the dow: richard russell comments

May 8, 2009 -- This is something I've wanted to write about for a long time. Question -- is most of humanity brain-washed? I believe we are. I think of Cuba -- Faye just returned from a week's trip to Cuba. There's almost no free thinking in Cuba. Poverty is everywhere and the infrastructure is falling apart.

Why does the Cuban population put up with these deplorable conditions? It's because they're brain-washed from infancy to maturity. US Cell phones don't work in Cuba. Information about the outside world is cut off. All Cubans know is the Communist way of life. You can get on the Internet in Cuba, but few people are connected to the Net. And I've often wondered, why don't the Cuban people rise up and throw the Castros (dictators) out. Faye's answer, the Cubans are taken care of from cradle to grave. They get excellent medical care for everyone. Education is very important to Cubans, and college is available to everyone. Cuba has one of the world's highest literacy rate. In effect, they have traded total freedom to a nation where they are cared for by the government. Faye says, "It's been two generations since Fidel took over, and all they've heard about is how the "Big, nasty US is about to crush them."

I've noticed that people can get used to almost any conditions, no matter how bad. I used to wander through the Bowery in New York and through Spanish Harlem on the upper east side, and I would think, "Why do these people stay here in these God-awful conditions. Rather than live in the Bowery, I'd pump gas in San Diego and have a far better life."

Why do young men go to war on orders from some sick dictator or some ego-driven president? It's because they're brain-washed and too afraid to say "No. I'm not going." Of course, if they dare to oppose their government's dictates, they're thrown in jail as an example. In today's enlightened world, the masses are always brain-washed by those who will do anything to remain in power.

Why do Americans accept the Federal Reserve and fiat money, money which is expressly forbidden under the US Constitution. It's because "that's the way it is," and nobody disputes it. Americans never ask why the state and the federal government have the right to tax a huge percentage of their labor and then slap a more insidious tax on them by way of never-ending inflation.

My firm belief is that most of the people in the world are brain-washed one way of another. And who's doing the brain-washing. The leaders of the world, the men who want power, and the men who will do anything to retain power.

In the US, who are the chief brain-washers? The men in the Pentagon and the bankers and the central bankers. It's the military-industrial complex that President Eisenhower warned us about in his final speech.

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Where is George W. Bush, Jr.? Did you ever see an ex-president disappear so completely? Only Dick Cheney remains, the essence of evil, yet this foul creature remains,with us -- and still endlessly justifying torture.
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Back to the markets. I don't think most people understand the importance of the whole dollar, bond, interest rate syndrome. First, the US is creating and spending fiat dollars in the trillions. This wild creation of dollars is putting pressure on the dollar -- after all, too much of anything will dilute it's value.

The dollar is now the world's reserve currency. Dollars are held for reserves by almost every nation. The largest holder and formerly largest buyer of dollars is China. China is rightfully nervous about holding its vast hoard (over a $trillion) in dollar-denominated securities, including a huge collection of US Treasury bonds.

China has already expressed it's "nervousness" about holding such a huge percentage of its reserves in dollars. China does not have to sell its US bonds in order to knock the price of bonds down. China just has to cut back on its buying of bonds to depress the US bond market.

The dollar has been sliding against other currencies. Dollar down = bonds down. The bond market is much more sophisticated than the stock market. If there's trouble ahead, we'll usually see it in the bond market first. Which is why I've been saying, "Everything is OK as long as the bond market says it's OK.

Below is a weekly chart of the 30-year Treasury bond. This long-term bond is very sensitive to inflation and the health the US dollar. The bond has turned bearish -- note that is has dropped below both its 10-week and more recently its 40-week moving averages. That could spell trouble.



Below we see a daily chart of the Dollar Index going back two years. The formation you see is a rare "diamond pattern," which is actually a version of the head-and-shoulders formation. I'm watching the Dollar Index closely. It appears to be breaking down, and if it hits 83 that will be a negative. Hitting 82 would mean that the Dollar Index has topped out. At this point, these two charts are just as important as any charts of the stock market.



DIA -- Back on March 11, I recommended buying the DIAs for courageous subscribers. DIA closed on March 11 at 69.48. Today DIA is selling for 85.19-- up 22.6%. Was it a great trade? Not really. In a high tax bracket, if you sold today then after taxes you'd have made a little over 10% on your money. Put $100,000 in DIA on March 11, and you come out (after taxes) with a profit of 10%. Was it worth the risk? I just don't know.

