the dow:richard russell comments

November 2, 2007 -- (Bloomberg) -- Employment in the U.S. rose more than forecast in October, suggesting a resilient labor market will steer the economy clear of recession even as the housing slump deepens. Payrolls climbed by 166,000 after a 96,000 increase in September, the Labor Department said today in Washington. The jobless rate held at 4.7 percent.

Russell Comment -- Too bad we can't trust these phony figures.
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We have a key barometer at our disposal. It's called gold. We also have a fierce problem at our doorsteps. It's called deflation. Yesterday, we saw the stock market's reaction to the Fed's meager quarter-point cut in the Fed Funds. The market's reaction was to take a swan-dive -- I might even call it a semi-crash.

Why did the market take a dive? Here's the background. The housing situation is deteriorating. The specter of mass foreclosures next year is haunting the building and real estate industry and its workers. US consumers are growing increasingly pessimistic. US consumers are pessimistic about the war, they're pessimistic about our President, they're even more pessimistic about Congress, they're pessimistic about their inability to keep up their standard of living because of rising prices, they're pessimistic about their government's debts -- and their own debts. And they're pessimistic about Social Security and Medicare and their own and their children's futures.

Where might all this pessimism lead to? It will lead to a cut-back in consumer spending. Consumer spending amounts to nearly 70% of the Gross Domestic Product of the United States. If consumers cut back substantially, the nation will sink into recession.

The ramifications of a recession are international in scope. US consumer spending comprises 19.3% of the world's GDP. If the US goes into recession, it will impact adversely on the world economy.

Fed Chief Bernanke's got a brutal problem. He'd probably like to go all-out on the path of inflation, knock deflation on its fanny. But to do that means we must kiss the dollar good bye. Already, Bernanke is hearing the hoots and the warnings. The New York Sun newspaper is now calling the US dollar "The Bernanke." The world is sneering at the once all-powerful "Yankee dollar." And that's not a good omen.

What would happen if the US let the dollar fall, and I mean fall hard? We know that the Fed talks to central banks the world over. But the biggies, China, Russia, the Mideast, would they stand for a crashing dollar? After all, they hold billions in US securities. What would they do? What is Bernanke to do?

Maybe Ben should come out with the truth. Maybe he should announce that if the US goes into recession, the whole world is going to feel the pain -- and that will create political and social problems across the face of the globe. Therefore, the US must inflate.

I opened up this site by stating that GOLD is the barometer. Currently, gold appears to be holding its own. Is that enough? Remember, Bernanke has to do whatever it takes to inflate, and the key gauge will be the price of gold. To put it another way, if Bernanke can't get gold moving higher, we're in trouble. If gold rallies above 800 and continues to climb, we'll know that Bernanke is succeeding in holding off deflation. But if gold begins to slide, if the gold charts start breaking down, then we'll know that deflation is on the verge of winning the game. And I promise you that if gold loses, we'll all lose.

So the great drama is starting to unfold. The US must hold off the forces of deflation at all costs -- or else.

Next, I want to show you two revealing charts. The first is a daily of the banking industry. New lows yesterday, which, of course, is quite bearish. The banks are the stalwarts of the financial system, and when the banks are doing poorly, it's a sign that the whole financial system is in trouble.

The second chart follows the Housing Index -- down, and down. I've been waiting for this Index to hit bottom and then turn up. That hasn't happened yet -- which I guess you could say is bad news. Consider this, if you will, two-thirds of all the families in the US own their own homes. A steady bear trend in the Housing Index is well, it's a truly ominous sign.



Once again I'm displaying the two critical charts, the charts that will tell us whether we're still in a primary bull market or whether a primary bear market lies ahead. The daily chart of the Dow shows weakness, but the Dow is still well above its August 9 low of 12845.78. However, the sluggish Transports are not far above their own August 9 low of 4672.35.

Remember, only a violation of the August 9 lows by BOTH Average would constitute a Dow Theory bear market signal. Thus, as I've said a thousand times, we await the verdict of the market.





Market Logic -- Yesterday was an official 90% downside day, the second of the last few weeks. This has taken Lowry's Buying Power Index to its lowest level of the last six months. According to Lowry's, investors should now remain cautions until the appearance of a 90% upside day. As of yesterday, my PTI was only 19 points from a sell signal.

So please follow this logic -- the market plunged to lows recorded on August 9. But since August 9 the market has been both volatile and ragged, and it's reasonably certain that institutional money has not entered into the market in any important way.

If the lows of August 9 were not "low enough" to attract big institutional money, then it's logical that the stock market will have to decline substantially below the August 9 lows before institutional money is willing to enter in any major way.

Gold -- I guess the whole gold bull market can be likened to a profitable education in investing. What's the lesson? It goes like this -- In a primary bull market you ride the bull. You don't trade in and out of the bull, you don't listen to advisors who have never lived through a bull market, you don't read negative amateur advisory reports -- you follow only one process, you take an important position and add to that position on all reactions. Sounds easy, right? Believe me, it isn't. It's probably the single most difficult process in investing. And darn few people ever do it.

