Richard RUSSELL Says. . .

Top 61. Jul 14, 2005 11:01 AM

» Normxxx - One fool. . .

One fool. . .

By Richard Russell, Dow Theory Letters | 14 July 2005

Extracted from the July 11, 2005 edition of Richard's Remarks

I spent a good deal of the weekend reading (as usual), and pondering what I consider THE economic question of the day, the week, the month and maybe even of the decade. I'm talking about the momentous question of— INFLATION or DEFLATION. Older subscribers know that I've been using the expression, "Inflate or die" to dramatize the incredible position the US now finds itself in.

Debt in the US plus unfunded liabilities is now running into the multi-trillions. Nobody denies that. The only arguments have to do with how the nation is going to deal with all this debt. So far, nobody has the answers. In fact, nobody, except certain academics, is even talking about the question.

I've been reading some very bright people on both sides of the equation. My friend, A. Gary Shilling, was one of the very first to take the deflation side. Gary even wrote a book entitled "Deflation." Gary has been joined by other bright people, the latest to join the deflation-club being none other than Morgan Stanley's Stephen Roach and Pimco's Bill Gross. On the inflation side, I just read the latest paper by the brilliant Stephen Leeb, editor of the new service, the "Complete Investor."

The deflationists talk about the US and even the world economy slowing down. They talk about global over-production. They point to the steady decline in bond yields. The inflationists point to the Fed and its morbid fear of deflation. They talk about record oil prices. They insist that at any hint of disinflation, the central banks of the world will drive interest rates to zero if need be, while flooding the planet with even more liquidity.

The latest (July) Bank Credit Analyst has the brilliant Martin Barnes saying quite a lot about the picture, as note— "The perfect breeding ground for inflation has been in place in the past few years: large fiscal deficits and a weak dollar. It speaks volumes that core inflation has remained close to 1.5% (based on the personal consumption price index) in that environment. Powerful structural forces are keeping a lid on inflation: intense global and technological advances are boosting productivity. . . . .

"To the extent that inflation is always, and everywhere, a monetary phenomenon, the Fed's easy stance has had an important impact. It has shown up in rising house prices, rather than conventional consumer price indexes. . . The housing bubble is likely to get bigger before it inevitably bursts. However, when the housing bubble does burst, it will represent a huge deflationary shock to the economy.

"Looking ahead, the risks facing the US and global economies will remain more deflationary than inflationary. Other than burst housing bubbles, there is also the lingering concern that global investors will, at some point, be unwilling to finance US profligacy, forcing a major retrenchment in demand."

Russell comment— At this point I don't think we can come to a decisive conclusion. That's right, despite the fact that this is probably the most important question of the decade, the answer lies "out there" somewhere— to be concluded at a later time.

[Normxxx Here: As most on this site know, I have long suggested that we will have both— inflation for everything Chindia imports and deflation for everything (including labor) that Chindia exports. ]

Wait, how about China? China is a growing giant of 1.3 billion people, and the Chinese people are buying cars, They are buying refrigerators, they are traveling, they are demanding more oil, more energy, more of everything. Right, but some people, like my friend Adrian Van Eck, are saying that China is effectively broke, that their banks are bankrupt, and that China's economy could fall apart at any time. And I think to myself— what if China crashes? Won't China start selling part of its huge hoard of US bonds? And what happens then, if Chinese selling drives US rates up and through the roof?

If, if, what if? It reminds me of one of my favorite Zen kaons— it runs, "One fool can ask more questions than ten wise men can answer."

Here's a thought that is always on my mind. Somewhere ahead the housing bubble, the stock market bubble, the credit bubble— one of the many bubbles is going to burst. When that happens, the Fed will react as it always does— it is going to open the money spigots wide. I don't know whether that will jump-start the economy, but it's going to play hell with the dollar. At that point we'll have monetary inflation. There'll be paper dollars "up the ying-yang." Will that be enough to ward off the deflationary effects of a burst bubble? Guess we'll find out.

The contents of this letter/report does not necessarily reflect the opinions or viewpoint of normxxx. They are provided for informational/educational purposes only.

The content of this message is not to be construed as constituting market or investment advice. It is intended for educational purposes only. Individuals should consult with their own advisors for specific investment advice.

-- posted by Normxxx

Top 62. Jul 26, 2005 3:26 PM

» Normxxx - Happy 81st, RR!

Happy 81st birthday, Richard Russell!

By Peter Brimelow | 26 July 2005

NEW YORK (MarketWatch)— Richard Russell, editor of the Dow Theory Letters, is 81 today— and still going strong.

Last night, he churned out his usual couple of thousand words of market commentary, ending with a terse conclusion on the day's action: "Keep your eye on the bonds and utilities - if they keep declining - trouble."

Readers either love or hate my writing about Russell. Many complain about his artful vagueness— hey, it takes cunning to survive in the investment letter business for nearly 50 years. And it's true that the Hulbert Financial Digest long since gave up trying to construct a model portfolio out of his recommendations.

