2013 & “The Greatest Bubble In World History”

Posted by Richard Russell - Dow Theory Letters

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KWN RR 107

The Godfather of Newsletter writers, the 88 yr old Richard Russell has lived through depressions and booms, through good times and bad, through war and peace. He was educated at Rutgers and received his BA at NYU. Russell flew as a combat bombardier on B-25 Mitchell Bombers with the 12th Air Force during World War II.

Richard’s comments below:

“You and I are watching, or I should say living through, the greatest bubble in world history.  What could it be?  Is it the world population growth?  Is it the explosion of world communication?  Is it the progress in health?”

“It might be any one of those, but no — it’s the credit bubble.  Think of it.  The US now has a national debt of over $16 trillion.  That doesn’t include incurred debt that is not on the books.  The question is — how will this enormous debt ever be handled?  (1) It might be refinanced, meaning that it might be (if possible) kicked down the road like an old tin can.  

(2) It might be reneged on, which would be a default (unthinkable, since this would be an admission of sovereign bankruptcy.  (3) The debt could be addressed through devaluation, meaning destroying the purchasing power of the dollar.  The third is by far the most likely way that the debt will be addressed, since we are already on this path.  Politically, it is the most palatable way, since it is the way that attracts the least attention from the voters.

Right now sophisticated investors are protecting themselves from the diminishing purchasing power of the dollar.  How do they do it?  Easy, they swap their Federal reserve notes for tangible items of value — million dollar apartments in New York, fabulous works of art, rare gems and jewelry, property such as thousands of acres in New Mexico or Montana, classic automobiles such as rare Ferraris or Mercedes, hundreds of acres of arable farmland, collectibles, and silver, platinum and gold.

For the average person, most of the foregoing are difficult or even impossible to own.  My own thought is that the easiest and most sensible way is to own silver or gold.  The question is always, “OK, so I own some gold coins. Where should I put them?”  Ah, the eternal question.  My suggestion is (1) place them in a good steel safe at home, (2) bury them in a plastic container in the ground, (3) buy the coins through an outfit you can trust such as a Swiss or Canadian bank, (4) place the coins in a bank vault.

My own instinct is to watch the unfolding picture, and “play it as it lays.”  In other words, I honestly don’t know how this is all going to play out and neither does anyone else.  The one thing I feel certain about is that the current debt or credit bubble will be met with devalued dollars.  That means that we should all prepare for tough times and above all, we must PAY ATTENTION.

Below, gold appears to be finding support in the area of its red 200-day moving average.

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Technical analysis is more an art than a science.  Often it entails deciding which studies to believe and which studies to jettison at any given time.  Right now, I’m interested in the VIX, often referred to as the “fear index.”  Over the last day or so, the VIX has suddenly surged to a bit over 20, as you can see on the chart below.  This means that options buyers are preparing for an increase in volatility some time during the coming 30 days.

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I pair the jump in the VIX with the rising count of distribution days in the markets.  Distribution days are days when the market is down, while volume is more than the volume of the preceding day.  Distribution days tend to be days when the institutions are selling.

Late Notes – We’re now at an interesting juncture where technical conditions in the market are poised against potentially very bullish news.  Even if news of the completion of the fiscal cliff comes out, I’m not sure whether the Dow has enough strength to better its September high — particularly since technical conditions are negative for the Dow. 

For this reason, I have chosen to remain neutral and safe.  Long-term, my preferred position is to have one-third of my assets in cash, one third in my home, and the rest in gold (bullion coins if possible).”


You can subscribe to Richard Russell’s Dow Theory Letters (highly recommended and great value) by  CLICKING HERE. As an added plus for subscribers, Richard publishes the latest Primary Trend Index (PTI) figure for the day on his web site, 9 times out of 10 with a poignant  commentary.

Russell began publishing Dow Theory Letters in 1958, and he has been writing the Letters ever since (never once having skipped a Letter). Dow Theory Letters is the oldest service continuously written by one person in the business.

Russell gained wide recognition via a series of over 30 Dow Theory and technical articles that he wrote for Barron’s during the late-’50s through the ’90s. Through Barron’s and via word of mouth, he gained a wide following. Russell was the first (in 1960) to recommend gold stocks. He called the top of the 1949-’66 bull market. And almost to the day he called the bottom of the great 1972-’74 bear market, and the beginning of the great bull market which started in December 1974.

The Letters, which originally were published every three weeks, covered the US stock market, foreign markets, bonds, precious metals, commodities, economics –plus Russell’s widely-followed comments and observations and stock market philosophy.

In 1989 Russell took over Julian Snyder’s well-known advisory service, “International Moneyline”, a service which Mr. Synder ran from Switzerland. Then, in 1998 Russell took over the Zweig Forecast from famed market analyst, Martin Zweig. Russell has written articles and been quoted in such publications as Bloomberg magazine, Barron’s, Time, Newsweek, Money Magazine, the Wall Street Journal, the New York Times, Reuters, and others. Subscribers to Dow Theory Letters number over 12,000, hailing from all 50 states and dozens of overseas counties.

A native New Yorker (born in 1924) Russell has lived through depressions and booms, through good times and bad, through war and peace. He was educated at Rutgers and received his BA at NYU. Russell flew as a combat bombardier on B-25 Mitchell Bombers with the 12th Air Force during World War II.

One of the favorite features of the Letter is Russell’s daily Primary Trend Index (PTI), which is a proprietary index which has been included in the Letters since 1971. The PTI has been an amazingly accurate and useful guide to the trend of the market, and it often actually differs with Russell’s opinions. But Russell always defers to his PTI. Says Russell, “The PTI is a lot smarter than I am. It’s a great ego-deflator, as far as I’m concerned, and I’ve learned never to fight it.”

Letters are published and mailed every three weeks. We offer a TRIAL (two consecutive up-to-date issues) for $1.00 (same price that was originally charged in 1958). Trials, please one time only. Mail your $1.00 check to: Dow Theory Letters, PO Box 1759, La Jolla, CA 92038 (annual cost of a subscription is $300, tax deductible if ordered through your business).

IMPORTANT: As an added plus for subscribers, the latest Primary Trend Index (PTI) figure for the day will be posted on our web site — posting will take place a few hours after the close of the market. Also included will be Russell’s comments and observations on the day’s action along with critical market data. Each subscriber will be issued a private user name and password for entrance to the members area of the website.

Investors Intelligence is the organization that monitors almost ALL market letters and then releases their widely-followed “percentage of bullish or bearish advisory services.” This is what Investors Intelligence says about Richard Russell’s Dow Theory Letters: “Richard Russell is by far the most interesting writer of all the services we get.” Feb. 19, 1999.

Below are two of the most widely read articles published by Dow Theory Letters over the past 40 years. Request for these pieces have been received from dozens of organizations. Click on the titles to read the articles.