Knowing how difficult it is, I've argued, I've harassed, I've hounded, I've begged -- my subscribers to buy gold and gold shares and stay with their gold positions through thick and thin -- through corrections, through bearish blather, through rumors of confiscation, through countless uninformed analyses.

I honestly don't know how many of my subscribers have assumed major positions in gold. I suspect that maybe 20% have. I suspect that maybe 10% have taken minor positions in gold.

The primary bull market in gold that we're living through is fated to be one of the great fortune builders of our times. And the interesting part of it is that we haven't reached the really profitable phase yet, and, of course, I'm referring to the third speculative phase of the bull market.

Right now there is a huge, a record, open interest in gold of 516,163 contracts! At the same time, the Commercials have also built a very large short position in gold. This combination suggests that we are seeing a rare situation -- the situation is one in which new money is coming in and actually squeezing the commercial shorts. Many of the Commercials are simply gold mining companies that are supplying the gold via shorts -- the mines will cover their shorts with gold that they produce. Nevertheless, this is a very unusual situation -- I can't remember the last time I've seen anything exactly like it.

My advice, and I think you've heard me say this before -- ride the bull. Stay with the bull. Don't trade yourself out of the bull. Patience. And remember, we're living through an historic primary bull market in gold, and it's an unfinished bull market.

A weekly chart of gold going back three years is presented below. The chart, I believe, is self-explanatory. Please take a few minutes out and study it.



TODAY'S MARKET ACTION -- My PTI was up 2 to 5962. Moving average was 5942, so my PTI remains bullish by 20 points.

The Dow was up 27.23 to 13595.10. No movers in the Dow today.

Dec. crude was up 2.44 to 95.93.

Transports were up 28.16 to 4802.86.

Utilities were up 2.70 to 525.84.

There were 1539 advances on the NYSE and 1751 declines. DOWN volume was 58.9% of up + down volume.

There were 85 new highs on the NYSE and 254 new lows. My 5-day high-low differentials declined from plus 546 to today's plus 202.

Total NYSE volume was 3.50 billion shares.

S&P was up 1.21 to 1509.65.

NASDAQ was up 15.55 to 2810.88.

My Big Money Breadth Index was down 2 to 849.

Dollar Index sank to a new record low of 76.27. Euro was up .39 to 144.98. Yen was up .12 to 87.18.

Bonds were higher. Yield on the 10 year T-note was 4.29%. Yield on the 30 year T-bond was 4.60%. Yield on the short T-bill was 3.50%.

CRB Commodity Index was up 1.04 to 455.10.

Dec. gold was up 14.80 to a new recovery high of 808.50. Dec. silver was up 27 to a new recovery high of 14.59. Platinum was up 11.00 to a new record high of 1462.70.

GDX was up 1.89 to 50.71. HUI was up 17.27 to 430.38.

ABX up 3.12, AEM up 2.49, GG up 1.82, NEM up 2.10. PAAS up 1.11.

One share of the Dow buys 16.81 ounces of gold, a new low.

One ounce of gold buys 55.38 ounces of silver, which seems like a lot.

A banner day for gold with the Dec. futures finally closing decisively above 800. The next target, the 850 peak recorded in 1980.

STOCKS -- My Most Active Stocks Index was down 9 to 547.

The five most active stocks on the NYSE were -- C down .78, MER down 4.91, BAC down .60, EMC down .24, PFE down .28.

Also on the most active list -- what's this? GS (Goldman Sachs) down 10.61 to 229.60. Did somebody dare slap the king?

The VIX was down only .29 to 23.01. Investors still want that downside protection. They remain suspicious regarding this market.

CONCLUSION -- This one is so tough to call that you know what -- I'm not even going to try to call it. Subscribers know what the key August lows are. It continues to be a bull market until the market says it isn't, and the market hasn't said that as of today's close -- it's still a bull market.

Today's action wasn't exactly a tonic for the bulls, but on the other hand my PTI closed up 2, and up is a lot better than down, at least it is in this business.

On the latest reading, 70% of the Dow Industrial stocks were in bullish trends, and that's a plus for the bulls.

Aw, have a great weekend. What will be, will be. And enjoy the reality, because reality is all we've got.

Russell
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Richard --
Monday, excepting a catastrophic sell off in the PMs today, Silver's 50-day MA will cross above it's 200-day MA for the first time since July 12th. (Basis: London fix, simple arithmetic MA)
At that time, the 10-day will be above the 30-day, the 30 above the 50, and the 50 above the 200 and all will be rising. Surprisingly, the SPOT fix isn't THAT much above the 200-day MA, about 7%, so there's lots of room to move. The REALLY violent corrections in silver occur with SPOT about 40 to 60% above the 200-d MA. (Just for chuckles, 40% above today's 200-day MA is $ 18.50, + 50% is $19.82. )

SSRI & PAAS are two strong silver stocks, AEM is into gold and silver. HL & CDE haven't done as well.

