the dow~richard russell comments
August 18, 2003 -- Music tells us a lot about the times. Or maybe the times dictate the music. Sunday morning I was listening to a fine young pianist who has turned singer, the popular Diana Krall.
Frank Sinatra was once asked the secret of his success. Said Frank, "I sang the great songs."
Ms. Krall must have learned from Sinatra, because she also sings many of the great songs of the '30s and '40s when song writers ("Tin-Pan Alley") were actually writing the great songs. Listening to those songs, you realize how different from today those times were. The titles of the songs tell the story. Disappointment, despair, lost love, hard work, longing for better times.
"Dancing in the Dark, we can face the music together, dancing in the dark."
"I Don't Stand a Ghost of a Chance With You."
"No, No, They Can't Take That Away From Me."
"I Get Along Without You Very Well,"
"Let's Face the Music and Dance."
"Brother Can You Spare a Dime?"
"The Night We Called It a Day."
Yes, the titles tell you a story of the times, and those times were tough. In those songs people were told to "face the music and dance." People danced the fox trot, and the Lindy Hop, but they also did face the music.
What of today? As I see it, today is mostly about escapism. The kids all listen to that non-music known as rap. Rap is basically black poetry right out of the ghettos and the prisons. It's nasty, angry, often obscene. My own kids listen to it. I can't. It's too ugly, and I don't think it's even music.
Note that almost all the music today is made for the kids. If you're not under 21 you don't know what's going on (unless you watch MTV). Today's other escape is sex. Sex is everywhere, and it is an escape. Why think about the real world when there are always undulating bodies and sex and endless sexual references. The movies and TV shows of today are all about teen-agers and coming of age and sex.
Even dope (remember the '60s and '70s?) has given way to sex. Dope is still forbidden, sex is increasingly accepted. Gay and lesbian sex is "in" and mostly accepted today. For many, it's a thrill and a way to shock their parents.
What's all this got to do with the stock market? My thinking is that in some ways, the stock market is paralleling the youth culture. The stock market today is also on an escapist adventure. Based on the current sky-high prices and minuscule dividends, my thinking is that the stock market is back in the "bubble." The Fed's relentless blowing up of the money supply along with declining interest rates, has gone a long way to keeping the bubble mentality going.
Even as the US loses is manufacturing base, even as Fed Chairman Greenspan mindlessly tells us that we don't need manufacturing any more, even as the US builds a chasm of negative current account balances and budget deficits, US investors and speculators drive stock prices up to ridiculous prices.
The S&P continues to sell at over 32 times earnings. The Nasdaq sells at around 78 times earnings. Dividend yields remain below 2% even though the tax on corporate dividends has been reduced to 15%.
There's a feeling of escapism and fantasy in the US, and I believe it's built into the current stock market. Today America isn't "facing the music," it's escaping into a youth culture of sex and rap and pierced tongues and tattoos.
But don't get me wrong. I think the kids today are terrific. Among my five offspring, I have a 22 year old daughter and a 25 year old son. I talk to them and I talk to their friends. The kids today know a lot more than we did when we were kids. The kids today are dealing with the fact that jobs are very hard to find, that sexual diseases are prevalent, that money is hard to accumulate, and that this country is losing both its manufacturing base and a good part of its service base.
One of my biggest complaints is about the lousy job the US media is doing. They're not telling us the story. Evidently, the biggest mistake Bush made was teaming up with Tony Blair. Why? Because the British media is all over Blair for the nonsense he told the British about Iraq. As for the US media, the stories behind Iraq has not been told or if they are addressed, they are brushed over. Nor is the US media telling us about the real problems in the economy.
I've said it before, and I'll repeat it -- if you want to know what's going on, skip the Wall Street Journal and read London's Financial Times.
You want to know some of what's behind Iraq? Then read a new book by ex-CIA operative Robert Baer. The book is entitled, "Sleeping With the Devil." It's an eye-opener. Here are a few quotes from the cover.
"With America's complicity, the Saudis have provided aid, shelter and material comfort to the Muslim Brotherhood."
"Almost everyone who's anyone in Washington -- from George Bush Sr. to Henry Kissinger, Al Gore and Dick Cheney -- has stuck a hand in the Saudi cookie jar. The Saudis contribute to both political parties, and they reward their supporters lavishly."
"Over the past decade, Saudi Arabia has transferred half a billion dollars to al Qaeda and at least $100 million to the Taliban."
But US politicians continue to do business with the Saudis, and US politicians continue to become millionaires thanks to the Saudis.
So we have a corrupt currency and a corrupt government. Where will it all end? It's not an encouraging thought. California has always been known as a state that leads change, and the rest of the US follows. With California now threatening to recall its governor, what does that tell us about the future of the US -- particularly as employment and budget problems relentlessly bear down on the US economy?
