Analysts, Gurus &amp; Pundits

Top 518. Apr 2, 2004 6:29 PM

» pbradford6 - Re: BEST OF RICHARD RUSSELL 3/31

In response to message posted by Normxxx:

Richard Russell has a dedicated following but I have never been able to make money following his advice. I think he has traditionally been more bearish than bullish for year and years. I could not and would not place much valuation on his opinions when it comes to my own investment money.

-- posted by pbradford6

Top 519. Apr 2, 2004 7:55 PM

» Normxxx - Re: Re: BEST OF RICHARD RUSSELL 3/31

In response to message posted by pbradford6:

Richard's advice does pay attention to the large moves only (multi-year). Hard to follow and hard to profit from. But Hulbert rates Russell very highly.

At the moment, Russell is waiting for the next stock market crash and gold peak. If the market crashes before a new (all time) high and/or gold goes significantly higher (several hundred dollars) before it goes much lower (below $350, say), he will look like a seer.

-- posted by Normxxx

Top 520. Apr 3, 2004 9:30 AM

» pbradford6 - Re: Re: Re: BEST OF RICHARD RUSSELL 3/31

In response to message posted by Normxxx:

Norm, here is an interesting letter from Barron's supporting Richard Russell's comments and predictions.
Perhaps his real long term calls are worthy of consideration but he is often months or years too early in many of his calls.

To the Editor:

Thank you for your article on interpretations of Dow Theory as applied to current price levels ("Grizzly Thoughts," March 22). It inspired me to take another look at the recent history of the averages. As a result, I find that I am forced to be bearish -- but not for the reasons in the article.

A conservative interpretation of Dow Theory requires that a major turn in trend displays a higher low and a higher high in all the indices under review. The Industrials, the Nasdaq and the S&P 500 all provided such a pattern, with a low in October 2002 followed by a higher low in April (Nasdaq) or May (DJIA and SPX), and then a confirming move above the previous high in May or June.

The problem is that this change in major trend was never satisfactorily confirmed by the Transportation average. Rather than a higher low in the spring of 2003, the Dow Jones Transporations posted a lower low (in March), and has not shown a correction of over 5% until recently. The Transportation average still appears to be in a bear phase. This could be corrected if the DJT turned up now (a higher low) and then moved over the January 2004 high. But higher energy prices will make that hard to achieve.

The inescapable conclusion is that we are still in a bear market until proven otherwise. The implications aren't good. Bush and Greenspan have provided unprecedented fiscal and monetary stimulus. If this has failed to provide more than a temporary uplift to the market, then look out below.

Andrew Tomlinson
Montclair, N.J.

-- posted by pbradford6

Top 521. Apr 3, 2004 10:25 AM

» Normxxx - Re: Re: Re: Re: BEST OF RICHARD RUSSELL 3/31

In response to message posted by pbradford6:

Well, nobody said that transfering DOW theory(?) to the 21st century, and correctly interpreting it, was easy or not more of an art than a science. I believe the two other Dow theorists Hulbert usually cites (Mallone of Dow Theory Forecasts and I forget the other) are both bullish. But I have still another Dow theorist (Tim Wood of Cycles News and Views) who is also bearish.

-- posted by Normxxx

http://www.dowtheoryletters.com/DTLOL.ns...

Top 522. Apr 6, 2004 2:31 AM

» Austrian - Re: BEST OF RICHARD RUSSELL 3/31

In response to message posted by Normxxx:

Dow theory is designed for big turns, in short are we in a bull or bear market, and why. Every one seems to focus on the Dow and the Transportation averages as the essence of Dow Theory, while students like Richard Russell claim the following (a short excerpt of a good article):

"...The Dow Theory (actually it is a set of observations) has basically to do with buying great values and selling those values when they become overpriced.

