Do your friends a favor. Tell them to "batten down the hatches" because there's a HARD RAIN coming. Tell them to get out of debt and sell anything they can sell (and don't need) in order to get liquid. Tell them that Richard Russell says that by the end of this year they won't recognize the country. They'll retort, "How the dickens does Russell know -- who told him?" Tell them the stock market told him.
Here's what has him in full alarm mode:
Russell, 85, has published Dow Theory Letters every three weeks since 1958.
(HTbusinessinsider.com)
And I ask myself, "Am I seeing things? The April 26 high for the Dow was 11205.03. The Dow is selling as write at 10557 down 648 points from its April high. If business is even better than expected, then why is the Dow down over 600 points? And why, if there were 674 newNote: I can concur with Russell on the stock market, if the money supply stays tight. However, Russell is bullish on gold under this scenario:
highs on the NYSE on April 26, were there only 20 new highs on Friday,May 14? And if my PTI was 6133 on April 26, why is it down 17 points since its April high?
The fact is that I've been seeing deterioration in the stock market ever since early-April, and this in the face of improving business news. The D-J Industrial Average is composed of 30 internationally known top-quality blue-chip stocks. These are 30 of "America's biggest companies." If Barron's is so bullish on the future of America's biggest companies, then why isn't the Dow advancing to new highs?
Clearly something is wrong. But what could it be? Much as I love Barron's, I trust the stock market more. If I read the stock market correctly, it's telling me that there is a surprise ahead. And that surprise will be a reversal to the downside for the economy, plus a
collection of other troubles ahead.
About Dow Theory -- First, we saw the recent April highs in the Averages. Then we saw a plunge in both Averages to their May 7 lows --Industrials to 10380.43, Transports to 4298.12, next a short rally. If ahead, the two Averages turn down and violate their May 7 lows, that
would be the clincher. Such action would signal the certain resumption of the primary bear market.
Just as for years I asked, cajoled, insisted, threatened, demanded,that my subscribers buy gold, I am now insisting, demanding, begging my subscribers to get OUT of stocks (including C and BYD, but not including golds) and get into cash or gold (bullion if possible). If the two Averages violate their May 7 lows, I see a major crash as the outcome. Pul - leeze, get out of stocks now, and I don't give a damn whether you have paper losses or paper profits!Under this scenario gold will drop. He is talking about a major liquidity crunch. People who are bullish on gold will be forced to sell. He is falling into the trap that because FDR manipulated gold up in price at the urging of John Maynard Keynes and Bernard Baruch that it always goes up during a market collapse. Don't think what happened during the Great Depression, think what happened when Volcker cut off liquidity in the early 1980's and gold absolutely collapsed. This is not the time to wear idiot real estate flippers dunce caps that used to say real estate always goes up with caps that say gold always goes up. There are many ways the markets could play out here. Russell's stock market warning should be taken to heart. It is a very real possibility, but if it does crash, gold may have a bit of a knee jerk reaction up, but it won't go up in earnest until the Fed does heavy money printing.
Russell, 85, has published Dow Theory Letters every three weeks since 1958.
Dow Theory stems from observations made by Wall Street Journal founder Charles Dow during the late 1800s, holds that moves by the transportation average must be "confirmed" by the industrial measure, and vice versa, to be sustained. In other words, it measures broad based movements of liquidity flows into and out of the stock market.
The Dow Jones Industrial Average fell 6.9 percent during the four days that ended May 7, sinking to 10,380.43, the lowest level since Feb. 26. The transportation gauge closed at 4,298.12, down 11 percent in four days.
(HTbusinessinsider.com)
Don't believe RR is a good practitioner of Dow Theory but do agree the equity markets have clearly signaled an end to the recent uptrend. What comes next is, as RW points out difficult to know.
ReplyDeleteRR is always a great read, however his views of the market are really not too useful in the present, as he just confirms a trend change well after it has occurred.
ReplyDeleteThe trend in the market is clearly down and has been for a few weeks. Every rally is being sold, which is the opposite market action from the last year. We should get a nice bounce in the next few days, and my assumption is that rally will be sold as well at the end of the day. Crash or no crash, volatility in the markets is here to stay.