“As I write, fiat currencies around the world are sinking (Ed Note: Written Feb 4th). Normally when this happens, gold will surge. But rising gold would be a red flag waving in the Fed’s face, and there’s no doubt in my mind that the Fed has been manipulating gold and preventing its rise.
I’ve been thinking about bull and bear markets. Bull markets are man-made, they are a product of man’s desire for more and more, a product of man’s insatiable greed. During a bull market investors disregard their need for God. After all, they are loaded with money, money made on their own, without the help of God. During bull markets, God is put aside and forgotten.
I believe bear markets are made by God. Bear markets remind men that their greed and crime must be atoned for. In bear markets investors become frightened and once again they seek the help and comfort of God. In bear markets the crime and greed of the previous bull market comes to light. Bear markets are God’s way of cleansing humanity. In bear markets the dirty water streams out from under the closet. In bear markets men turn to God again for peace and help and comfort.
I’d be lying if I said that I wasn’t worried about the way things are going. Frankly, I’m truly scared for myself, my family and the nation. I have the sinking feeling that the stock market is on the edge of a crash. If that happens, investor sentiment will turn quickly bearish. And the bear market will start feeding on itself. Ironically, the recent action occurred in the face of almost insane bullishness on the part of the crowd and on the part of investors.
Obviously smart heads and institutional money managers know that the US is semi dead in the water. And all the talk about an improving economy is just wishes and hopes. Bernanke’s dream of a flourishing new economy, improving without the need of the Fed’s help, is an idle dream.
I’ve been writing about the stock market for over 60 years and I can’t remember a time when I was so filled with foreboding regarding what lies ahead. The primary trend of the market, like the tide of the ocean, is irresistible, and waits for no man. What scares me the most in this current situation is that I see no clear island of safety.
In previous bear markets, such as 1973-74, I moved myself and my subscribers into cash, and all seemed well. In this bear market, I’m puzzled as to where safety lies. I have picked gold and silver … Time to repeat the Lord’s prayer with conviction. It’s no fun writing an advisory report at this juncture.
Question — will Janet Yellen pursue the same course that Ben Bernanke has chosen? Or will she finally take the Fed’s heavy hand off gold? My guess is that she will follow in Bernanke’s path and manipulate gold while continuing to print Federal Reserve notes by the trillions.
One amazing thing about a primary bear market is that it tends to expose all cheating and lying and criminal activity. As Warren Buffet put it, when the tide runs out at the nudist camp, the bathers can finally tell the men from the women.
Following the great crash of 1929, the market rallied into 1930 in a huge upside correction of the crash. The Dow hit a high in January, backed off during the month of February and then rallied to a second lower peak in March. Following its second lower peak, the Dow resumed its bear market action and headed persistently lower. It was here that the US economy started to fall apart in earnest.
If Bernanke understood markets he’d understand why he’s now fighting a losing battle with the US economy. By spending trillions of dollars at the 2009 lows, the Fed was able to trigger a huge and overdue upward correction of the crashing primary bear market. Thus, the bear market was temporarily held back.
Returning to the present, the great market advance since the 2009 low was actually an upward correction of the bear market that started in 2000. All the market action since 2000 has been part of a huge, slow-building top. If we follow the 1929 pattern, the Dow may now decline for a month and then rally to a second lower peak. Following the second lower peak, the Dow will then decline persistently as the bear market resumes in earnest. As the situation becomes progressively more bearish, my best guess is that Yellen will continue to fight the primary bear trend with all the ammunition at the Fed’s command.
With the “down January” and the market suddenly stalling, I expect public sentiment to lose its good-time giddyness and to slowly turn bearish. I also expect the new bearish sentiment to feed on itself. I believe the public will soon demand HONEST statistics and data from the government. Remember, once the bear market is established, all the lying and nonsense will come to an end.
Late Notes — It should come as no surprise to subscribers that the stock market got whacked badly today. Today I received a clear sell signal on the point & figure chart of the Dow, which suggests continued selling. Once the market is oversold, I expect a good rally, which will take the Dow close to the previous high. When that rally deteriorates and declines, I expect the market to embark on an extended and frightening bear market decline.
I expect steady bear market deterioration in the US economy to continue from here, regardless of what the market does. Already I hear talk of a possible 10% correction. These people are wrong. This is not a correction. It’s a continuation of the bear market. Meanwhile, gold’s upward creep turned into a surge today, with gold up $20.”
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About Richard Russell
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.
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