May 17, 2010 -- "Have you ever noticed that ... successful people never win the lottery. Why not? Because they don't buy lottery tickets. Successful people have already grasped the truth that lottery players have not -- life is not a lottery. Success is not a random accident." The Slight Edge" by Jeff Olson
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"I believe that the Obama Administration and the Greenspan-Bernanke Fed's battle against the natural forces of the primary bear market will end up as having virtually destroyed America." Richard Russell
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Finally, it's happening. The stock market has "lost its mind." The poor thing is falling apart, when every sane investor knows that the market "should be" going up as it discounts the almost certain better economy that lies ahead. Then I remember that the stock market reflects what everybody knows about everything and anything that pertains to business and the forthcoming economy. So alas, the stock market has finally gone insane. It's not telling us what we already know.
I search Saturday's Wall Street Journal and right on the front page I read, "The recovery is beating expectations as data show consumer and manufacturing strength."
Then I look at the latest issue of Barron's (May 17) and right on the cover I read, "STRONGER THAN EVER, America's biggest companies are sitting on loads of cash and ready to earn higher profits than ever before. What it means for the economy, dividends and your investments."
And I ask myself, "Am I seeing things? The April 26 high for the Dow was 11205.03. The Dow is selling as write at 10557 down 648 points from its April high. If business is even better than expected, then why is the Dow down over 600 points? And why, if there were 674 new highs on the NYSE on April 26, were there only 20 new highs on Friday, May 14? And if my PTI was 6133 on April 26, why is it down 17 points since its April high?
The fact is that I've been seeing deterioration in the stock market ever since early-April, and this in the face of improving business news. The D-J Industrial Average is composed of 30 internationally known top-quality blue-chip stocks. These are 30 of "America's biggest companies." If Barron's is so bullish on the future of America's biggest companies, then why isn't the Dow advancing to new highs?
Clearly something is wrong. But what could it be? Much as I love Barron's, I trust the stock market more. If I read the stock market correctly, it's telling me that there is a surprise ahead. And that surprise will be a reversal to the downside for the economy, plus a collection of other troubles ahead.
About Dow Theory -- First, we saw the recent April highs in the Averages. Then we saw a plunge in both Averages to their May 7 lows -- Industrials to 10380.43, Transports to 4298.12, next a short rally. If ahead, the two Averages turn down and violate their May 7 lows, that would be the clincher. Such action would signal the certain resumption of the primary bear market.
Just as for years I asked, cajoled, insisted, threatened, demanded, that my subscribers buy gold, I am now insisting, demanding, begging my subscribers to get OUT of stocks (including C and BYD, but not including golds) and get into cash or gold (bullion if possible). If the two Averages violate their May 7 lows, I see a major crash as the outcome. Pul - leeze, get out of stocks now, and I don't give a damn whether you have paper losses or paper profits!
Question -- Russell, if you're so damn smart, then how is it that most of the economists and analysts disagree with you? The fact is that most experts are now bullish on both the economy and the stock market.
Answer -- I think Washington and the economists have brain-washed themselves. They are so blasted anxious to be optimistic, they are all listening to each other and all thinking alike. And when everybody is thinking alike, nobody is thinking.
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Our future -- Spreading the wealth, Obama-style (from the May 24, Fortune mag).
Woven throughout President Barack Obama's health care reform act are a variety of new taxes on high earners: a 3.8% tax on interest and dividends, a 0.9% increase in Medicare payroll tax, a $2,500 cap on pretax contributions to flexible savings accounts. Then there are new taxes on the most expensive health insurance plans and on sales of medical equipment like bedpans and catheters. The President's proposed budget is laden with assorted other goodies, including a limit on deductions for mortgage interest and charitable contributions, and a capital gains hike.
It's easy to get lost in the maze of new levies. Which is really the point, at least as a political strategy. Call it nickel-and-diming by a President who seems to instinctively understand the electoral dangers of imposing a single broad new levy - even on people he defines as high income. (Manhattan families earning just over $250,000 - not exactly a killing in New York City - that means you.) Even his plan to raise the top two individual income tax rates is marketed as a rollback of unfair tax cuts under President Bush. Some of us would call it a hike.
Russell comment -- And don't forget the VAT tax that is probably coming up. This will be a equal opportunity tax on every one.
Gold -- I just talked to Leon, my old and trusted friend and coin dealer (858 459 2228). I asked Leon about Krugerands. "Can't get 'em," he said, "Europe's cleaned 'em out -- they're buying all they can find." But American Eagles are still for sale.
America's greatest fear is deflation, as per the 1930s. Germany's greatest fear is inflation, as per the 1920s.
Headline in the May 16 Financial Times -- "GERMANS LEAD GOLD RUSH FRENZY. We have some extraordinary sales to German customers," says Deborah Thomson, the Rand treasurer. "The refinery which usually sells 2,000 coins to each customer at a time, said that last week it received an order from a German bank for 30,000 coins. Another banks requested 15,000 coins."
TODAY'S MARKET ACTION:
My PTI was down 4 at 6112. The moving average at 6076, so my PTI is bullish by 36.
The Dow was up 7.03 to 10627.19.
Transports were down 8.93 to 4478.80.
Utilities were down 0.37 to 379.45
NASDAQ was up 7.38 to 2354.23.
S&P was up 1.29 to 1136.97.
June crude was down 1.53 at 70.08.
Total Volume on the NYSE and associated exchanges was 6.45 bn.
There were 1255 advances and 1818 declines on the NYSE.
There were 37 new highs and 24 new lows.