One of Al Qaeda's main objectives has been to get the US out of Saudi Arabia. The US has moved out. The new center of US military power in the Mideast is now in Iraq. Why do we need overwhelming military power in the Mideast? One word -- oil.
The current "prosperity" in the US is dependant on one item -- the fiat US dollar. We're printing a hell of a lot of them, and the world, incredibly, continues to accept them. The following is from Doug Noland's always-excellent column on the PrudentBear site.
"The broad money supply (M-3) surged $49.9 billion last week. This increased the 16-week money expansion to $389 billion or 14.7% annualized. Since early last October (43 weeks), money supply has inflated $642 billion or 9.3% annualized."
Russell comment -- The Greenspan Fed is moving toward printing a trillion paper dollars over a 12-month period.
The exporting nations that continue to accept the US paper -- turn around and either load up on US Treasury bonds with the dollars they receive -- or they buy US assets such as real estate or US companies or in some cases, weapons of defense. The US is not only the world's largest manufacturer of paper currency, it is also the world's biggest supplier of the weapons of war.
Turning to the markets, it's becoming increasingly difficult to write anything intelligent about the markets in the morning. Prices may surge during the first hour, but by the close the market may actually be down. Or the market will move sideways most of the day, and then in the last hour or even half-hour the market will surge. Thus, everything I've written an hour or two or three hours after the opening becomes useless.
As I write the S&P is up 400 points and the Dow is up over 40. If these numbers hold, then the Dow will have finally climbed and closed above its June 17 closing high of 9323.02 with the Transports confirming and at a new closing high. Normally, these "simultaneous upside penetrations" would call for higher prices. But with Buying Power at a five-month low, rather than predict, I'd rather just wait and see.
Today's market was spurred on by a good rise in the 30 year T-bonds and a strong surge in the Dollar Index. Since a nation's currency is taken as an indication of the general health and strength of that nation, the market obviously liked the strength in the dollar. Ironically, a stronger dollar does impact on the US's ability to export. And a stronger dollar makes imports more attractive. From this standpoint, a stronger dollar is a negative for the economy since it leads the way to larger negative trade balances.
TODAY'S MARKET ACTION -- New highs in both the Dow and the Transports which should be a strong plus for the stock market. But where was the volume?
The Dow was up 90.76 to 9412.45. There was one mover in the Dow today, CAT up 2.08 to 73.4.
Sept. crude was down .16 to 30.89.
Transports were up 20.17 to 2643.83, a new high.
Utilities were down 1.37 to 236.10.
There were 2199 advances and 1087 declines. Up volume was 73.7% of up + down volume, unusual that up volume wasn't better with the breakout in the Averages.
There were 245 new highs and 33 new lows. My High-Low Index was up 212 to 8471, Again, unusual because on June 17, the last Dow high, where were 391 new highs. Ah well, you can't have everything
Total NYSE volume was a disappointing 1.10 billion shares.
S&P was up 9.07 to 999.74, not at a new high.
Nasdaq was up 37.48 to 1739.49 on 1.46 billion shares.
My Big Money Breadth Index was up 8 to 705. On June 17 it was 718. Needs only 13 more to confirm.
September Dollar Index was up .71 to 97.45, Sept. euro was down 1.03 to 111.39. Sept. yen was up .21 to 83.75.
German DAX continues very strong, up 63 to 3507. Sept. Nikkei up 245 to 10180 and turning stronger. All three world "engines" looking better.
Bonds higher -- Sept. 30 year T-bond up 21 ticks to 105.24 to yield 5.36%. Sept. 10 year T-note up 12 ticks to 111.03 to yield 4.47%. As for the bonds, it appear that they've made their lows for a while, at least that's my guess.
Dec. gold was down 4.80 to 359.90, But gold holding well above its 50-day and 200-day moving averages. Sept. silver was down 10 to 4.92. Oct. platinum was up 2.50 to 696.50. Sept. palladium was up 2.85 to 183.00.
Gold/Dollar Index ratio was down 7.40 to 369.30.
One share of the Dow buys 26.15 ounces of gold.
Gold advance-decline line was down 20 to 1242.
XAU was down 1.19 to 86.39. HUI was down 4.37 to 177.85.
ABX down .11, ASA down .63, DROOY down .17, GG down .28, GLG down .26, GSS down .16, HMY down .31, NEM down .46, RGLD down .77.
Another "gut check" for the golds. Remember, in a bull market the upside progress tends to be slow and tedious, while the corrections are sudden and sharp.
STOCKS -- My Most Active Stock Index was up 11 to 226.
The 15 most active stocks on the NYSE were -- AMD up 1.13, GE up 1.02, FE down 2.75, MU up .20, NOK up .08, PFE up .04, LOW up 3.00, TXN up .74, AOL up .16, HD up .25, TYC up .28, HPQ up .77, AGRb up .02, NT up .06, C down .20.
