I've never seen anything like it.
The Russell opinion. It's the markets that are telling the real story, not the analysts or the government..Believe me if the stock market continues the way its been going (particularly if it crashes) it's going to scare the living hell out of America's consumers. If consumers freeze up, you're going to see all the deflation you want. So who to believe, the analysts and economist or the stock and bond markets?
At this point, who's running the nation? It's not Obama, it's not Geithner or Bernanke, it's not even the Fed -- IT'S THE MARKETS. And we'll watch 'em as intently as a barn owl watches a mouse.
A final take -- It's simply uncanny to see the stock market (most stocks) falling apart while the media and the government tells us that "things are looking better." It's as if the nation is watching a horror movie and is reacting with a case of the giggles.
As for Richard Russell, he's resting easy. I've been urging my subscribers to "clean house" and be OUT of all stocks. I think (hope) I've got a lot of happy, solvent subscribers, which is exactly what I want as this market teeters on the edge of an historic collapse.
Question -- Russell, recently you wrote up certain utilities as a source of income. What are your latest thoughts now?
Answer -- My thoughts now is that I want subscribers OUT of all stocks and bonds except for gold and gold items. Before this bear market is over, it's going to take down everything. We're in cash and gold, and probably less cash as time goes along.
This is not a recession, but rather a depression. Recessions tend to break people, depressions on the other hand tend to consume them.
How much of Russell is realist, how much pessimist?
ReplyDeleteAs an architect I am an observer of the mediocrity of the majority, just turn on TV as example of this "reality" but I also recognize the exceptional in man as exemplified in architecture, science, technology and Formula One.
What is one to do, retreat? I am a believer in the power of the subconscious mind, whether in the individual or in the national mind, expect the worst or expect the best and it will become a realization.
Russell puts a lot of faith in the market which I have seen all too often react in a mob mentality.
I am concerned but given the choice I personally will reject the pessimist's resignation and join with those optimists who recognize cold realities but challenge them with resolve and aspiration.
@FE-
ReplyDeleteRichard Russell is an objective realist.
He has been publishing his index since 1971 - nearly 40 years.
He has seen a lot and understands markets quite well. He uses the Dow Theory primary trend change confirmation has a major indicator of a change in the market direction. Needless to say it turned positive, along with Richard in March 2009 and recently has confirmed a downward trend.
More generally, in case you are not aware, or watch too much CNBC and their sell-side Bulltards, we have been in a secular bear market since 2000, we have had two major bear trends and two bull trends since - the market has not gone anywhere in 10 years.
It is likely the top was put in for the year in April around 1220 or so. Since then, the market participants have been in a tug-of-war between 1050 and 1150 on the S&P and was breaking down of late. I would expect a bounce over the next week or two.
My view is that we are going to 950 by October - not in a straight line mind you, before a sustained rally into the new year, back up to something like 1150, which then peters out by spring 2011. Once that happens we could well re-test the devils bottom at 666 - not in a straight line.
No one can predict the future. Intervention in the markets by the Federal Reserve through additional Quantitative Easing, QE, could well inflate the market (enriching the commercial banks) and this scenario may not play out as I have described.
One must be prepared for multiple outcomes, obviously, and to be flexible in your investment strategies - buy and hold is done - it is so 90's, it died at the end of the last secular bull.
We, as a nation, are still just kicking the can down the road until we face reality and start dealing with the debt issue - it can not end well...sorry
A couple of book references for you...an easy one and a more challenging one...
"A Short History of Financial Euphoria" by John Kenneth Galbraith
"Extraordinary Popular Delusions and the Madness of Crowds" by Charles MacKay
That said, are you pulling your investment $ out of the market and have you invested in Gold as Russell suggested?
ReplyDelete...i have been selling into strength during late 2009 and in 2010 and am now with a large cash position...
ReplyDelete...have significant position in physical gold and silver as wall as precious metal miners since 2003...and still do...although have lightened up on the miners into strength...they will go down with the market...
still long energy and looking to add to that position on further weakness...
...out of foreign and emerging markets since late 2008...
...still long commodity country bonds - CAD, AUD, etc...
was long dollar - short euro during end 2009, early 2010...although, am generally short dollar, although only the commodity currency position presently...
...short the S&P on a trading basis...following my thesis/scenario described in the earlier comment...
money where mouth is...