At 90 years old and still going strong, the Godfather of newsletter writers, Richard Russell, warned about a new and terrifying government confiscation that people now need to worry about. The 60-year market veteran also discussed major markets, gold, inflation, and included four fantastic charts as well.
“Since 2007, the world’s central banks have collectively put more than $10 trillion into the financial system. This kind of money printing is literally unheard of in modern history. And it has set the stage for a roaring wave of inflation.” — Graham Summers, analyst
Russell: “We got the news out of Germany, the economic engine of Europe. For the second quarter Germany’s GDP was down .02%. Meanwhile Europe’s second largest economy, France, is flatlining. Italy, number 3, is in recession, and the rest of Europe is floundering. A recessionary Europe is bound to hit US exports. Now every nation wants a lower currency to aid their exports.
The key to the picture is expressed in this opening sentence from a front page column in Financial Times — “What does it take to persuade the European Central Bank to start quantitative easing?” Being in recession, the euro should be in trouble.
With the world in a deflationary recession, I now doubt we’ll see new highs in the D-J Averages. But with enough QE, it might be possible.
With deflation enveloping the world, investors have been racing to buy Treasury bonds, whose yields have sunk to record lows. My survival choice in investments continues to be silver and gold — the physical kind if possible.
Below we see Gold forming a huge symmetrical triangle pattern. A rise to 1330 would move Gold above the upper trendline of the triangle and would be a highly bullish move. My bet is that in due time, Gold will break out above the upper limits of the triangle. If that happens, Gold will move into a new and powerful phase of its bull market.
Below is another chart of gold. Here we see a potential head-and-shoulders bottom in gold. Gold is now “working” on its right shoulder. A price of 1350 would be needed to complete the pattern. At 1350 I would expect gold to rocket higher.
Wait, I’m not finished yet. The P&F chart below looks to me like a coiled spring. If gold hits the 1350 box, then technically this base could send gold into the 1500s. Meanwhile, we await the action of the market. Incidentally, if gold does break out to the upside, I think it will be telling us that the Fed will towards more QE.
In the good ol’ days from the 1800s into the 1930s every country was on the gold standard. This meant that you could take your paper money to a bank, turn it in to a teller and receive gold coins. Each nation had its own gold coins and it is notable that when the nation went off the gold standard and you could no longer collect gold for your paper money, in due time that paper money lost purchasing power, until ultimately it became worthless. This also occurred to the US dollar, which since it went off the gold standard in 1933 has lost 95% of its purchasing power. For your interest, I show 20 of the leading nations’ gold coins, with the amount of gold content (GC) shown in each.
The sovereign was minted in seven different locations depending on the British controlled nations. The sovereign was the most widely recognized gold coin in the world. Now, with the US gold standard eliminated, it seems only a matter of time before the dollar’s purchasing power dwindles to nothing.
Is there one chart that is key to the whole market picture at this time? I think the chart below may be it. Here we see the SPY crawling up a three-year channel. A price of 190 would take the S&P below the lower trend line. At 190 the rate of ascent would be ruptured.
What are the chances that this long channel will be violated? Frankly, I thought the stock market would head higher, but I’ve learned not to argue with my charts. Clearly the SPY is now testing its lower trend line and only Mr. Market will tell us whether this trend line is fated to hold.
Today it finally happened: I received an advertisement from a firm featuring a scare I’ve been waiting for. There are two ways for the government to handle its outrageous debts. The first is reneging, as per Argentina, but this is unthinkable. The second way is via inflation — inflate enough and your debts appear to shrink.
Ah, but there’s a third way, and it’s confiscation of wealth. Don’t think this is impossible, because governments will do whatever they have to to remain in power. How about confiscating all individual wealth above $200,000, for which the government will give you stubs which will say IOU. This will be a switch on the 1933 confiscation of gold. This time it may be confiscation of cash. Finally, something new to worry about.”
King World News note: I would encourage everyone around the world to sign up for Russell’s commentary. Russell witnessed the Great Depression firsthand, he flew B-17 bombing missions in World War II, and he has studied markets for 60 years. To subscribe to legendary Richard Russell’s Dow Theory Letters CLICK HERE.
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