But other readers prize Russell's unquantifiable insights. For example, early yesterday when the just-announced yuan revaluation was big news, he wrote dismissively:

"This is really a very minor change, and it will make very little difference in the U.S.'s negative trade balance. But it will serve one purpose— it will allow China to get the U.S. 'off its back' regarding the 'cheap yuan.'"

Russell is often portrayed as a permabear. He's out of the market now and he does seem to enjoy growling ferociously, but in fact he has been bullish for key periods. He has a fair claim to have called the market bottom in 1974, to have sidestepped the 1987 Crash, and to have caught most of the 1990s rally— getting out a little early but in hindsight, who cares?

Proof in the pudding: Russell is the top market timer on a risk-adjusted basis of all letters followed by the Hulbert Financial Digest since mid-1980.

The last twelve months have been relatively difficult for Russell. A portfolio based on his timing gained only 1% through the end of June, vs. over 21% for the dividend-reinvested Wilshire 5000 Index (SVH). But the HFD takes no account of Russell's helpful hints— much prized by some readers. For example, that speculators should occasionally try market derivatives.

And over the last three years ending in June, Russell's timing produced a 1.5% annualized gain, vs. a 0.8% gain for the Wilshire. Over the last five years, he gained at a 1.3% annualized rate, vs. a loss of 1% a year for the Wilshire.

On his birthday eve, Russell was fairly cheerful by his standards. He wrote:

"I don't sense any real downside pressure on the stock market— at least not yet. Transports will not decline with the Dow.

"Has oil topped out? I can't tell, but there's a possible "head-and-shoulders" top building in oil...

"I'm watching the home-building stocks. They're overbought, but here too I don't sense that they are ready to top out....

"T-bonds and T-notes are now oversold, and there should be increasing resistance to further decline...

"Gold has bottomed, but gold's 'time' has not yet arrived. When the world really wants gold, we'll know it. That I can guarantee.

But in case anyone thinks he's getting mellow, he adds:

"Russell suspicion (of course, I could be wrong)— Greenspan continues raising Fed Funds until the housing bubble is close (close but not there yet) to toppling over. Greenspan leaves office in January. A month later the stock market keels over. The housing market buckles and consumers cut WAY back on their spending. A severe recession begins. Greenspan is gone, and the word is, 'Lordy, Lordy, if we only had Greenspan back, this wouldn't be happening...Greenspan, Greenspan, why did you forsake us!'"

The contents of this letter/report does not necessarily reflect the opinions or viewpoint of normxxx. They are provided for informational/educational purposes only.

-- posted by Normxxx

Top 63. Jul 28, 2005 4:31 PM

» Normxxx - The Way It Was. . .

BEST OF RICHARD RUSSELL:
The Way It Was. . .

I grew up during the Great Depression. The Depression started around 1931, and it ended around 1940 when the US started "gearing up" for World War II. I spent the Depression years in Manhattan, where my family lived. My buddies and my school mates really weren't very aware of the "hard times." The reason is that we grew up in hard times, and we never knew anything else. We thought nickel hamburgers and nickel rides on the subway were normal. We thought that it was normal for jobs to be almost impossible to find. We thought dollars were real money, and we were right, because you could turn in a dollar for gold or silver— the only problem was that it was hard as hell to make a dollar— nobody had dollars, and everybody we knew was looking for a job.

In the '30s in Manhattan the subway had stretches in which the tracks ran above the streets. They were called the "elevated" or just plain the "Els." You could ride the subway all over the city, from the Bronx to Brooklyn, from Astoria to Coney Island for a nickel. You could ride all day and all night for a nickel, and a lot of homeless did just that. Why? It was warm, and the cops left you alone. You could ride the ferry from Manhattan to Jersey or from Manhattan to Staten Island for a nickel. In those days nobody threw away nickels. Hey, I could buy a hamburger at White Castle for a nickel. And I often did.

In the '30s everybody rode the subway. In sections where the subway was elevated above the street, like Third Avenue, you could look down and survey the City. What I remember so well was the numerous shabby little employment agencies. Outside of these agencies you would see long lines of men. They were waiting to be interviewed for jobs. Many of these guys would wait all day for one lousy interview. Most of the interviews were phoney— the odds of getting a job were slim. One third of America was unemployed in the '30s, and millions of men were looking for work— any kind of work.

I got my first "summer job" when I was 16, working for the old Postal Telegraph Company. You'd wait in a local office, you and about five or six other kids. A call would go out to deliver a telegram. They'd give you a dime for subway fare to and from the office, and you'd go out to deliver the telegram. For pay you'd depend on the person you delivered the telegram to— to give you a tip. If you made a dollar for the day, you were doing good. Sure it was a racket, but that was the Depression, and actually, you thought that was normal. You didn't think the company was taking advantage of you— at least you might come away that day with seventy-five cents or a dollar.

So as I said, nobody worried about the worth of a paper dollar during the '30s. What they worried about was trying to find a dollar.

