the dow ~ richard russell comments

Posted this one today because RR comments on astrological methods in the Markets. I've always thought this was pretty much BS but hey, What's your star sign baby...?



June 3, 2003 -- I never know whether I should start these sites with news, views, my own thoughts or the talk of the markets. Guess I'll start with news and thoughts.

The liberals (read Democrats) are really, really angry. They're angry because the Bush crowd lied about weapons of mass destruction being in Iraq. Paul Krugman (NY Times op-ed today) goes even further. He calls the Bush people, literally, a bunch of liars. "It's long past time for this administration to be held accountable. Over the last two years we've become accustomed to the pattern. Each time the administration comes up with another whopper, partisan supporters -- a group which includes a large segment of the news media -- obediently insists that black is white and up is down."

Robert Sheer in today's LA Times writes, "Now that 'imminent threat' posed by Iraqi chemical or biological weapons has turned out not to be so imminent, the question is -- Did our gazillion dollar spy operations blow the call or was the dope they developed distorted or exaggerated by our political leaders. Either way, heads should roll.

Time magazine headline -- "Weapons of Mass Disappearance."

And Britain's poor old Tony Blair is receiving the same treatment. Tony's own lawmakers are now demanding that Iraq war intelligence, the reports that were used to justify the war, be published.

Ah well, one day we'll know just what the hell the Iraq war was all about. And I doubt it will be pretty.

Meanwhile, with much of Europe in semi-recession as the specter of competitive currency devaluations comes to the fore. Today in the WSJ we learn that "G-8 Leaders Fret About the Dollar." The weak dollar and strong euro is putting pressure on European exports. In the face of slowing business, Europe's central bank is thinking of cutting rates, lowering the euro's competitive value and making the euro less attractive to investors. Japan has voiced its own fears about the weakening dollar.

In the face of the criticism and the goof by Treasury Secretary Snow, Mr. Bush announced (from Europe) that he still favors (yawn) a strong dollar. Yeah, right.

Believe it or not, all is not well in the US. Evidently, legislation in at least five states is aimed at preventing jobs from being exported overseas. This, of course, is absurd, because if jobs are kept in the US by force, we still can't compete with cheap Asian labor? Keeping jobs here by law is tantamount to tariffs, which have never worked. C'mon, this is the new "global economy." In a free global economy, jobs and manufacturing will go where it's most competitive -- it's as simple and fundamental as that.

Let's see, what's our next problem. I've got it, it's deflation. Is the US and maybe the rest of the world, going to sink into deflation? Not if the central banks can help it. Milton Friedman claims that inflation and deflation are always monetary phenomena. Is Milty right? If he is, then there's not going to be any deflation here in the US. In fact there's going to be inflation, because the money supply in the US is surging, and that, dear subscribers, is inflationary.

Why is the Fed so terrified of deflation? A number of reasons. Here's the theory. Once deflation starts people will put off buying because to wait mean to get better prices.

In deflation, debt looms much more threatening. Dollars become harder to find and debt in nominal terms looms larger and more difficult to carry.

In deflation nominal interest rates can't drop below zero. Banks can't offer rates below zero -- therefore the demand for loans will collapse, shrinking the banking sector and the economy with it.

With price falling and nominal interest rates below zero, real interest rates will continue to rise, increasing the deflationary pressures.

And finally, because nominal interest rates can't fall below zero, central banks will be powerless to offset the deflationary pressures.

But as I said above, let's not worry about deflation, at least not yet. The Fed's battle to re-inflate the economy is moving into "high gear." If the Fed fails, we'll have time to worry. In the meantime, follow the money (supply) -- which is surging.

And it seems that a huge portion of the money is continuing to go into housing. Check this out. Fannie Mae expect $3.7 trillion (that's no mistake, it's trillion) in home loans this year based on low mortgage rates. That would be up 42% from last year's record $2.6 trillion.

Let's make it simple. Maybe all we have to do is follow Fannie Mae (FNM) When Fannie tops out, it will all be over. And Fannie has not topped out, at least on today's reading of the chart.