R Hall
CT
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Hey Richard,

Here's a good article on global real estate by Sam Zell. He thinks global real estate with real returns will be in demand by sovereign
funds and that a bunch of private real estate will come to public markets.

Kevin M/ Sedona AZ


Sam Zell Speaks
By Chris Mayer

They call him the “Grave Dancer.”

It was a tag pinned on Sam Zell by an article in 1976 describing his exploits in buying up busted real estate projects on the cheap. The name stuck. It’s a good image for Zell’s style. As Hilary Rosenberg describes in The Vulture Investors, “Zell made his first fortune by tap dancing on the tombs of real estate projects… and later, he waltzed into corporate cemeteries.”

These days, the Grave Dancer is making more money than ever. I’m not sure what Zell’s net worth is now, but I’m sure the figure starts with a “B.” Therefore, when I had a chance to listen to Zell talk about investing, I took it.

On a bright and warm autumn day, a flock of well-dressed and scrubbed financial types made the pilgrimage to hear the old man talk. At the New York Historical Society in Manhattan’s Upper West Side, Zell took the stage in blue jeans and buttoned shirt, sans tie. Zell is 66 years old and very rich, which gets you a free pass to say and do what you want.

“There is a worldwide shortage of income from bricks and mortar,” Zell told us. More and more investors want income. Importantly, however, many of them no longer want income from the traditional sources, such as debt securities - most of which have become problematic since the subprime troubles of July- August.

In the fallout, many surprised investors lost a lot of money in things they thought were safe income-producing investments. Investment-grade securities aren’t supposed to lose value so easily.

An investment-grade rating once was an imprint of quality, like USDA prime beef. Today, the label means little. Mortgage-backed securities once thought beyond suspicion turned out to be disguised junk.

As a result, suspicion lingers around bonds of all sorts, but especially the manufactured variety produced by Wall Street’s packaging experts. No one really knows what’s in these things anymore. It’s like not being able to trust the food labels at the grocery store.

So the demand for simple and hard assets is high. Investors increasingly no longer want to own esoteric paper. They want to own tangible things, such as old-fashioned bricks and mortar, as Zell said.

Zell said we were in the “greatest monetization in the history of the world.” What does this mean? Think of it this way: If you own an office building and go public, offering shares on your property, you have “monetized” the asset. You have realized cash and turned a physical thing into a tradable security. That tradable security is in high demand these days, because people want that steady income from real estate. And the monetization of real estate is the process of meeting that demand.

On a global scale, this trend is something that is only just beginning. If you examine the size of publicly traded real estate markets around the world compared with the total stock of real estate in each region, you see that very little real estate trades in the public markets. Europe has total real estate properties worth some $6.3 trillion yet has only a tiny sliver in the public markets - about 2.8%.

That’s because European countries only recently enacted U.S.-style real estate legislation. According to Cohen & Steers, “In Europe, in 2007 alone, the United Kingdom, Germany and Italy enacted [such] legislation.” Suddenly, sealed-off private real estate has an open door to public markets.

Cohen & Steer goes on to note: “The sheer size of German private real estate holdings, for example, is extraordinary; a significant amount of these holdings could enter Germany’s public real estate market by 2010.”

Then there is Asia. Parts of Asia, such as Japan, Singapore and Hong Kong, have had U.S.-style real estate laws in effect since 2000. So they are ahead of Europe. But the opportunity remains large. As you can see, there is still only a small sliver of real estate holdings in public hands. Privately held real estate makes up the vast majority.

Zell is bullish on even North American commercial real estate. He said, “You must remember that commercial real estate is a global market. For a euro- based investor, U.S. real estate looks cheap.” As the dollar tumbles, it puts U.S. assets on sale. (For a U.S.-based investor, this trend of global monetization of real estate is a great thing. The more publicly traded global real estate out there, the more ways you have to hedge yourself against a falling dollar.)

Zell is no pie-in-the-sky theorist. He is active himself in Brazil, Mexico and Asia. He owns property and businesses all over the world. He sees with his own eyes the deals still there for the taking. At the conference, he described picking up a Mexican warehouse only 100 miles from the Texas border that pays a 14% cash yield.

The property was in private hands. It’s now in Zell’s hands.

Investors want that - steady income from a tangible thing - more now than ever, as Zell pointed out. And the market will respond. The big trend in real estate is the conversion of private real estate into public stocks. Also, rapidly growing economies in Asia and South America push the demand for all things real estate. They need more of everything - from retail space to office buildings to warehouses.

So you have lots to build, lots already out there in private hands and vast pools of money ready to own real estate. You may remember a few letters ago I wrote about the sovereign wealth funds - those huge piles of cash in government hands (especially those of the Persian Gulf states and China). Zell pointed out that we have "only begun to see the impact of sovereign wealth funds on world demand [for real estate].” Zell opined they will be steady buyers.

Therefore, as Zell said, buy bricks and mortar - especially overseas.