Then the fraud began. In the early 1930s, the US government said that its citizens could no longer turn in dollars for gold or silver. Nevertheless, the creditors of the US could ask for gold, and somehow that never seemed to bother US citizens, who continued to work for dollars.

In 1971, France called in a great chunk of US gold, and President Nixon "slammed the gold window." No more gold for foreigners or anyone else, he said. From that point on, the dollar was a piece of paper, and on that piece of paper it was printed that this dollar was legal for the payment of all debts. From that point on, the dollar was money by fiat. If you bought a hat from a store, you owed that store three dollars. You gave the store three dollar bills, and they had to accept those three pieces of paper as payment. That was payment by fiat. The store had to take the lousy three bucks, because those three dollars were legal payment for the hat that some poor slob had worked to make.

The government got away with it. People accepted paper for their labor. The government continued to turn out paper by the billions, by the trillions. And one of the greatest lies in economic history stayed alive. The lie was that dollars were money. Yeah, ask the Founding Fathers, the writers of the United States Constitution, whether a 1975 or a 1980 or a 2005 dollar was money. They'd laugh in your face, they would. "You dumb bastard." James Madison or John Adams would say, "You're working for nothing. Hang on to your dollars long enough and you'll see what they're worth. Ultimately, they won't be worth a damn thing."

The great lie has continued until today. People today think they're working for real money. They don't realize that they're working for a figment of the US government's imagination. It's like you're holding a dog leash, and there's no dog there. "Hey, there's no dog there," says a friend on the street. "Well, I thought there was," you answer, "My government told me there was a dog at the end of this leash." Yeah, right.

Let's call real money gold. Gold has had a hard time for a long time, because a bunch of liars in Washington have led its citizens to believe that the garbage they turn out is money, and that real money is garbage, or to put it another way, real money is "a useless ancient relic. You use it to fill teeth or for watch cases."

Gold has been consolidating after its recent advance. Gold hit a low on May 31, just above its February 8 low. But over the last few weeks gold has rallied. This took gold just above both its 50-day and 200-day moving averages. It also took gold right up to, but not above, its declining LT trendline. The histograms for gold have turned up and RSI has turned up. So that's where gold is now, at least in terms of dollars.

But gold has a different price for every currency. The major currency in the world today beside the dollar is the euro. The euro is a new currency, and no single nation sponsors it. The euro is the creation of the Eurozone, and nobody knows just how stable or "solid" the euro is going to be. Worse, the European economy as a whole is not doing that well, and the new European constitution was just voted down by France and the Netherlands. So how "good" is the euro? Who the hell knows, I don't, do you?

So two junk fiat currencies run the Western world, the euro and the dollar. The euro is backed by a bunch of fragmented nations that don't have a constitution, and the dollar is backed by the world's greatest debtor, a nation with a negative trade balance that is pushing $700 billion a year.

www.dowtheoryletters.com

The contents of this letter/report does not necessarily reflect the opinions or viewpoint of normxxx. They are provided for informational/educational purposes only.

-- posted by Normxxx

<img Width="520" src="http://www.321gold.com/editorials/russell/russell081505/1.gif">
Click Here, or on the image, to see a larger, undistorted image.

Top 64. Aug 16, 2005 1:16 PM

» Normxxx - Fantasy Money

Fantasy Money

By Richard Russell, Dow Theory Letters | 13 August 2005

Extracted from the August 12, 2005 edition of Richard's Remarks

— Yes, my older subscribers must remember that popular song, "It's only a paper moon." And now the 2005 version, "It's only a paper world."

What have they done to us? What have we allowed them to do to us? The central banks of the world, under Fed leadership, have huffed and puffed and blown up the global economy like some outlandish, unbelievable giant balloon. Credit has been extended beyond anything ever seen before in human history. It's been both glorious and ominous. Glorious because it's fended off corrections (bear markets) and ominous because eventually the fantasy must collapse in the face of reality.

In its simplest terms, one fact stands in the way of the issue of "fantasy money" by the central banks of the world. You can not print wealth. Or let me put it this way, people will accept fantasy money for just so long. And then reality inevitably sets in — and the panic to swap fantasy money for something real, something tangible, takes hold.

The only real money is gold or silver. Secondary money, in my opinion, is platinum and probably gem-quality diamonds with sapphires, rubies and emeralds close behind. Diamond prices have been going "through the roof" as has the price of emeralds. Oil ("black gold") is at record highs as is platinum. Thursday, [Aug 11] gold broke out to its highest level in five months. And yesterday the US dollar broke out of a distribution pattern to the downside.

And all us old-timers felt just a tinge of alarm. We know that the great "House of Credit" (meaning the world) has been built on a bedrock of quick sand. By that I mean that the financing of the new world-prosperity has been built or financed by bureaucrats at the world's central banks — rather than by the sweat and energy and brains of men.