Value is the operative word in Dow Theory. All other Dow Theory considerations are secondary to the value thesis. Therefore, price action, support lines, resistance, confirmations, divergence --- all are of much less importance than value considerations, although critics of the Theory seem totally unaware of that fact."

Richard Russell's free section seems to indicate he is a big picture guy, get in while values are cheap and stay long for the duration allowing the magic of time and compounding to work to your advantage. In a secular bear market, he likes treasuries and gold. One way to view Mr. Russell's investing methodology is buy and hold during a bull market, holding through all the mind numbing corrections, only selling at the end of a bull market. Principal is preserved during bear markets in treasuries and other asset classes that don't get pummeled. For a speculator or trader this information is not fast enough or detailed enough to find and take advantage of sector or short term opportunities.

Dow theory is not designed to find you individual opportunities like CSCO etc but to put you into the market when it is a screaming value and keep you there until the speculative excesses seen in the late stages of any real bull market. As a result, I would only subscribe to Mr. Russell's letter for two reasons, as an investment strategy (slow boring buy and hold compounding) or to read the experience of a man who has spent his life studying the markets.

I do not subscribe to Mr. Russell's service and do not know if he profited from the current bull market.

Real Life Problem

I agree with Mr. Russell and others who believe the stock market is overvalued and in a secular bear market. I am also in my mid forties and want to retire well and early while meeting all my commitments to my family like educating and helping my three daughters. These two realizations has lead me on a search to find good ways to get significant consistent double digit returns while the general market suffers the malaise of a secular adjustment to valuations.

I am applying two strategies to address this conundrum. The first is commodities investing, particularly precious metals equities with an emphasis on silver (so far so good). Interestingly, I am employing a buy and hold strategy, riding the bull through the mind numbing corrections similar to Mr. Russell’s bull market strategy. The second strategy is swing trading technically. Swing trading or other short-term positions really discount fundamentals and valuations, merely looking for movement. Even in a secular bear market stocks trade, and on the worst days some stocks rise. I believe Mr. Russell’s service is completely inappropriate for swing trading.

For further information on Mr. Russell’s services see:

http://www.dowtheoryletters.com/dtlol.nsf

Regards,

-- Austrian

-- posted by Austrian

Top 523. Apr 16, 2004 2:04 PM

» Normxxx - Richard Russell Says. . .

Russell wrote last night:

"To review, I don't like what's happening in Washington, I don't like what's happening in Iraq, I don't like what's happening with US government debts and deficits, I don't like where U.S. consumers are (largely in debt), I don't like the action in the stock market and I don't like the action in the bond market. There, I guess that should make my position clear enough."

-- posted by Normxxx

Top 524. Apr 18, 2004 11:25 AM

» Normxxx - Richard Russell Says. . .[4/15/04]

BEST OF RICHARD RUSSELL

By Richard Russell | April 15, 2004
www.dowtheoryletters.com

I'm going to give you my broad opinion on the whole picture (this after going over all the charts prior to the opening). I believe the upward momentum of the metals, and the stock market is over. I believe the bonds have topped out. I believe interest rates are heading up, and refinancing in the housing market is over. I believe my original opinion on the stock market was the correct one -- the stock market is in the process of building a major top.

I've said that my own basic position is in cash and gold (two-thirds coins, one third gold stocks). My reason for this position -- the old adage, "When in doubt, stay out."

I didn't like this wildly-overvalued stock market, I didn't like the fact that everybody was "unfriendly" to the dollar and was on the other side of the equation (meaning they were in foreign currencies). As far as the universe of gold, I don't trade it, I sit with it. As for bonds, I haven't liked bonds for months or longer -- not with the Fed hell-bent to inflate. And inflate they are doing -- nonstop.

As for the big picture, I believe the government has about "shot its load." Look what's happened over the last 12 months, and still the major stock averages have been unable to rise to new highs.

Eleven rate reductions taking short rates down to a Great Depression level of 1%.

Massive refinancing of home mortgages to the tune of $2.5 trillion in 2003.