The Big Money Breadth Index was down 2 at 826.
Dollar Index was up 0.04 at 86.44. Euro was up 0.02 at 123.89. Yen was down 0.32 to 108.15. Currency prices as of 1 PM Pacific Time.
Bonds: Yield on the 10 year T-note was 3.47. Yield on the long T-bond was 4.35. Yield of the 91 day T-bill was 0.15%.
June gold was up 0.30 to 1228.10. June silver was down 0.365 to 18.84.
My Most Active Stocks Index was down 9 at 212.
GDX was down 1.28 to 51.87.
HUI was down 10.89 to 476.58.
CRB Commodity Index was down 5.35 at 253.20.
The VIX was down 0.46 to 30.78.
Late Notes -- Another nasty and misleading day. Dow up, Trannies down. More "internal market" destruction. Breadth on the NYSE down. Down volume on the NYSE was 59% of up + down volume. My PTI was down 4 to 6112. MA was 6076, so my PTI is bullish by 36, lowest number in months.
As we used to say, "What's the word, mocking bird?" The word, dear subscribers is "trouble ahead."
My Big Three, Dollar Index was up, bonds were lower and June gold was up .30 to 1228.10.
July silver down and July platinum down 52.20 .
Diamond prices now surging. Anything over 3 carats is wanted. Big premiums on stones over 10 carats. In today's WSJ a colgonda diamond was advertised for 2.85 million or an astounding $652 thousand a carat. A colgonda diamond is as clear as water, containing below 2% in nitrogen. The less nitrogen a diamond holds, the whiter it will appear. Colgonda is an area in India where the first colgonda diamonds were discovered. These diamonds were white as white, being very low in nitrogen. Now any diamond with 2% or less nitrogen is called a colgonda diamond. Only 1 to 2% of all diamonds are type 11 colgonda diamonds. There, now you know more about diamonds than most jewelers know.
Russell suggestion -- Do your friends a favor. Tell them to "batten down the hatches" because there's a HARD RAIN coming. Tell them to get out of debt and sell anything they can sell (and don't need) in order to get liquid. Tell them that Richard Russell says that by the end of this year they won't recognize the country. They'll retort, "How the dickens does Russell know -- who told him?" Tell them the stock market told him.
And as we say a fond good bye to Monday, we look forward --
The R man.
Amazing -- I had five burly workmen at the house during the weekend. At one point I asked, "How'd you heroes like to fight the Chinese?" One said, "Hey, no problem. They're all small and skinny."
I answered, "Before you sign up, I want you guys to look at something. I Googled to "Videos for Chinese Military Parade". The men watched and their jaws dropped. "One man said, "Hmm, I guess the story is -- don't mess with China."
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During the Great Depression they used to joke that what America needed was "a good five-cent cigar." Today I say that what the county needs is a committee that has the power to investigate ANYTHING that is going on in America. Maybe the Senate has that power. They have authorized an audit of the top-secret Fed. The Fed has spent two trillion dollars, and I'm damned if I know where the money went. Did it go to save Wall Street biggies? Did it go to --well, where did it go? I'll be interested to know where the secretive Fed sent two trillion dollars. No action by the government or its quasi-agencies should be hidden from view.
Russell belief -- behind every government or agency lies a secret crime against either the American people or the US Constitution.
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Three key stocks to watch -- GOOG, AAPL and BRKA. All three are high-priced, all are held by institutions or professionals.
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And one more, this is the Shanghai Composite (nasty surprise -- China looking lousy).
E-mails just received --
Russell,
You proclaim that you are not part of the great generation. However, you are part of the Evil Generation. Your generation started a war that killed 65 million people and your generation bankrupted the country with materialism. But you have the balls to think that you are all good just like the religious right in the time of Jesus.
A time is coming when you will not be able to wear your white loafers and white belts at the country club. I want my subscription canceled and my money returned.
Rich
Russell response -- You say you want to start an investment report? Then brace yourself, because you've got to deal with angry kooks like the one above. And by the way Richie, we don't give refunds. As for cancellations, I'm only too happy to say "bye bye" to you." A bit of advice, Rich, get into therapy as fast as you can. One more item, I've never in my life joined a country club, nor do I wear white loafers.
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Mr. Russell,
Your comment from a few days ago about helping your subscribers has prompted me to send you a quick note. I am 48 years old, and have been a faithful reader for 6 years now, and you have single-handedly improved my life, and by extension my wife and children’s lives, greatly. Through you, I have learned a great deal about markets, investing, and money in general. Over those years, we have gone from a decent middle class existence to a family that has systematically improved our lot in life. We paid off our home two years ago, and just this past week went over the 1,000,000.00 mark in our net worth due to the rise in gold, silver, and related shares, all of which we have invested in because of your advice. Before reading you I would classify myself as a committed saver, but with little or no planning to what I was doing. That has all changed because of your daily writings, and I now feel secure in our direction as a family as we head towards an uncertain future.
Lastly, your stories about World War II are especially poignant for me. My father, as well as several Uncles and one Aunt served our country during that time. My dad was stationed at Nellis Air Force Base and helped teach dozens of young men to pilot the B-25 Bomber. One Uncle was in Patton’s 3rd Army and marched in the snow to the Battle of the Bulge, another was in the battle of Okinawa, and a third fought on Iwo Jima. They are all gone now, and your stories bring back many memories for me that I heard as a young boy and into my adulthood.
Thank you again, and I wish you many more years of doing what you so obviously love.
Sincerely,
M.R.
Russell Response -- Many thanks. Maybe my long stay on this earth hasn't been a total waste.
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