And as gold breaks out to the upside, we old-timers mumble to ourselves, "Is this the beginning of the great unraveling? Is this the start of the destruction of the fiat paper system?" The safe answer is always "Probably not." The fantasy wealth system has been in place since 1971 when the US dollar went totally off gold. Two generations of Americans have grown up since then. Two generations have lived with, and never questioned, paper "money." So why should they start now?

Better still, why even bother with all the above questioning? We'll just keep watching to see if "reality time" has arrived. But how will we know when the so-called "reality time" has arrived? We'll know it when there's first a move, then a trot, then a run, and finally a panic to swap fiat paper for true wealth — gold.

So we keep wondering, "How long can the fantasy system keep going. How long will people accept the intrinsically worthless creation of a central bank in return for their sweat and ideas and labor?

And the non-answer is that nobody knows how long or when. After all, why did the Dow top out on exactly September 3, 1929. Why that month? Why on that particular day? Why did the Dow hit a low in June, 1949? Why not in July, August, December? Who knows? It's part of the mystery and the mystique of the market. What's the trigger that sets off any trend in the market? If I knew, I'd have called Warren Buffett, and told him that his thinking was correct, but that he should hold off a while before placing his giant bet against the dollar.

Enough, let's get down to business. I'm talking now of weekly charts. And the first below shows weekly gold going back to early 2004. Starting in November 2004 gold began constructing a giant symmetrical triangle. In mid-July 2005 gold began to accelerate to the upside, and this week gold finally broke out above the upper trendline of the triangle. This should put gold in position to try for its November 2004 high of 456. but first, probably some much needed consolidation.

Below we see the weeklies on the US Dollar Index. Each rally has been weaker than the preceding, and it looks to me as though the most recent advance is in the process of topping out. The red arrows are self-explanatory — I believe they tell the story.

<img Width="520" src="http://www.321gold.com/editorials/russell/russell081505/2.gif">
Click Here, or on the image, to see a larger, undistorted image.

The contents of this letter/report does not necessarily reflect the opinions or viewpoint of normxxx. They are provided for informational/educational purposes only.

-- posted by Normxxx

Top 65. Sep 8, 2005 7:08 AM

» Kirk - Russell Turns Bullish for 200 S&P points

.
Richard Russell Turns Bullish for 200 S&P points

Mark Hulbert reported today:

What changed Russell's mind?
The first thing is the new all-time high in the (DJUA: news, chart, profile) Dow Jones Utility Average. According to Russell, "Normally, the Utility Average will hit its highs well before the final high in a bull market, although there have been times when the Utility Average topped out simultaneously with the bull market high."
The second is a chart that has Russell "bug-eyed," one that he "stared at ... for half-an-hour in astonishment." Russell is referring to a particular point and figure chart for the (SPX: news, chart, profile) S&P 500 index that is designed only to show major reversals.
(Point and figure charts are ones that technicians use to filter out minor price movements that are considered to be merely noise, enabling them to better focus on the bigger picture.)
According to Russell, "The chart shows that if the S&P rises to 1,250, this would be a powerful upside breakout, with a large upside target hundreds of points higher."
The S&P 500 closed Wednesday at 1,236.36, less than 14 points away.
But there's more. On Russell's interpretation of this chart, rising above the 1,230 level also must be considered a breakout with at least some upside potential. That occurred on Tuesday. So odds appear to give a fighting chance of the bigger breakout above 1,250 occurring soon.
As a result, Russell is now recommending that subscribers willing to speculate should purchase Spyders, the exchange-traded fund benchmarked to the S&P 500.
Why has the market's chart patterns turned so suddenly bullish? Russell responds: "I'm not going to pretend that I know why the stock market suddenly turned strong ... From a speculator's standpoint, it makes absolutely no difference why the market turned strong. The reasons may be known in a few weeks or a few months. The important thing is simply the market action itself."

Here is the DOW Utility Average with a line at the intraday peak of 418.25.
<img width=460 height=414 src=http://stockcharts.com/def/servlet/Sharp... >

S&P Point n Figure chart with 1450 price objective
<img width=520 height=658 src=http://stockcharts.com/def/servlet/Sharp... >

See our Technical Analysis Discussion Forum

As of 9/08/05 the Total Return for "Kirk's Newsletter Portfolio" since 12/31/98 is Up 172%
(For 2005, Kirk’s Newsletter is Up 4.8% YTD vs QQQQ down 1.5% YTD )

-- posted by Kirk

<img Width="520" src="http://www.321gold.com/editorials/russell/russell091305/1.gif">
Click Here, or on the image, to see a larger, undistorted image.

Top 66. Sep 14, 2005 2:23 PM

» Normxxx - Blue in the face. . .

Blue in the face. . .

By Richard Russell. Dow Theory Letters | 14 September 2005

Extracted from the September 12, 2005 edition of Richard's Remarks

I've talked about the dollar until I'm blue in the face. After all, most of what we own and all of what we work for— is denominated in those Federal Reserve Notes that we call dollars. Make no mistake about it, the dollar is a "fantasy currency." There exists no definition of the dollar. The dollar today can only be defined in its relationship with other currencies. A dollar is worth this much in terms of euros, a dollar is worth this much in terms of yen.