Fed injecting over a trillion dollars in liquidity into the banking system over the last 12 months. Over the last four weeks we've seen M-3 rise $100 billion or at an annualized rate of over $1 trillion.

Massive foreign buying of US Treasuries, which has (up to now) kept long rates down.

Series of tax cuts by the Bush administration.

Weekly "happy news" propaganda from various Fed governors.

Huge government deficits which tend to stimulate the economy.

All-out spending spree by US consumers.

So what the Fed and the US government have done is to build the greatest edifice of debt ever seen by one country in history. And this debt continues to build. For the US government, the debt build-up is continuing at the rate of over $13 billion a WEEK. The current rising trend in interest rates will bear down on this ocean of debt.

This pits the forces of deflation directly against the forces of inflation.

This impending battle of inflation vs. deflation is going to be one of the most critical economic confrontations seen in decades. Frankly, I don't know how it's going to turn out -- and neither does anyone else. In fact, I'd say 99 percent of the US population is unaware that it's even happening.

The inflation-deflation battle will express itself in waves -- of first inflation, then deflation.

These are two mighty forces militating towards deflation.

1 -- Overproduction brought on by the entrance of China, India and much of Asia into the global economy,

2 -- Massive US and world debt which must be carried with the help of low interest rates, if indeed this debt (particularly the US debt) can be successfully carried at all.

However, the central banks cannot control the "bond market vigilantes." When the vigilantes become frightened about inflation, they dump bonds and rates go up (which is what's happening now).

The price of real money, GOLD, will fluctuate wildly as the inflation-deflation battle goes on. In the end, the great casualty will be intrinsically worthless, paper money. In the end, irredeemable paper money will be distrusted, and it will go down. The only power evil has is the power to destroy itself. I call paper money evil. In the end, it will destroy itself as it has done all through history.

www.dowtheoryletters.com

(858) 454-0481

Richard Russell’s Dow Theory Letters

-- posted by Normxxx

Top 525. Apr 20, 2004 5:19 PM

» Normxxx - Russell On Debt. Stocks & Gold

Russell On Stocks & Gold

By Richard Russell | April 19, 2004
Editor-in-chief - DOW THEORY LETTERS
www.dowtheoryletters.com/dtlol.nsf

DEBT - First, what's happening - and I'm not talking about the markets, I'm talking about the fundamentals. I've been talking about the monster edifice of debts in the US - debts in the cities, the counties, the states, the corporations - consumer debt, mortgage debt, credit card debt, you name it, you look anywhere, and all you see is debt. The nation is up to its eyeballs in debt.

Recently the government reported that consumer prices rose 0.6 percent in March, the fourth straight increase. This is inflation at an annualized rate of 6 percent. The bond market had already suspected as much, and it didn't like it. Rising levels of debts tend to be inflationary. But at some point, rising debt levels reach a peak, and next - the edifice of debt topples over. At that point the debts become deflationary.

Do you remember a few weeks ago I made a strange statement? I said that the US's huge mountain of debt amounts to a "synthetic short position" against the dollar. What does that really mean? It means that to pay off debt you need dollars. Much of the US debt (thanks to the Fed's 1% short rates) has been built on a structure of low rates. But now, with rates rising, we're beginning to see a squeeze on debt, particularly on variable-rate mortgages. This is setting off a rush to raise dollars.

You can't print dollars the way the Fed does. So to raise dollars what do you do? To raise dollars you've got to borrow more or you've got to sell something, and by something I mean "anything" of value. So I believe what we're seeing now is the very beginning of a LIQUIDATION of assets. If it's got a market, it's being sold. We're seeing the early beginning of a move to raise dollars - to raise dollars to carry, to finance, and to pay off debt. Debt's "short position" against dollars is beginning to operate. Commodities, stocks, bonds, anything that is liquid is being sold to raise dollars.

