Richard Russell: This is Unlike Anything We Have Seen in History

Posted by Richard Russell - Dow Theory Letters

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 “As in life, nothing in the markets seems to change in a hurry.  But when an item finally changes, it tends to make up for lost time … What do they call it when you don’t trust anything?  Oh yeah, they call it “Life in the markets under Ben Bernanke.”  Will Ben continue to buy one trillion worth of bonds and assorted vehicles through the end of the year?  

… Now the whole daffy world is following Bernanke’s lead.  Japan has had it with two decades of deflation, and Japan’s new central bank head vows to double Japan’s monetary base within two years — or, at least buy bonds until deflation in the Land of the Rising Sun turns to inflation of at least 2%.  In the meantime, Japanese stocks are surging under Japan’s new super brand of QE.

I have to wonder how long US stocks can continue to climb on the basis of quantitative easing?  I don’t know, and I don’t think anybody else knows either.  The strategy now seems to be — you buy blue chip US stocks or the DIAs and stay with them until the market turns sloppy — or until it actually turns down.  Forget values, forget sentiment, forget risk, forget the charts, forget caution — stay with blue chip dividend-paying stocks for as long as they continue to climb, and when they halt their climb, give ’em back to Wall Street and await further developments.

But what about the “depression” that Nobel Prize winner Paul Krugman insists we’re now in?  The hell with the depression, the stock market is going up, and maybe when it turns down we’ll have his depression.  Until then, “What, me worry?”  No chance, I’ve got my gold.  And if the end of the world arrives, I’m betting gold will be my savior (that is, if Uncle Sam doesn’t take it away from me at gun-point).

Most professionals and fund managers are worried about a hurricane of inflation showing up somewhere in the not-too-distant future.  After all, inflation is always a monetary phenomenon, and God knows we’ve had our turn at money creation.  In fact, there’s never been anything like the current worldwide explosion of currency creation.  

Then what’s stopping inflation?  It’s the over-supply of commodities that’s been pouring into the West out of Asia.  Too much copper, too much tin, too much zinc, too much in the way of merchandise, too much of almost everything.  It’s a world avalanche of “too much,” and not enough demand.  But central banks come to the rescue.  They’ll print us out of deflation.  And somewhere ahead, worry the money managers, the whole thing will catch fire, and we’ll end up with a sudden tidal wave of inflation.  If so, then why isn’t gold at new highs?  Patience, the markets always do what they’re supposed to — but never when.

The Fed is buying a trillion dollars worth of Treasuries and mortgage-backed securities so they’d drive the yield on 10-year Treasuries down to a ridiculous 1.67%.  So where does the money go?  Into blue chip stocks that are now the new safe havens.  In the meantime, the US dollar gets whacked.  Below we see the US dollar down heavily today and closing below its 50-day MA.  Note that MACD is just turning down. (Ed Note: the next day’s rise in the USD was sharp, rising nearly 2/3 of a penny or .61)

rrkw

But the S&P is at a new record high, and the TREND of the stock market is up, so I’m staying with the DIAs until I receive the first bearish signals … Summing up, the Bernanke Fed has succeeded in driving everybody into the stock market or back into real estate … It’s great to make money in the stock market, and your only worry is when the Federal Reserve’s punch bowl crashes … I still like gold, and as far as I’m concerned, it’s the only real safe haven.”

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About Richard Russell & Dow Theory Letters
 

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, published every three weeks, cover 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.”

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