All right, then what makes the dollar worth anything at all? Confidence and custom. The world is accustomed to accepting dollars, and the world still has confidence in the United States. Furthermore, the central banks of the world are accustomed to accepting US dollars as the world's reserve currency— although confidence in the United States is fraying a bit. My old friend, Doug Casey calls the dollar "the unbacked liability of a bankrupt nation." How can he say that?

Lets examine what's going on. The US is now the world's largest debtor. This nation is swimming in debt. The buying of US consumers comprises 70 percent of the Gross Domestic Product of the US, and the US consumer is now spending more than he's earning. The savings rate of the US consumer has now gone negative— minus 0.60 percent.

But how about the government? Consider the national debt of the US, which is now pushing $8 trillion. The following are increases in the national debt that have been mandated by Congress. In 2002 the increase in the national debt was $450 billion. In 2003 the increase rose to $984 billion. In 2004 the increase was $800 billion. This year, in 2005, the House passed an increase of another $781 billion, although the Senate has not yet acted on this. In other words, in the last four years the increases have totaled $3 trillion, which amounts to an increase of almost 40 percent in the total national debt.

But the increases go on. The wars in Iraq and Afghanistan are costing roughly $5 billion a month. Now we have the New Orleans disaster. So far, President Bush has asked Congress for $10 billion and then another $52 billion, and the bills just keep coming in. Some estimates are that hurricane Katrina will cost $120 billion or more before it's all over, and this is probably conservative.

All the above, then, constitute the background for the dollar. Can the steady build up in debt inspire confidence in the dollar? I don't see how it can. My guess is that an increasing number of countries are going to "get around" receiving dollars by asking for payment in the form of a basket of currencies. This means that these nations are moving to disconnect themselves from the dollar. The dollar alone will not suffice for payment.

Even a hard-nosed, sophisticated investor like Warren Buffet has moved to diversify out of dollars. To do that Buffet has made a $22 billion bet that the dollar is fated to decline big time. Buffet wants to offset any dollar losses with profits in his non-dollar position.

What I've written above represents the big unspoken background for investing. It's really a sad story. It's sad when you have to worry about your own country's currency. It's hard enough to pick stocks or investments that you think are going to work, but when your nation's currency itself is under suspicion, then nothing is safe, nothing is easy, nothing is a sure thing long-term "investment."

Ah, but why worry, why try to use a "monetary crystal ball." Heck, we've got the charts. So saying, let's take a look at the Dollar Index. Below we see a daily chart, and you have to remember, this is a chart of the US dollar in terms of a basket of currencies. The chart shows the Dollar Index looking as though it has topped out, but now pulling back or even slightly above its "support," which is the horizontal blue line.

The weekly chart of the Dollar Index below gives us a better and more important perspective. Here we see a series of three tops, each top below the preceding top. At the bottom of the chart MACD has been helpful in calling the turns, and the latest down-arrow appears to be calling for a further decline to a potential oversold low— we're not there yet.

<img Width="520" src="http://www.321gold.com/editorials/russell/russell091305/2.gif">
Click Here, or on the image, to see a larger, undistorted image.

But the Dollar Index compares the dollar to other fiat currencies. In other words, it's comparing paper with paper. What about comparing the dollar will real money— gold? That's what the chart below does. Here we see gold in terms of dollars.

The "battle of gold" has been long and arduous. The central banks want to control the world's money, and gold (real money) is in their way. Therefore, the central banks have fought gold both economically and psychologically. They've fought gold economically by periodically selling portions of their gold holdings. They've fought gold psychologically by implying that fiat money is real money and gold is "an ancient relic." This "war against gold" worked for many years, but it stopped working around 2001-2002. It stopped working when smart money started accumulating gold when the metal got down to absurd prices around 250 dollars to the ounce.

Since then gold has laboriously climbed, layer by layer, level by level. Which is what we see on the daily chart below. I have delineated the two most recent layers with horizontal blue lines. The latest layer is bounded by 420 (dollars) on the bottom and 458 at the top. There is an inner layer of 450 which gold will have to clear. As I write, gold has climbed to the vicinity of 450, and now it's a question of whether spot gold can climb above 450 and stay there. If so, gold will probably try for the top of the layer which is at 458.

So as you can see, gold's climb, so far, has been difficult— it's been a battle against the gold banks and the central banks, it's been an advance inch by inch, foot by foot, yard by yard. This is because gold is now in the second phase of its bull market. This is the phase where the public slowly enters the market, it's the phase where the big money is still moving into the market. The second phase is the longest phase of a bull market, and it's usually marked by many corrections against the main bull trend.

<img Width="520" src="http://www.321gold.com/editorials/russell/russell091305/3.gif">
Click Here, or on the image, to see a larger, undistorted image.

______________

The contents of this letter/report does not necessarily reflect the opinions or viewpoint of normxxx. They are provided for informational/educational purposes only.