How about gold and silver? Gold is cash, but over the last few days gold is being sold as a commodity. This is stupid, but it's happening. I never argue with the markets, even when I believe they're being irrational and emotional.

Silver may be a different story. Silver is a chameleon. In an inflation, silver becomes a "precious metal," and a monetary metal, and silver goes up with inflation. But in a deflationary situation silver is viewed as an industrial metal. In a deflationary environment, silver is not, as in the case of gold, viewed as money. If we're going into a deflationary economic collapse, holding gold doesn't worry me. But holding silver would worry me.

Anyway, above are some of the fundamentals that I see operating in the economy. How about the markets themselves? The chart on page 2, I believe, is one of the keys to the situation. This is a chart of the 30-year Treasury bond, and as the price of this bond declines, long-term interest rates rise. The chart doesn't need much explaining. What we see here is a type of "head-and-shoulders top," with a subtle "left shoulder" being formed during February and March, then a rise to a "head" during March and April, and most recently a very weak "right shoulder," and then a big break. The break has taken the bond below both its 50-day and 200-day moving averages. This has pushed long interest rates up to a high for the year. The "bond vigilantes" have arrived. They always do when they fear inflation coming to the surface.

I talked about weekly charts at the beginning of this section and below we see a weekly chart of the Dow. Note that the Dow is holding above its 40-week moving average (red line) and sitting right on its 10-week MA (blue line). At the bottom of the chart we see the histograms, which have been negative and below zero for ten weeks running. But the histograms are now contracting toward zero. It will be instructive to see whether the Dow can muster enough strength to turn the histograms positive, and if so how far the Dow can carry on the upside. Of course, if the histograms turn down again prior to climbing above zero, that will be a very bearish turn of events.

This pits the forces of deflation directly against the forces of inflation. This impending battle of inflation vs. deflation is going to be one of the most critical economic confrontations seen in decades. Frankly, I don't know how it's going to turn out - and neither does anyone else. In fact, I'd say 99 percent of the US population is unaware that it's even happening. The inflation-deflation battle will express itself in waves - of first inflation, then deflation.

These are two mighty forces militating towards deflation. First - Overproduction brought on by the entrance of China, India and much of Asia into the global economy. Second - Massive US and world debt which must be carried with the help of low interest rates, if indeed this debt (particularly the US debt) can be successfully carried at all.

And of course, we have the forces of inflation working to reduce the power of overproduction and deflation via the printing presses of the Federal Reserve and the central banks of the world. Without the discipline of gold, the central banks can create any amount of money they want any time they want. However, the central banks cannot control the "bond market vigilantes." When the vigilantes become frightened about inflation, they dump bonds and rates go up (which is what's happening now).

The price of real money, GOLD, will fluctuate wildly as the inflation-deflation battle goes on. In the end, the great casualty will be intrinsically worthless, paper money. In the end, irredeemable paper money will be distrusted, and it will go down. The only power evil has is the power to destroy itself. I call paper money evil. In the end, it will destroy itself as it has done all through history. And in the end, what I've warned about all along will come to pass. "In a bear market everyone loses, and the winner is the one who loses the least."

Question - Russell, assuming your scenario, your predictions, come true, what do we do?

Reply - I wish I had the perfect answer. But I don't. My instinct tells me at this stage of the game, be in dollars and gold coins. Why gold coins? Because only gold coins are "bankrupt proof." Why dollars? Because at this time, the trend is up for the dollar. Remember, the greatest debt edifice in history has, so far, been "held up" by manipulated low interest rates. And now that's beginning to change.

And there is that little-understood thesis that I mentioned at the start of this letter. Debt is a "synthetic short position" against the dollar. You need dollars to pay off debt. As things stand, everybody's got debt, and nobody's got liquidity, which in the US is dollars. If a real squeeze on debt materializes, we could see a panic for dollars. The first broad wave of bear market deflation will see a panic for dollars. The second broad wave of the bear market could see a collapse of paper money and a panic for real money - gold.

