Inflation OR Deflation – debate continues

Posted by Richard Russell - Dow Theory Letters

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A brief excerpt of the lengthy daily internet comment by Richard Russell of Dow theory Letters. One of the best values anywhere in the financial world at only a $300 subscription to get his report daily for a year. HERE to subscribe.

The argument and puzzlement goes on. Are we seeing inflation or deflation? Maybe both. The deflation trend stems from world overproduction. The M-2 money supply, wages and bank credit are contracting, all of which spells deflation. What about bank credit? Is it that the banks just don’t want to lend; they’d rather build up cash reserves? The banks claim otherwise; they say that nobody wants to borrow, which is why they’re not lending.

As for the inflation side of the argument, the inflation is in the huge Fed and Treasury borrowing. Many say (and I’m one of them) that the only way the absurd national debt can be handled is via inflation. Is this what gold is really looking at? So both forces are at work — inflation and deflation. Gold is acting erratically, trying to deal first with one force, then the other.. Meanwhile, the Chinese see the writing on the wall, and they are getting rid of dollars and accumulating gold as fast as they politely can.

In the big picture, I keep referring to American consumers. Can the government lure them into a buying and borrowing mood? I remain sceptical. I think that for the first time since World War II, US consumers have turned thrifty. Even the upper-middle class and the so-called rich are cutting back. The dreaded rumor is that wealthy people have been seen shopping at Target and Wal-mart. Is this the end of the world as we know it? Anybody see Bill Gates and Melinda having dinner at McDonald’s?






The 84 yr. old writes a market comment daily since the internet age began.  In recent years, he began strongly advocated buying gold coins in the late 1990’s below $300. His position before the recent crash was cash and gold.

There is little in markets he has not seen.  Mr. 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. 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. He loaded up on bonds in the early 80’s when US Treasuries where yielding 18%.