-- posted by Normxxx

Top 67. Oct 30, 2005 10:47 AM

» Normxxx -

-- posted by Normxxx

Top 68. Oct 30, 2005 11:00 AM

» Normxxx - Now And Then

Now And Then

BEST OF RICHARD RUSSELL | 30 October 2005
http://www.dowtheoryletters.com

NOW: An article in yesterday's Financial Times talks about today's youth, and what they want. To put it bluntly, they want money, they want to show off their wealth ("bling, bling"), and they want it now. "Waiting sucks," is their current motto.

THEN: My generation, the generation that grew up during the Depression and World War II, grew up in hard times. We were basically savers, while the children of the Baby Boomers are spenders. My generation wanted to give our kids a lot of the things we never had— namely a good, secure life and if possible, money to start out life with.

[Normxxx Here: That's my generation. Richard is only a few years older than me. ]

Our kids were the "Baby Boomers," the children who never knew hard times— the children who never lacked for very much. But the children of the Baby Boomers seem to going into some sort of climactic phase. They want the most expensive watches, they want million-dollar condos as soon as they get married, they want to eat at the best and most expensive restaurants, they wanted the hottest exotic foreign cars (sure I'm exaggerating just a bit, but not that much).

[Normxxx Here: We taught our kids that each generation's kids had it better than the last. I guess the 'boomers' taught it to their kids too. ]

When my generation bought a house, we wanted to buy it for cash. And if we had to take out a mortgage, our dream was to get rid of that mortgage as soon as possible.

[Normxxx Here: In fact, any major debt, even a car loan, was considered like a 'millstone around the neck.' ]

The attitude towards housing is one of the biggest changes I've seen. And I think to myself, "Buy it today, and see it foreclosed tomorrow." But what the heck, this is the 21st century, and why think about risk, because as the old song goes— "It ain't goin' rain no more."

Last night I was thinking that I'm sort of unique. I've lived through three of the greatest events in the history of mankind. Here's how I see these events— events that all took place in my lifetime. I saw the Great Depression, I saw the beginning of cars for everyone, I saw the beginning of radios for everyone, I was there when nuclear energy was born. But below are the three that I believe are the most important events of my lifetime.

World War II. Many historians consider this the greatest event, the seminal event, in the history of mankind. During the war almost every nation was involved, and 56 million people died. I was there before the war and I was there after the war.

[Normxxx Here: I just missed WW II, but caught the next one, the Korean 'Police' Action— the first of the 'undeclared' wars. ]

[ASIDE: Recently, we celebrated the 60th anniversary of the dropping of the atomic bomb drop on Hiroshima. The bomb resulted in 140,000 Japanese dead. And the belated arguments go on as to whether the US should have dropped the bomb. At the time, the war was over in Europe. The US had suffered massive casualties and with tens of thousands dead. The war in the Pacific continued, and it was horrendous. The US had taken 27,000 casualties in seizing the 8 square miles of Iwo Jima from a garrison of 21,000 Japanese troops. The US learned that the Japanese don't surrender, they were willing to die almost to the last man. Roughly 6,000 Japanese stood ready (all volunteers) to fly the certain-death Kamikaze missions. The US had taken 49,000 casualties to capture Okinawa during three unbelievable months of fighting. Supporting the Okinawa battle, the US navy lost or suffered damage to 350 ships, while 10,000 US sailors had been wounded or killed.

Meanwhile, the US military was working on plans to attack Japan itself. At the time Japan had 4 million well-trained soldiers, 2.4 million of them stationed in Japan. The US military believed an attack on Japan could cost as many as 250,000 casualties with at least 60,000 US dead. Some estimated a lot more, possibly as many as a million US casualties and dead.

I had just returned from combat in Europe and was scheduled to transfer from the B-25 Mitchell bomber to the faster Douglas A-26 "Invader" bomber. I was on a 30-day leave, following which I would be heading for the Pacific. My thought was— "I got through Europe, but is it possible that I could get out alive from the Pacific too? Could any bombardier be that lucky?" I consoled my frightened parents by telling them what a great plane the A-26 was, "much faster and safer" than the B-25 (I loved the B-25, it could take a fearful beating and return home).

And then the news of Hiroshima and Nagasaki came out and shocked the world, including the US military, who had no hint of the atomic bomb. Against the wishes of the Japanese military (who would have fought to the bitter end, they didn't believe in surrender), Japan's emperor announced that Japan would surrender.

Every guy in the military that I knew was elated. And millions of American mothers and fathers looked to the heavens and thanked God that their kids were still alive. I went down to Time Square, and it was a total mad house. People were kissing each other, hugging each other, kissing strangers— some were crying, others were drinking, hysteria reigned. I doubt if anything like that had ever been seen in New York before or since.

A few weeks later I got my discharge papers. Next day I went down to Washington Square and registered at NYU under the GI Bill.

