November 14, 2003 -- Wal-Mart's big drop in price yesterday and...

November 14, 2003 -- Wal-Mart's big drop in price yesterday and the comments from Lee Scott, its CEO, had me thinking. Said Scott, "I don't think consumer spending is slowing, but I also don't see the strength that many of you in the investment community appear to see." Scott noted that buyers were buying the lower-priced items, suggesting that US consumers may be strapped for cash. Said Scott, Buyers are "timing their expenditures around the receipt of their paychecks, indicating liquidity issues." Translation -- consumers are living hand to mouth and are heavily in debt.

At the same time, the Target stores suggested that they may not make their forecasts or their sales targets.

Then this morning the Commerce Dept. announced that October retail sales fell 0.3% "as Americans bought fewer autos and paid less for gasoline."

I tie all this in with the "unusual" decline in M-3, the broad money supply (down $150 billion in the last few months), and I have to wonder whether the boom in consumer buying isn't starting to slow down.

If M-3 is slowing, that means that we can expect increased buying of Treasuries by the Fed as the Fed seeks to keep the markets at the boiling point. Remember, this is a liquidity-driven stock market, a stock market selling at the highest valuations in history. With an election coming up, and with Greenspan clearly backing Bush with all the inflation-generating ability of the Fed, it's a danger to the economy to see a continuing decline in the broad money supply.

With bonds up strongly yesterday and today, I believe the Fed has entered the bond market and is buying bonds, thus driving long rates down. It's obvious that the Fed will do anything and everything to keep the economy from sinking.

But the real task (aside from the inflating stock market) continues to fall to US consumers. They must continue to buy, and they must continue to borrow.

With US dollars flooding the world, commodity prices are surging. Last July the Reuters/CRB Commodity Index stood at 230. In mid-September this Index stood at 237. In early November the CRB stood at 247. As of today the Index has spurted to 255, and it's now surging almost vertically.

This morning the government reports that wholesale inflation grew at .8%, its biggest rise since March. At .8%, this means that wholesales prices are growing at an annualized rate of 10%. That's ten percent!

So can liquidity revive a debt-sogged economy? I guess we'll find out, but certainly liquidity can propel the stock market and commodities and housing higher. Remember, US consumers generate around 70% of the Gross Domestic Product of the US, and the question is -- can the American consumer continue and will they continue to build up their indebtedness? On an annualized basis, using the latest second quarter figures, American consumers are building up debt at the rate of $1 trillion a year.

Dec. crude oil is now over 32 for the first time. Copper is near its high. Gold is higher, and silver is up 12 cents to 5.39. In May one ounce of gold bought 80 ounces of silver, telling me that gold was cheap and silver was dirt cheap. Today one ounce of gold buys 73.6 ounces of silver. Historically, silver is far too cheap compared with gold, and I expect the gold/silver ratio to continue to decline from its May high.


Since the only young primary bull market today is the bull market in tangibles which includes, of course, the gold bull market, I'm writing a lot about gold. The gold bull market is where the BIG money will be made over coming years.

Let's follow the gold bull market with the help of the above point & figure chart. Here we see gold moving up to the 396 box. In so doing, gold has bettered three X's at the 392 box. This bettering of three preceding X's is called a "triple top breakout." A triple box breakout signifies a powerful breakout to the upside. This breakout should be enough to take gold well above 400. But remember, P&F charts deal only with price action, not with time.

Today's Wall Street Journal notes that China is now the world's second greatest buyer of oil. Today's Financial Times notes that "China Hits Record $6 Billion Trade Surplus," this despite a 40% increase in imports.

As I write this morning Dec. gold is up 3.00 at 397.30, and gold-bugs are nervously wondering whether the mighty 400 number may be close to being surpassed. As for gold stocks, yesterday the following gold shares hit new 52-week highs -- AU, BGO, GSS, IAG, GG. PDG, ABX, WHT, GLG, CDE, MNG,

It's fascinating to see the fierce ongoing battle between gold bulls and gold bears. What's clear is that the bearish contingent does NOT want to see gold close above 400 (particularly before a weekend), but increased gold buying continues to come in from all quarters. As a matter of fact, I expect gold buying to spread out across the face of the earth as Chinese, Indians, Asians and finally Europeans join in the slowly growing bull market in gold.

Turning to the stock market, I believe the stock market is now trying to gauge whether the economy is still expanding or whether we have seen the best that lies ahead. There's a limit to how far Fed-generated liquidity can propel the stock market. Ultimately, the economy has to confirm the stock market. With sales trailing off, with consumers up to their eyeballs in debt, the economy could finally be stalling out.

If that happens, I expect the Fed to become even more accommodative, more frantic, more determined to keep the pot simmering to at least the weeks prior to the election.

The Fed was originally set up to be a non-political independent agency. Forget it, Alan Greenspan is one of the most political Fed chairman ever to hold that role. The word is that Greenspan is lusting to go down in history as the Fed Chairman who has held that position longer than any other Fed Chairman. That would require that Greenspan be reappointed to the job for one more term. He'd serve another year and then retire.
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TODAY'S MARKET ACTION -- In five words, "I did not like it." My PTI was down 6 to 5362 with the moving average at 5339. PTI remains bullish by 23 points.

The Dow was down 69.26 to 9768,69, There were no Dow movers today.

Dec. crude was up ,47 to a new high of 32.37 (heavy Chinese buying of oil).

Transports were down 20.81 to 2927.64.

Utilities were down .41 to 248.66.

