Richard Russell on the Markets

Richard Russell, in his mid-80s, has been writing The Dow Theory Letter for 51 years. I recently became a subscriber and am fascinated by the economic and cultural insights of this veteran of the markets and of life.

Russell is a technical rather than a fundamental analyst. And yet he has a solid grasp of the fundamentals-- of economics, debt, money and life. He is not a perma-bear...in fact he has called several bull markets accurately...but he remains bearish notwithstanding the powerful market rally since early March.

What follows are excerpts from Russell's May 5 daily remark. You may agree or disagree but you at least ought to consider the musings of this old World War II combat veteran. His kind won't be around too much longer.

(Bold highlights are added by me).

"May 5, 2009

"A sound banker, alas, is not one who foresees danger and avoids it, but one who, when he is ruined, is ruined in a conventional way along with his fellows, so that no one can really blame him." John Maynard Keynes, 1931.

As the market works higher, bullish economists are falling victim to mass "brain washing." Every hint in the economy that "bad" is becoming "less bad" is leaped upon as "proof" that the worst has been seen and is past. Now bold predictions of a "rising second half of 2009" are heard. The worst crime that an analyst can commit is remaining bearish in the face of a rising market. Besides, aren't we in "a new bull market."
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My opinion is that the economy is not fated to turn up towards the end of 2009 as widely predicted, nor will it turn up in 2010. I believe we are entering into the land of unintended consequences. We are now watching a deadly battle between deflation and over-creation of fiat money, meaning future inflation or even hyper-inflation. Making the picture even more confusing, there are increasing doubts about the viability of the US dollar and whether it can keep it reserve status.
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Now, while everybody's fascinated by the stock market, I want to discuss a few other areas that you may not be looking at. The 30-year Treasury Bond…is very sensitive to the viability of the dollar and to inflation or deflation. The bond is in a steep decline, which means that long interest rates are moving higher (this is the last thing the Fed wants, but the Fed does not control long rates).
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Right now, many central banks (and the IMF) are selling a portion of their gold, while other central banks (Russia, China) are buying gold. The IMF has announced that it wants to sell up to $100 billion of gold. Now why in the world would they announce their intention to sell gold unless they wanted to put pressure on gold? It doesn't matter because China is drooling to buy the whole lot, if only the IMF receives permission to place their gold on the market.

If you want to know what's happening in the world, then there's only one rule, and it's "follow the money." And in case you weren't aware of it -- gold is money.

The central banks system was invented and put in place in order to turn the power over to the world's bankers. Who controls a nation's money controls that nation. Gold is the public's defense against the bankers. Try as they might, the bankers can't control gold, which is why the bankers don't want gold in the hands of the public. Since the bankers can't keep gold out of the hands of the public, they do the next best thing -- they denounce gold and try to manipulate gold's price down.

The public has little or no knowledge of money. This ignorance extends to our Congressmen and women. Ask your Congressman or Senator where your dollars (Federal Reserve Notes) come from. The odds are that they can't tell you. Ask them how the Federal reserve was formed and when it was voted on by Congress. Ask them anything about money and the odds are that they will be clueless. Don't even bother to ask the average American the same questions because all you'll get is a blank look. Hey, even ask your local banker, and it'll be the same. Americans have no idea of money or where it comes from, which is why bankers can get away with "financial murder." In fact, ask Barack Obama about money and I guarantee you'll get a blank look. The Obama answer -- "Yeah, I know about money, you take it from the "rich" and give it to the other Americans. And if you have any money left over after taxes,"you give it to the bankers."

What could those clever Chinese be up to? While the other central banks are selling their gold, the Chinese are loading up on gold as fast as they can. Aw, what do the Chinese know. That's the big (and maybe) frightening question.…

This government will stop at nothing even including manipulation. What the Fed does not want is a swooning stock market, surging gold, or sinking bonds. I think all three are now being manipulated. Pressure from various sources continues on gold, and we know the Fed is buying bonds. When an item is manipulated, the aftermath always ends unpleasantly. I expect "unpleasantness" ahead.
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Despite the usual manipulative efforts, the Dow closed down 16. Despite yesterday being a 90% upside day, the market failed to extend the rally. My impression is that the market is tired, and that the big money remains on the sidelines. The Dow has been up 8 out of the last 9 weeks, and the market could be ready to correct.Flash -- NYSE volume exploded to over 11 billion today -- The market is "churning," and the battle of bulls versus bears is raging.