VIX was down .92 to 19.28 -- and again in the "too much complacency" below 20.
McClellan Oscillator was up 47 to plus 92.
CONCLUSION -- A very fascinating situation here. Dow and the Transports rallied to confirmed new highs, Dow at a 14 month high. But the background is less exciting. Volume was low on the breakout. Insiders have been selling heavily (see story in the WSJ today). New highs are lagging, and Lowry's Buying Power is near a five-month low. VIX today closed under 20 at the "too much complacency" level.
However, the McClellan, after being in negative territory for 9 weeks, has turned positive and "'should" stay positive for a while.
The weakish action of the various indicators may be suggesting that this rally won't go very far, but that again is just a guess.
Just a very strange situation, but I have to give precedence to price, and that means the action of the D-J Averages. Those who bought the Diamonds and Spyders need to be alert -- place actual or mental stop losses under your stocks. I'd put 'em close like 92.99 for the DIA and 98.99 for the SPY. If they hit the stops, so what -- we tried.
Tomorrow's another day, and I'm ready --
Russell
........................................................................................................................................ Today the Wall Street Journal finally carried a piece about the heavy insider selling. In July insiders sold $32.21 dollars of stock for every $1 that they bought. July marked the third month in a row that insider selling was above 20 to 1. This hasn't happened since July through September, 2000. Following that streak, the Dow was down 28% within a year.
How valuable is our knowledge of insider trading? My own opinion is that any single month may not be that useful, but when we see an abnormal period of three months or more, then it's best to pay attention to insider trading. It seems to me that the recent three-month string of heavy insider selling is something to keep in mind. ........................................................................................................................................ The World Gold Council is going to make it a lot easier for people to buy gold. They're applying for gold ETFs at the NYSE, and exchanges in Tokyo, Johannesburg, Toronto, Hong Kong, and Singapore. Australia is already in action; Melbourne-based Gold Bullion Ltd. has become the world's first listed open gold-backed fund when it went public at the end of March. So far, 128,000 ounces of gold have been sold through the Melbourne Exchange. Each gold bullion trust share sells for one-tenth the price of an ounce of gold. The cost of buying a share is 0.01 percent.
On the NYSE, the World Gold Council originally appointed the Bank of New York to work on listing its Equity Gold Trust. An argument ensued, and the Council switched to UBS, and the two are now involved in a legal argument. In the Russell opinion, within a year gold will be traded on most of the stock exchanges of the world, via the new ETFs. Each share of gold sold will be back by an actual ounce of gold, so it's important to realize that this will not be a futures or a derivative operation. In other words, purchases of gold ETFs will actually remove physical gold from the market.
........................................................................................................................................ Volatility is low in almost every item today be it stocks, gold, bonds, etc. Commercial traders need volume to make money, and activity often creates volume. For this reason, we're seeing a lot of meaningless running up and down of prices (think gold) as Commercials hope to stir up some volume.
However, these minor moves are the ones most watched by the public, yet they are the most insignificant moves. They are moves often set off by professionals in an effort to stir up some price movement and volume.
I was surprised to see this article in yesterday's New York Times. The piece was headlined, "As Factories Move Abroad, So Does US Power." The article starts, "Manufacturing is slowly disappearing from the United States. That does not mean we should rush to preserve the remaining factories as historic landmarks. America will still be a manufacturing power in our grandchildren's lifetime, but that status is gradually eroding.
"Why does this matter? Well, the essence of a great world power is its edge in producing not services but manufactured products that other people want -- Boeing's airlines, for example, Intel's semiconductors and Caterpillar's earth-moving equipment. To the extent that this output passes to foreign manufacturers, or even to Americans operating abroad, we lose the means to buy what we, in turn, want from others.
"More than half of the manufactured goods that Americans buys are made abroad, up from 31 percent in 1987. If we continue on our path of ceasing to make merchandise that others want to buy from us, the danger is that these imports will be unaffordable for our descendents.
"The exodus continues at a stepped-up pace, government data show. The proportion of the work force employed in manufacturing has fallen to 11 percent from 30 percent in the mid-1960s . . . . Given manufacturing's importance in maintaining our status as a world power, the downward trends are alarming. The public, nevertheless, focuses only occasionally on the dismantling. It does so when lots of people are hurt, as they were in the early 1980s, when an onslaught of high-quality foreign imports coincided with a severe recession. The combination forced plant closings and layoffs on a scale not experience since the Depression."
Russell comment -- Greenspan says that manufacturing doesn't matter, we'll make our profits elsewhere. But where? I know, we'll sell rap DVDs to the Arabs or maybe hip-hop dance-instructions to the Norwegians.