-- posted by Normxxx

Top 526. Apr 20, 2004 6:10 PM

» Normxxx - A master technician sees a yellow light

Barron's Contrarian Jitters: A master technician sees a yellow light flashing

By SANDRA WARD | MONDAY, APRIL 19, 2004

An Interview With Ned Davis -- It's at critical junctures that we want to know what the proprietor of Ned Davis Research in Venice, Fla., is thinking. We evidently called the right guy last week, because that's exactly where this master of market history and technical analysis thinks the market is at the moment. Davis'extensive database of market statistics gives him an extraordinary advantage in understanding the direction the market is headed and which asset classes are likely to benefit. It is why his research is among the most respected and sought after in the investment community. But it is his long experience as a strategist that gives him the special wisdom to know when to hold and when to fold.

Barron's: How much longer does this cyclical bull have to run?

Davis: We're at a very interesting juncture. The fundamentals have gotten very bullish. Conventional wisdom says maybe there is some geopolitical risk, but based on the fundamentals, the outlook is clear-cut bullish. The thinking goes that more good earnings and a clear upturn in employment will be the trigger to get us above 1200 in the S&P 500 and remove any final doubts about the sustainability of the economic and earnings expansion.

For a contrarian, that's the worst news there can be. The problem is when there are no doubts left, everybody is pretty much invested. Our own polls of sentiment indicate 68.1% of investors are bullish, which is well in the extreme-optimism zone, and that tells me some of the demand has been used up. At the same time, we've been watching the previous-week offerings data in Barron's, a combination of initial public offerings and secondary offerings, and that is up to $64.7 billion in the past 13 weeks. I can't say there is a magic number, but it was at $55 billion based on a 13-week average at the April top in 1998, which was as high as it ever was outside the bubble years. This is a lot of supply. These are the problems: There is too much optimism. There is no doubt left about the economy, and that's a problem on the demand side. And on the supply side, the offerings bother me.

Q: What about the Federal Reserve?
A: There are questions about the Fed. I thought the Fed might sit the year out, and they still might, but there is a lot of pressure on them now. They've boxed themselves in a bit. Our research shows that the first hike the Fed institutes doesn't really mean anything. After one single hike, the market typically goes up for the next year. It is really only after a series of hikes that the Fed becomes a negative for the market. Normally, the first hike is seen as the result of stronger earnings, and that offsets any negative interpretation. But lately several Fed governors have said they thought a neutral range for the fed-funds rate [the overnight rate banks charge each other] is somewhere between 3% and 3.5%. We are not talking about a quarter-point hike. Once it looks like they have started down the road, the market is going to make the leap to the 3% to 3.5% range they are talking about. The Fed must hope the economic news is not quite as smoking as it has been so far this month.

"There's no doubt left about the economy, and that's a problem..."

Q: What do you make of the economic numbers?
A: My underlying view is there is too much debt and there was never any buildup of savings during the recession, so there is really no pent-up demand. The consumer isn't in a position to do much. That is what all the bears say. Then I sit and look at the money supply and I see that when mortgage refinancings are booming and tax cuts or tax refunds are hitting, the money supply explodes. If you put a lot of money in people's pockets, they are going to spend it. We saw that in the middle of last year. The second half of last year was the best half since 1984, or maybe 1981, when there were tax cuts. It's a guarantee that if you give tax cuts or refunds, there will be surging growth. Is it sustainable? I don't think it is. March is going to be strong. April is going to be strong. It is going to be May or June before we know if the economy is slowing a bit and, by that time, there will have been two Fed meetings already. We've been in a green-light situation for the market since October 2002 and now we have a yellow light. The tape has not broken down enough for me to say the bear market will resume, but it is definitely flashing a yellow light.

