Secret Thoughts

Richard Russell snippet
Dow Theory Letters
Mar 19, 2008

Extracted from the Mar 18, 2008 edition of Richard's Remarks

March 18, 2008 -- Today the Fed cut the benchmark Fed Funds rate 0.75% to 2.25%. The market's reaction -- super-bullish!

One thing I've learned over the years is to check my own potential biases when writing about the markets. Ideally, I "should" be totally impartial, but believe me that's hard to do. You see, there are those secret thoughts that tend to interfere with one's objectivity. Occasionally, I'll draw two columns, and I title one -- "Richard wants the market to be bullish," and the other, "Richard wants the market to be bearish."

Let's see how it works out. On the bullish side of the ledger I'd like the market (and the economy) to be bullish because of my kids. Son Ryan has just opened a restaurant in San Francisco ("The Tinderbox"), and obviously a good economy would help Ryan's business. Daughter Lauren has moved to NYC and taken a job with a leading publisher. A good economy would help Lauren keep her new job. Daughter Daria is teaching here in San Diego, and California has threatened to fire hundreds of teachers. A good economy would probably forestall any firings. Finally, daughter Betsy is an actress and good times mean more movie offers and better times at the box office.

What about my secret bearish wishes? On the bearish side -- I'm selfish and I'm mean. I say that because I'd like to see the stock market hit another "great value" bottom like the ones we had in 1949 and 1974 and 1980. I'm still heavily invested in T-bills, and I'd love to be able to swap my T-bills for a collection of blue chip stocks selling at 6 or 8 times earnings all paying fat dividends of 6 percent or better. So on balance I think I've been pretty much in the middle about this market -- I haven't been committed to either the bull or the bear side. But to the extent that the Transports would not confirm the downside, I'd say I've been cautiously bullish.

We're now into the middle of March and the picture is still not totally clear. The market direction has appeared to be down, but wait -- not so fast. There are a few items that should give all the bears something to think about.

The first item is that the Transports closed today a huge 566 points above their January 17 low. If you believe in the Dow Theory, then you've been observing a flagrant non-confirmation. That's bullish..

Next observation -- on January 22 there were 1,114 new lows on the NYSE. Yesterday we did have a big 764 new lows, but that's a good deal less than 1,114. It appears that fewer stocks are breaking support on each downward plunge, and that's bullish.

The third item concerns the absolute avalanche of bad news that's been hitting the market. And I wonder, how much rotten news would it take to knock the Industrials and Transports to new lows? I mean a housing recession, consumers cutting back, a large bank failing, the dollar collapsing, auto sales fading. What would it take to drive both the Industrials and Transports to new lows -- a mile-wide comet hitting NYC? So always that question -- could the lows for this market have been seen in mid-January? Could the stock market have discounted the worst during the January 17 to 22 period?

You see, that's the question that I've been asking all along. Yes, a lot of people have thought "Rusell is smoking something funny," but I'll stick to my thesis. I continue to believe that the stock market could have recorded its lows during the January 17 to 22 period.

...I just heard that Goldman replaced Abby Cohen as their leading economic spokesman. Abby meant well, but she was always optimistic, never varied. She was optimistic one time too many, and Goldman finally said "Bye" to Miss Abby.

Stream of consciousness -- Goldman to the gold man to gold. Below we see a P&F chart of GLD, the exchange traded fund for gold. It does look a bit extended, don't you think? GLD could correct back to the 95 box and still look bullish. Of course, every gold-bug would love to see gold hold stubbornly above 1000, but today's action dashed those hopes. I've been a bull on gold ever since 1999, and I've never tried to time the moves. My a theme song has been, "Ride the gold-bull and don't let it buck you off," and so far that's been the way to go. I've always maintained that the hardest thing to do in this business is to get into a bull market early, stay with that bull market, and ride it to somewhere near its final top.

I don't believe we've seen the phase of frantic global gold-buying yet. That phase, I'm convinced, lies ahead. The gold bull market should wind up with some eye-opening fireworks. It should end up in a state of speculative fever. Or as my old-timer subscribers remember, "There's no fever like gold fever." Believe me, we haven't seen the gold-fever yet -- at least not during this bull market.

Some of the nation's conservatives are giving poor Bennie S. Bernanke a hard time. They accuse gentle Ben of going all out to avoid a recession while giving inflation the "go ahead." Ben's answer is that the current economy is so bad that inflation won't be a problem. Of course, what Ben is thinking is that he can halt inflation if he has to, but if deflation takes over it's doubtful if he can turn it around. And right now (he's thinking of the Japanese experience and the Great Depression) Bernanke is doing everything he can to avoid a crushing deflation. And who can blame him -- certainly not the politicians who are running for office, and certainly not America's frightened home-owners.

lots more follows for subscribers, and subscribing is a MUST.

written Mar 18, 2008
Richard Russell
website: Dow Theory Letters
email: Dow Theory Letters
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