Should we have dropped the bomb, or should we have invaded Japan the hard way? Don't even ask me that question. When I hear young people or academics arguing that to drop the bomb was inhuman and immoral I simply ask them where they were in 1945. I didn't know where they were, but I damn well knew where they weren't. They weren't in the military in that fateful year 1945.

[Normxxx Here: Nor were they facing the immanent death of loved ones. Moreover, I was in Japan in the late 1950s, and I never met a single Japanese then that thought that dropping the bomb was somehow 'inhumane.' To a man and woman, they were all grateful we had managed to end the war without another year or more of fighting and starving and (conventional, e.g., 'fire') bombing. ]]

I can tell you that after WW II everything was different, everything changed. It was an incredible new world that emerged after the War. One post-War item was phenomenal— America's GI Bill. I went through college under the GI Bill.

[Normxxx Here: So did I, the first time. ]

The GI Bill has been called the greatest single event in the history of education. Millions of Americans who never even thought of going to college did so under the GI Bill. The GI Bill changed the nation.

A few weeks ago while rummaging through some old trunks, I came across some fragile type-written papers written by my mother right after the War. My mother was an excellent writer— she had published four novels. Evidently, my mom had been working on her remembrances. One chapter was entitled, "The War Years." I had never seen these papers before. At the end of this "diary" my mother had written, "The children's good friends dropped in now and then, but things were different. And strangely enough, Dick never mentioned the war, never spoke of his experiences.

"Friends asked me if he had changed much in the Army. It was a question I couldn't answer. War or no war, young people change a lot during those formative years. Dick left home a kid of eighteen. He came back a young man of twenty-two." And I guess that's the way my mom saw me. But she was lucky and she knew it. My youth was gone, but at least, after four years, I had returned.

Antibiotics. I went through a life-endangering disease and operation prior to antibiotics (it was a severe mastoid infection from which I almost died)...

[Normxxx Here: I merely suffered an eardrum abscess (which eventually left me with a perforated left ear drum— didn't keep me from Korea, though), but I had to attend the same "charity clinic" where they treated the post-mastoidectomy kids (I believe they "scraped" the mastoid bone, or some such, and applied antiseptics) and had to listen to the agonized howls of those kids. It sounded like all of the tortures of hell! ]

I can tell you that medicine changed completely after antibiotics. Before antibiotics, there was no such thing as a "minor infection." After antibiotics, the dread of an infection was reduced to the point where people today take infections as everyday events. "Have a Levaquin and call me in the morning."

The Internet— the Net has changed the world. Now anybody can know what everybody else is doing. Now the world of information is at everybody's fingertips. The internet will be the greatest force for freedom the world has ever seen. Knowledge and information equal freedom— I believe freedom throughout the world is only a matter of time— maybe ten years, maybe 50 years or more,— but I know now that it's only a matter of time.

The world, our world, will now be subject to rapid change. I've said all along that it's impossible for one-third of the world (Asia) that is willing to work for a fifth of less of what we work for— it's impossible that all those billions of people will not see their standard of living improving. At the same time, I believe we'll see the American standard of living decline.

[Normxxx Here: Boomers, Gen-Xers, and Gen-Yers, take heed! ]

In my opinion, America has already "spent it." This nation is insanely in debt. The debt will be reneged on, the promises of the future will be diluted— and/or the debt will be inflated away. Any way you look at it, the future will be more difficult. Already we see some of the results of our wild spending, our massive military spending, our periodic undeclared wars, our almost mindless build up of debt.

Wages in the US are not keeping up with expenses. Over the last ten years people in the US have had to work harder to keep up their standard of living. In most families both parents now work. Families are smaller today because it costs so much to raise children.

[Normxxx Here: Over $40 grand just for tuition at a State college; in my day such tuition was free, or nearly free. ]

Half the people in the US are heavily in debt. I believe we're moving steadily toward what I call "difficult times." The auto workers found that out last week. We'll all find that out in future years. In the meantime, the dollar is temporarily strong. Enjoy it. Now go out and spend.

[Normxxx Here: While the dollar still has some value. ]

Is all paper money basically junk? Of course it is, and in due time, as the old saying goes, it will be reduced to its intrinsic value. This is the dreaded secret that the central banks of the world don't want you to think or recognize. But slowly, ever so slowly, the "dreaded secret" will emerge, and it will be recognized and acted on by the masses.

We are now in the early part of the second phase of the great gold bull market. This is the phase where gold starts to make the news. And when an item makes the news, the great unwashed public notices and begins asking questions. They don't do anything about it in this early stage— they simply ask questions. And the question that a few curious people ask is, "Hey, why is gold going up? I read somewhere that it's at a 17 year high." And so it starts. The next question they ask is— "What's wrong with the dollar. It's taking more and more of them to buy gasoline and heating oil and college tuition and rent. Is there something wrong with the dollar?"

These questions may sound innocent, but they scare hell out of the Fed. So every week or so some fool Fed governor comes out and announces that "Inflation looks to be a little high at two percent, so we better raise Fed Funds another quarter of a percent. You see, we're just as scared of inflation as you good people are."