There were 1325 advances and 1899 declines. Down volume was 65.9% of up + down volume, a mildly bearish day.

There were 336 new highs and 9 new lows. My High-Low Index was up 326 to 23328,

Total NYSE volume was 1.32 billion shares.

S&P was down 8.06 to 1050.35.

Nasdaq was down 37.09 to 1930.26 on 1.80 billion shares.

My Big Money Breadth Index was down 6 to 722, lowest since October 22, a move that I did not like.

Dec. Dollar Index was down .16 to 91.58. Dec. euro was up .48 to 117 .60. Dec. yen was down .07 to 92.46.

German DAX was up 31 to 3797. Dec. Nikkei was down hard, down 280 to 10,085.

Nikkei broke down today from a large head-and-shoulders TOP, something is drastically wrong in Japan, and the Japanese market is reflecting it!!

Bonds were higher, and this is either Fed buying to hold rate down OR it's the bond market discounting slowing business. Dec. 30 year T-bond was up 23 ticks to 110.08 to yield 5.06%. Dec. 10 year T-note was up 19 ticks to 113.08 to yield 4.23%.

Dec. gold was up 3.70 to a new closing high of 398.00. Dec. silver at new high, surging 12 to 5.41. January platinum was up 1.20 to a anew high of 770.80. Dec. palladium was up .65 to 203.00.

Gold/Dollar Index ratio was up 4.70 to a new high of 434.50.

One shares of the Dow buys 24.54 ounces of gold.

Gold advance-decline line was up 16 to 1346.

XAU up .85 to a new high of 102.14. HUI was up 3.07 to a new high of 225.78.

ABX up .25, ASA up .53, AU up .56, BGO up .23, GG up .50, GLG up .11, GSS down .11, KGC up .07, bellwether NEM up .53 to a new closing high of 44.24. RANGY up .76, WHT (I bought more yesterday) up .19. Today's winner was CDE up 10.57%. RANGY second up 5.39%.

Gold and gold shares doing fine, no problems here. Yeah, one problem -- you didn't buy enough.

STOCKS -- My Most Active Stocks Index was down 7 to 310.

The 15 most active stocks on the NYSE were -- PFE up .79, LU down .03, GE down .37, JNJ up 2.04, WMT down .47, XOM down .37, NT down .06, C down .54, MRK up .93, AMD down .39, SGP up .09, TXN down 1.26, AWE down .14, HQ down .28.

VIX up .49 and bearishly creeping higher.

McClellan Oscillator was down 24 to minus 28. The coil winds tigher. Extraordinary action -- be careful.

CONCLUSION -- Market looking somewhat shaky to me, and again I repeat that I don't like the look of the Summation Index (subscribers who subscribe to decisionpoint check out the Summation Index).

Tomorrow I'm going to write what I call my POSITION PAPER ON GOLD, and I want all my subscribes to be sure to read this. It will probably be the most important piece that I've written this year. Please do not miss it.

And I guess that concludes today's site, all except the usual items below --

Russell

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An e-mail received yesterday --

Hi Richard,

I'm doing well at this end having held positions in GG, NEM, CDE since mid 2002,
my financial position has improved and I (and many other subscribers for sure) are
interested to hear your thoughts on adding to gold positions in the event we go
above and hold $400.00.

FJ
St. Petersburg, Florida

Russell Comment -- I seldom advise averaging down, since this amounts to placing an increasing amount of your hard-earned money into a decreasing asset. How about averaging upward? Here I advise building a pyramid. In other words, after you've taken your initial position, as the market for your item heads higher, I would buy a diminishing amount of the assets in stages.

Example, you buy 500 shares of Newmont. NEM hits a new high and you buy 250 shares more. NEM continues higher, and you buy 125 additional shares. Finally, on new highs in NEM you buy your last lot -- 60 shares. This policy of buying more or diminishing amounts, make sense to me, and this is what I do. Basically, you're building an expanding position in a rising asset, but the higher the item rises, the more cautious your becoming.
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Berkshire's Warren Buffett has become the ultimate guru. Today's WSJ featured an article on Buffett noting that ECO from everywhere now visit the Sage of Omaha in order to receive his advice. Smart magazine just arrived here, and Warren is on the cover. Buffett is one of the very few (are there any others) who strictly through investing made billions of dollars. Furthermore, there's no single black mark against Buffett, no one has anything bad to say about him. Buffett has a great sense of humor, lives in the same house he bought in the '50s, and he seems to live on steak, potatoes and cherry cokes.

Buffett admits that for the first time in his career, he's buying assets overseas. It's well known that Buffett owns a pile of silver. I have to wonder whether Buffett has a position in gold.
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Very valid comments and charts below from Eric the "King."

Hello Richard,
I was just listening to CNNFN and someone was hammering down at gold warning investors not to get caught up in gold just because it went up a **little bit**, that's how he defined the new high in POG. His reasoning was that gold is not an edge against inflation as it used to be, and he added that putting 5% of someone portfolio in gold doesn't really make a lot of difference. He also said that over the long term gold hasn't really gone anywhere therefore "be careful investing in gold and chase performance". That was his bottom line, Richard.....

Bottom line: We still hear on wall street bad messages to scare investors about investing in gold.. I really wonder what it'll take for wall street to recognize Gold as in a bull market..... Sometimes, Richard, I have a feeling we'll never hear that out of wall street, just because we keep hearing of negative things about gold every time gold hits new highs or is close to hitting new highs.