So the truth is that it's housing that's carrying the US economy. "You don't have a house? You moron, go out and buy one. What's that, you've already got a house? So what -- buy another one. They're better than stocks, and financing costs you nothing. Furthermore, the price of houses can only go one way -- UP.

"So get out there, dummy, before the price of that house you're looking shoots up another $5,000."

Agreed, real estate is hot. What about the stock market? It's hot too. Selling (as per Lowry's Selling Pressure Index) keeps dropping to new lows -- it looks as though nobody wants to sell anything. Meanwhile, despite the overbought condition of the market, buying continues apace.

The result is a market that is very reluctant to correct. As I write, even after nine consecutive days of rising breadth, there is a stubborn reluctance on the part of market breadth to turn down in any convincing way. Right now on the NYSE (an hour after the opening of today's session), there are 390 more issue down than up. Let's see how she closes, but a negative 390 isn't much.

As I write, the September 30 year T-bond, after correcting slightly, is up a full point. Six months ago many bond gurus announced the end of the great bond bull market. "Stick a fork in it, it's done," stated one expert. But the announcement of the bull's death was premature. This bond bull lives. He's still alive and breathing. And Fed head Greenspan gave the bond market a little "zutz" today when he announce that all was well, and if it wasn't, the Fed has its ways of fixing things).

So there is still no real evidence of deflation. At the same time, there's no real evidence of inflation -- you don't believe it, then look at the bonds. If inflation was heating up, the bond's would be doing a swan dive. And they're doing just the opposite.

As for gold, it's waiting in the wings, not breaking down, but not moving higher. What's gold thinking about? It's thinking that the Fed's "open spigot" policy, which, if nothing else, is creating an ocean of dollars. And that's monetary inflation, even if it isn't price inflation. The ratio of junk money (paper dollars) to real money (gold) continues to push higher. The more dollars created, the more gold is worth. So gold waits, and waits and waits.

You can deal with markets on two levels. Level one is what is actually happening. And level two is what logic, instinct, and theory suggests (at least to you) what might happen.

On the first level, what is actually happening is that this is a strong market with very little "give" in any area. There are a few items militating "against" this market. Too much bullishness. Market is overbought. The 50% Principle remains bearish as long as the Dow fluctuate below 9504. But the reality is that this market is strong and appears very resistant to correction. "It just no wanna go down."

On the second level my instinct tells me that this powerful correction in a bear market could top out late this month or in July. Of course, this is just a guess on my part, and the guess is based partly on my memory of the year 1957 when the market topped out in July and "fell apart" into October.

I blush to reveal it but my July guess is bolstered by the action of the Bradley Model, which, believe it or not, is based on astronomical data. As mysterious as it sounds, the Bradley Model has been very accurate over the last year. The Bradley Model call for a top on July 2, and if my technical data jibes with the Bradley at that time, it will be most interesting if not almost "miraculous."

By the way, my friend Arch Crawford, down in Tucson, Arizona, is the expert on the Bradley Model (turn to Google and search for the Bradley Model). The answer is in the stars, my friends, and if you don't believe it consult Shakespeare's Hamlet ("There is more things in heaven and earth, Horatio, than are dreamt of in your philosophy")

TODAY'S MARKET ACTION -- Really interesting day -- bonds surge again, bringing down rates, while it looks like another quarter point drop from the Fed. This is forcing Europe to lower rates, which will probably happen any day. Meanwhile, liquidity floods the US markets.

My PTI was up 2 to 5297 with the moving average at 5254. PTI remains bullish as it has ever since March 17.

The Dow was up 25.14 to 8922.95. One mover in the Dow today, IBM down 3.51 to 83.62.

July crude down .04 to 30.67.

Transports were down .30 to 2512.03.

Utilities were up 1.32 to 249.01. Check out EDE and LNT.

There were 1803 advances and 1480 declines. But down volume was slightly above up volume -- down volume was 51.8% of up + down volume.

There were 337 new highs and 2 new lows. My High-Low Index was up 335 to minus 991.

Total NYSE volume was 1.42 billion shares.