Q: Nasdaq certainly has acted badly.
A: Consistently, in a pre-election year -- we looked at all of them since 1979 -- the speculative growth stocks, telecoms, biotechs, Internets and techs -- sizzle and do about twice as well as the market. The last time we spoke Nasdaq was already up 50% from the low, and I thought it could double from there. It didn't double, but it did wind up about 93% from the low, so it had a big move. In election years, the best sectors totally flip. The sectors that do the worst are the telecoms, software and services, computer hardware and broadcast and media. Generally, presidents try to stimulate the economy so much in the pre-election year that people see there is no risk in taking a risk, and it results in a lot of speculative buying. As we move into the election year, the worry is that the economy may cook too much and at some point the stimulus will be taken away, so investors shift into more defensive stocks. Looking at the election years 1980, '84, '88, '92, '96 and 2000, the leading industry groups were energy, financials and health care. For the first quarter of this year, the three best sectors, in order, were energy, financials and health care. It is too much of a coincidence to be just pure luck. The normal election-year cycle is working here. Another interesting thing in election years -- I am not really sure why it happens -- is that January to May tends to be slightly down and very bumpy. Then the market takes off in May or June, and we have a good year. Election years do pretty well in general.

Q: But are most of the benefits we've seen from the presidential-election cycle over?
A: If you go from the pre-election low to the election-year high you get a gain of about 62%, historically. My target has been a 50% to 62% gain for the market. We got to 49% and there might still be a good chance we will go higher as the election year plays out. But I'm a little bothered here because I thought the economy was going to really pick up; I didn't realize it was going to quite cook like this.

Q: What didn't you factor in? China?
A: That has had a lot to do with it. The U.S. boomed in the late 1990s, but Japan, the second largest economy in the world and at one point a really powerful force, was in recession. The growth of the 'Nineties was actually not as good as the growth in the 'Eighties, but it felt pretty good. It was a boom in the U.S., and everybody else tagged along. Now, we are booming. Europe is growing, although not super fast, and the whole Far East and emerging markets are booming. There is a synchronized global boom in some countries that for the most part don't have raw materials. We've done a lot of studies on inflation and commodities and, when commodities boom like this, reflation inevitably booms. The difference with this cycle is that labor costs have stayed very low and unit labor costs have been dropping. Labor, of course, is a bigger cost than commodities or raw materials, and that has been an offset. Jobs are growing, and we might see some tick-up in labor costs temporarily.

Q: What asset classes are you most attracted to?
A: Frankly, I don't see anything that looks particularly attractive.

Q: What's your asset allocation?
A: We are 70% long stocks. Our investment position is still pretty bullish. My trading strategy is hedged. I'm hedging with long puts, just in case. We've had a lot of stimulus, and so it's prudent to ask: What are we going to do in the second half? Bush is having trouble getting his tax cuts passed by the Republicans, the Fed has very little resources left, and the dollar is strengthening. I don't really see the dollar being any help at all. The economy is going to slow in the second half.

Q: What about the profit picture?
A: It is still pretty good, but we are at a point now where earnings have risen so much that, based on our historical analysis, earnings growth should begin to slowdown. Raw materials will be a factor. Companies are paying a whole lot more for them. They can either raise prices, which is going to cause inflation and put the Fed in a bigger box, or they could just suffer profit-margin erosion and hurt earnings. Either the Fed raises rates or the bond-market vigilantes raise rates. Either way, companies are going to have higher debt-service costs. Earnings are going to be fine. But it's harder to see what the next level of growth is and how we are going to get there.

Q: You were lightening up on financials last year, but now you are more interested.
A: We found something very interesting about financials when we looked at them on a relative-strength basis, which is how they perform relative to the S&P 500. We found they tend to be relatively weak right into a rate hike, maybe for a week or two after that, and then turn around and start screaming. It is a funny thing, but once the financials see the Fed is serious about slowing things down, they start rallying again. That's what we are facing now. As long as a rate hike is in play, the financials are going to have difficulty. Then they'll come out of it and do well again.