Of course, the one thing the Fed will never do is compare the purchasing power of the dollar with it's purchasing power 25 years ago or 10 years ago or even five years ago. That's a no-no, because the comparisons are sickening. You see, they have to keep that lie going to the effect that the Fed, like your dog, Rover, is man's best friend.

Here's my idea for a Fed motto— "Keep it slow, and they'll never know." The "it", of course, is the decaying purchasing power of the fiat dollar.

[Normxxx Here: But 'slow' inflation also keeps us from that dread alternative, which occured often enough until 1939; those dreaded "panics" or depressions, which periodically wiped out everyone except the very wealthy and Government workers. ]

On every dollar bill we read the words, "In God We Trust." Of course, they'd never put the words, "In the Fed We Trust" on the dollar— because there's a limit to how big a lie the Fed thinks it can get away with.

The US government is now on a spending binge that boggles the mind, but I'm not going to recite the statistics on all the debt and deficits and liabilities again.

[Normxxx Here: But, didn't the boomer Cheney famously say, "deficits don't matter?" ]

Let me just put it this way— the facts are horrendous. The question is, "How are we going to pay for them?" There are only two possibilities— The government will default on them or the government will simply inflate them away. And the winner (but you already knew this) is— inflation.

The ironic fact is that today we have "faith-based" money. Yeah, faith in the Fed. Economically speaking, could anything be more frightening— or bearish?

______________

The contents of this letter/report does not necessarily reflect the opinions or viewpoint of normxxx. They are provided for informational/educational purposes only.

-- posted by Normxxx

Top 69. Jan 3, 2006 11:55 AM

» Normxxx - 12/2005: RICHARD RUSSELL

12/2005: RICHARD RUSSELL

By Richard Russell | 3 January 2006
http://www.dowtheoryletters.com

The US is losing its manufacturing base to China. A huge migration of hundreds of millions of Chinese is moving into their coastal cities, and that means that Chinese competition for manufacturing will be increasingly intense as these people seek work, any kind of work, any kind of wages. The operative fact is this— WE ARE LOSING OUR MANUFACTURING BASE— PERIOD.

Now we are starting to lose our service base. Company after US company is outsourcing its back-office work to India. Large corporations like Google and Microsoft are increasingly turning to India for research as are many medical companies.

China and India are now graduating far more engineers than is the US. All of Asia is coming alive and ready to produce and create— at 10 percent of what it costs here in the US.

So China and India and Asia are producing manufactured goods and services at terrifically competitive prices. And what is the US producing? Basically— Federal Reserve Notes. Really, then why is the standard of living in the US STILL SO HIGH? The reason is that the world still accepts Federal Reserve Notes (US dollars) as the reserve currency, created by the Fed at no cost and in any quantity that the Fed desires.

Yes, China and India and Asia's central banks are also producing junk paper money. But the difference is that they are also producing something of value and relatively speaking, we are losing— we're losing in manufacturing and we're losing in services.

The investors of the world are not stupid. The markets of the world are not stupid. They see the inequities that I've described above. They see the writing on the wall. The writing on the wall says that paper money is doomed because there's nothing behind it. All balloons eventually deflate and the world's paper money system is a balloon— full of propaganda, hog wash and hot air.

And suddenly, the great unconscious of the investment world is saying, "All paper is sinking in purchasing power, it's time for me to accumulate true wealth. True wealth is gold. And that, in one sentence, is why gold is rising. Seasoned, experienced, history-wise investors know the great secret— TRUE WEALTH IS NOT PAPER— IT'S GOLD. The great secret— gold is not rising solely because of inflation, gold is rising because faith in fiat money is declining..

Once an item is in a bull market as gold is now, at some point people start asking, "What's going on? What's happening? Why is gold rising day after day?"

At that point, and we are not there yet, the process speeds up. More and more people come up with answers. And the answer is— "Fiat paper is a fraud. I'm working for something my government can manufacture with no sweat, with no work, with no creativity— with just a click of some damn computer. Listen, I want real money for my work. I want gold."

I read dozens of advisories every day. Most are bullish on the US economy, and most are bullish on the US economy for 2006. But literally none are talking about what I've talked about above. I've said before that the Achilles Heel for the US is the dollar. Currently, the dollar has been strong. It's been going up against its two major competitors, the euro and the yen. Of course, the reverse side of the strong dollar is that the new "expensive dollar" is going to kill our exports. As the dollar rises, US goods for export become more and more expensive.

But somewhere ahead as the economies of the world take in the fact that the US is losing both its manufacturing base and its service base— the world will realize that the US has become a "a tissue-thin, paper-tiger economy."

When that realization takes place, there's going to be a panic to get out of dollars. This will trigger the third phase of the gold bull market. And that, dear subscribers, will be something to see.

______________

The contents of this letter/report does not necessarily reflect the opinions or viewpoint of normxxx. They are provided for informational/educational purposes only.

-- posted by Normxxx