S&P was up 4.55 to 971.56.

Nasdaq was up 12.81 to 103.56 on lower volume of 2.04 billion shares.

My Big Money Breadth Index was up 6 to 688.

Sept. Dollar Index was up .12 to 93.98. Sept. euro was down .17 to 117.10. Sept. yen was down .39 to 84.27.

German DAX was down 37 to 3026. June Nikkei was up 70 to 8805.

Bonds were sharply higher -- Sept. 30 year T-bond was up 103 ticks to 119.12 to yield 4.36%. Sept. 10 year T-note was up 25 ticks to 118.21 to yield a lowly 3.34%.

Investors are grabbing anything with yield although the 10 year T-note still yields twice what the S&P does at 1.70%. So what to buy? I'm still picking over utilities with 5% or better dividends that will be taxed at 15%. But they're getting scarce too. Try ED, PEG, HE, EDE.

August gold was down .80 to 366.30. July silver was unch. at 4.51. July platinum was up 14.50 to 851.70. Sept. palladium was up 5.00 to 192.00.

Gold/Dollar Index ratio was down 1.30 to 391.50.

Gold advance-decline line was down 4 to 1138.

XAU was up .09 to 74.06. HUI was down .97 to 141.19.

NEW -- The Dow will buy 24.38 ounces of gold today, down from the high of 42 ounces.

ABX up .25, ASA up .07, GG down .16, GLG down .28, HMY down .04, NEM down 20, PDG up .07, RGLD down .83.

Gold consolidating, and I believe still working on the "right shoulder."

STOCKS -- My Most Active Stock Index was unexpectedly down 5 to 131.

The 15 most active stocks on the NYSE were -- LU down .07, MIR down .79, NT down .06, IBM down 3.63, PFE up .67, TYC up .09, CPN down .43, MOT down .23, F down .37, GLW down .29, GE down .01, AOL down .26, HPQ up.03, C u .83, EMC up .41.

VIX was up .22 with very little change over the last few weeks. Nobody's worried in the options area..

McClellan Oscillator was down 24 to 104, but still well above zero.

CONCLUSION -- If it has a yield, this market wants it. The rushing to lock in dividends and interest is intense. How far will that take this market? We're going to find out.

The US economy at this point is all about the housing industry. If there's a key stock on the Board, it's FNM better known (to me) as Mae with the ample Fannie. So far, FNM is acting OK but not near new highs. FNM was up .61 to 74.81 today. Russell poem -- It will surely pay -- to keep your eyes on Fannie Mae.

IMPORTANT -- I'm off tomorrow morning for another chelation session. That means that this site tomorrow will be very abbreviated, with most of it just being "TODAY'S MARKET ACTION." It's getting so I have to visit the doctor's to get a rest.

Adios --

Russell

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Yeah, I'm sorry for Martha Stewart. If she had just originally said they she had made a mistake and didn't realize what she was doing, she would probably have gotten a stiff fine and it would have been over. But she chose Hillary's path, which was denial (remember Hillary and the cattle futures?). Hillary got away with it; Martha didn't.

Once the Fed's attorneys spend a lot of time on a case, they want a pay-off, and the result has been sheer hell for Martha and the price of her stock. Next time, Martha, just tell the truth and pay the fine. Martha will be indicted, and she will plead innocent. Good luck.
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Japanese men get 10% of the amount of prostate cancer American men get. The reason is certain chemicals in soy, and the Japanese eat a lot of soy. You can too. Try eating steamed or boiled edememe (soy) beans, they're delicious. Or have miso soup. Buy miso paste at a supermarket or health food store. Bring water to a boil, add the paste, presto miso soup. I have it every day with lunch. Or, buy the thin slices of imitation cheese made from soy; every supermarket sells them now -- they look like individually wrapped slices of American cheese, and they come in many flavors. They're delicious. I put these slices on sesame crackers as snacks. Of course, there's always tofu. My favorite is tofu served many different ways in Chinese restaurants along with vegetables.

It's all soy and it's all tasty -- and it's all good for you.