The market looks as though it wants to go higher. Should you buy DIAs here? Should you add to your position? Should you take profits? Tough questions; I'd probably sell half my position and sit with the other half, while moving up stops. Lesson -- in this business everything depends on good timing and where you buy your initial position. If you buy right, everything else takes care of itself.

This is why it is so important to load up at the true bottom of a major bear market. I think a great bear market bottom lies ahead. It's now a matter of self-control and patience.

Subscribers ask me how I'm doing after my stroke last August. So far, OK. I have to relearn a lot of items including typing, walking, balance, dexterity. My advice -- Don't have a stroke, it's not worth it. Get something else. Luckily, the powers above took pity on me. My thinking is (I think) OK, although for a few weeks after the stroke, it wasn't. Happily, son, Ryan, came down from San Francisco to help me with my work, otherwise I would not have been able to turn out these daily sites.

By the way, writing is my best therapy and one of my greatest pleasures. When I write, I forget all my worries. Also, for stress, I recommend a dog, preferably a poodle. My male standard poodle, Randle, is a great friend, he's always with me when I want or need him. More advice -- "Need a friend, get a dog. Need two friends, get two dogs." I love standard poodles. Like my PTI, they're smarter than I am.
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Russell's Raves -- Hey, we're saved -- After all his talk about cutting out the budget deficit by the time he leaves, now we hear that Obama has cut $17 billion from the next budget. Geez, that's about half of 1%. From the giant defense budget, the O-man has cut only $2.9 billion which is terminating the Raptor plane acquisitions. Great, we're on the way to victory over debt.

After the much-publicized but secret stress tests, it turns out that a number of our top 19 banks need another $75 billion if they want to stay alive. What's happened to the incompetent bank presidents and financial officers of these cursed banks? Have any of them been fired? Heck no, because the US is being run for the bankers. If a few big banks go down, the US will cease to be as a nation. Right? And that goes for the bank presidents.

Now it turns out that the president of the most important of the Fed banks, the prez of the New York Fed has quit, due to the fact he had a "relationship" with Goldman. Yeah, he used to be a Goldman director. Am I living in the United States of Goldman?

TODAY'S MARKET ACTION:

My PTI was up 7 to 5899. The moving average is 5865, so my PTI is bullish by 34 points.
The Dow was up 164.96 to 8574.65.

Transports were up 42.01 to 3350.29.

Utilities were up 5.11 to 350.55.

May crude was up 1.92 to 58.63.

Total Volume on the NYSE and associated exchanges was 13.8 bn.

There were 2645 advances and 431 declines on the NYSE.

There were 9 new highs and 13 new lows.

S&P was up 18.0 to 924.80.

NASDAQ was up 22.8 to 1739.0.

My Big Money Breadth Index was up 8 to 683.

Dollar Index was down 1.39 to 82.46. Euro was up 2.25 to 135.90. Yen was up .63 to 101.65. Currency prices as of 1 PM Pacific Time.

June gold was down .60 to 914.90. May silver was down .08 to 13.96.

GDX was up .91 to 37.46.

HUI was up 11.42 to 335.62.

Bonds: Yield on the 10 year T-note was 3.28%. Yield on the long T-bond was 4.27%. Yield of the 91 day T-bill was .17%.

CRB Commodity Index was up 4.97 to 402.37.

My Most Active Stocks Index was up 13 to 166.

The VIX was down 1.41 to 32.03.

Late Notes -- My PTI was up 7 today to a new high for the move at 5899. This jibes with my thinking that this advance will continue until all the doubters are onboard. Up volume was an impressive 88% of up + down volume today indicating that today's action was just short of a panic upside day. This week completes a series of 8 of 9 weeks higher for the Dow, and leaves the market heavily overbought. Caution is now warranted. For those who bought the DIAs, watch events closely.

The dollar index closed today at 82.46, and the dollar appears to be in definite downtrend. The Fed probably likes a mild downtrend. They most certainly don't want a collapsing dollar. The entire dollar/bond situation is becoming both dramatic and explosive. How much longer will our creditors sit with their dollar denominated securities?

Have a thoughtful weekend--

The R man.