the dow: richard russel comments

October 6, 2008 -- Thoughts over the weekend. I just finished reading the Sunday San Diego Union, the LA Times and the NY Times. The most talked about person in the three papers was Sarah Palin. And I asked myself, is Palin's huge publicity a plus or a minus for the Republican party? And honestly, I couldn't come up with an answer. Palin is certainly bringing in a massive amount of publicity for the GOP. McCain appears to be fading from the news. Some commentators are seriously suggesting the Republicans do a switch with Palin for President and McCain for Vice-president. Can the GOP win by attacking Obama. I really don't think so. Americans have an innate sense of fairness.

The house finally voted for the bailout bill, but not before adding a slew of earmarks (an astounding $150 billion of pork) to the bill. Where are the patriots in Congress? Up to now, the budget deficit has been set at $500 billion. Add the $700 billion that the bailout will cost plus $150 billion in disgusting earmarks, and you're talking about a trillion dollar deficit for the next fiscal year. As for the disgraceful addition of earmarks, where is our Congressmens' and Congresswomens' shame, and this after the debate in which both McCain and Obama talked about cutting out the earmarks!

Can the dollar hold up in the face of a probable series of trillion dollar deficits? Improbable. How long will our creditors be willing to hold and continue to take in dollars in the face of monster US deficits? Remember, the US is the only nation on earth that can manufacture (out of thin air) the fiat currency to pay off its debts. We won't be able to print our way out of this bear market -- our creditors won't allow us to do it. At some point, I believe, our creditors will demand gold instead of Federal Reserve Notes. At that point, it will be to the US's advantage for gold to be as high-priced as possible -- What will we do? The US will cut loose the price of gold FROM ITS CURRENT ridiculous official price of $35 an ounce and give gold to our creditors at a price of $30,000 an ounce.

Today, it stands to reason that the US will use any device to render gold less attractive than it's self-created Federal Reserve Notes, but ultimately sanity and reason will win out in favor of gold. When the time comes to pay off our creditors in gold, we'll want the price of gold sky-high.

An additional thought -- On Sept. 29 the Dow crashed 778 points to close at a new low for the downtrend at 10365.45. Up to that time, the Transports had been so resistant to decline that I did not believe they would ever confirm. Yet, on October 3 the Transports slumped 42.63 points, smashing below its January low of 4140.29 to close at 4134.55, a new low for the decline, and thereby reconfirming the primary bear trend. The ultimate irony is that this occurred amid the news of the House passing the bailout bill.

Note that all the action in the Dow is now occurring below the 10725 critical level under the 50% Principle. Also, the negative spread between the Selling Pressure and Buying Power Indices has bearishly widened to -605. All of the major long-term considerations that I follow are now pointing down -- these are Dow Theory, the 50% Principle and Lowry's.

Reminder -- in a primary bear market, one way or another, everybody loses with the winner being the one who loses the least.

Fiat Empire -- PLEASE -- THIS IS A MUST LOOK -- I'm including a link to a fascinating and great video available on Google Video (if you would prefer -- just type in "Fiat Empire" into Google -- it should be the first entry) -- if you cut and paste following into your web browser, it will take you directly there.

http://video.google.com/videoplay?docid=5232639329002339531


Question -- How well has my suggestion that the way to weather this bear market is with cash (T-bills and notes) and bullion (preferably gold coins in your possession and held in a bank vault)?

Answer -- I'd say, "So far, so good." I continue to recommend a stance of no debt, cash, and gold coins or if necessary GLD.

Question -- Russell, why don't the gold shares move up when gold rises?

Answer -- The gold shares have been moving with the stock market, while ignoring the price of gold. I don't believe the gold shares trust the wildly-fluctuating price of gold. I've been thinking that gold will have to rally and stay above 1000 before the gold shares and GDX believe in the bull market in gold. The gold shares have the leverage, but at this point it's a matter of confidence that has been preventing the gold shares from advancing, even on days when gold is up substantially. To make it simple, the gold shares just DO NOT TRUST the price of gold. The price of gold has been too erratic.


TODAY'S MARKET ACTION -- My PTI was down 6 to another new low for the year of 5899. The moving average was 5925. The PTI is bearish by the biggest negative spread of the year of 26 points.

The Dow was down 363.40 to 996.20.

Nov. crude was down 6.07 to 87.81.

Transports were down 32 to 4102.50.

Utilities were down 22.50 to 389.20.

There were 248 advances on the NYSE and 3030 declines.

There were new 2 highs and 1663 new lows.

Total NYSE volume was 7.87 billion shares.

S&P was down 42.21 to 1057.02.

NASDAQ was down 84.40 to 1862.90.

My Big Money Breadth Index was down 10 to 758.

Dollar Index was up 1.19 to 81.77. Euro was down 3.08 to 135.21. Yen was up 3.40 to 99.03. Currency prices as of 1 pm Pacific Time.

Bonds: Yield on the 10 year T-note was 3.426%. Yield on the long T-bond was 3.942%. Yield of the 91 day T-bill was 0.06%.

CRB Commodity Index was down 17.28 to 413.15.

Dec. gold was up 25.40 to 858.60. Dec. silver was down 0.36 to 10.95. Oct. platinum was up 20.70 to 986.50. Metal prices as of 1 pm Pacific Time.

GDX was down 1.49 to 27.58. HUI was down 15.97 to 253.11.

ABX was down 2.08, AEM down 3.18, ASA down 0.44 and NEM down 1.18.

My Most Active Stocks Index was down 13 to 149.

The VIX was up 6.80 to 51.94.


Bonds -- were up today. If the bond market was seeing better times ahead, bonds would be down as they discounted rising interest rates.
The Confidence Index (CI), which I wrote about in depth last week closed at a new low for the series. The latest CI figure (Oct 3) at 68.4 is a new low. This new low is bearish, indicating that the stock market will be lower two to four months from now. As the CI declines, it means that bond people are moving from medium-grade bonds to the highest-grade bonds, thereby sacrificing the higher yields of the medium-grade bonds for the safety of the highest-grade bonds. The CI tends to move two to four months ahead of the stock market.

New lows -- On July 15 there were 1304 new lows on the NYSE, A RECORD. Therefore, I took July 15 as the "internal low" for the stock market. I didn't think the July 15 performance would be surpassed. But today there were 1663 new lows on the NYSE. Thus, the record of July 15 has been surpassed today. Anyway you look at it, this is not good. Today, there were 3298 stocks traded on the NYSE. This means that an incredible 50.4% of all the stocks traded on the NYSE hit new lows today. Amazing.