Q: Many of the financials had been delivering pretty good earnings, and the market dismisses it.
A: That is another thing that is bothering me, although this happens almost every earnings season. People's expectations run so high that, by the time the earnings come in, the stocks are pricing them in already. When Yahoo! came in with earnings recently that were way above anybody's expectations, its stock responded, but the market didn't and the rest of the tech stocks didn't. That was the first sign the market was acting very poorly. The advance/decline line [a ratio of the number of stocks rising versus those falling] had been terrific up until two weeks ago, and then as soon as the economy started picking up, it started weakening dramatically, even on up days. That is not good.

Q: What about the bond market?
A: The bond market is in trouble. The economy was starting to take off last June and it really scared the bond market. There was one of the biggest drops in bonds ever. Then the fourth quarter had half the growth rate of the third quarter and the first quarter started out weak. In the middle of March, consumer confidence was in negative numbers. Bonds did pretty well during that period. Now, the economy is taking off again and they are getting hit again. We've done a study that shows when 10-year Treasury notes rise 50% from their cyclical low, which was 3.10%, the economy's growth rate is cut in half a year later. If we get to 4.75% on the 10-year, the economy would drop from a 4.5% growth rate to about 2%. A 2% growth rate takes care of a lot of overheating problems and the bonds would likely do well again. I don't own any bonds now and I'm leery of them, but if the 10-years got to 4.75%, I would be looking to buy them. We have $34.5 trillion of debt, and I don't think it is realistic that interest rates will go up that much. The debt service would just grind the economy to a halt. So the 10-year goes to 4.75%, maybe 5%, but at that point, I would be buying bonds and financials.

Q: You have been concerned about the debt level for a long time. Do people say you sound like Chicken Little?
A: I get that a lot. What I say is that at these interest rates, at 1% or 3.5% or 3.75% on 10-year notes, the debt bubble is completely manageable. But if the economy really starts booming, what happens? Rates go up and then the debt is not manageable.

Q: How soon before you expect them to raise rates?
A: I thought they would wait until after the election; I was very confident about that. But the economy has picked up so much and commodities have been so strong that I'm doubtful they are going to wait very long.

Q: How does the war in Iraq factor into your outlook, since it seems to be worsening?
A: Personally, it makes me sick to my stomach. From a contrarian standpoint, though, it is probably the one thing out there that has kept people from getting really manic and crazily bullish here. The uncertainty is going to weigh on the market. Every week, you say, "Oh my God, what is going to happen next?" We certainly didn't go there to fight a religious war, but somehow when you start killing Muslims, other Muslims see us as a Christian army, and that is very ugly. I don't want to overdo it because during the Vietnam War, we had plenty of bull and bear markets. Wars don't necessarily drive markets. But we don't need this extra uncertainty.

Q: If we have a Democratic president elected this fall, what should we expect from the market?
A: The stock market has actually done better under Democrats than it has under Republicans. Even better than a Democratic president has been gridlock. The explanation for that is neither party can do too much damage and it's just checks and balances. I'm not sure that a Kerry victory is really going to shock the market, especially because the polls now show he has got a chance. And it is still going to be a Republican Congress. In 1960, we had a bouncy first part of the year and then the market rallied in the middle of the year. When it looked as if Kennedy had a chance, the market went straight down until the election and then headed straight up for the next 12 months. It had totally discounted that a guy with the initials JFK from Massachusetts would win. That could be a pretty good pattern for what might happen if Kerry wins. Election years are normally bouncy early in the year and then the market takes off. From August to November there is a very dramatic difference if the incumbent wins or the incumbent loses. If the incumbent wins, it goes straight up. When the incumbent loses, the market goes down. In August, after the conventions, you can make a pretty good bet on the stock market. If it looks like Kerry is going to win, the market is going to go down after August.

Barron's: Thanks a lot, Ned.

-- posted by Normxxx