Dreams only last the night

Richard Russell snippet
Dow Theory Letters
Dec 16, 2010

December 15, 2010 -- Big bull markets are rare, particularly bull markets that span the years or even the decades. Such bull markets may arrive once or twice in a lifetime. If you're lucky enough or intuitive enough to spot one, you have the makings of a fortune.

It's extremely difficult to identify what could be a great and extended bull market. It's just as difficult to enter early in such a bull market and ride it all the way to somewhere near the top. But it can be done. My old mentor, the great George Schaefer, identified the beginning of the fabulous bull market of 1949 to 1966. George entered that bull market in June of 1949, the very month that it started, and he rode it, along with his subscribers, to somewhere near the 1966 top. George used every correction in that bull market as an opportunity to add to his portfolio, and he reinvested all incoming dividends. As a result, he made many of his subscribers wealthy beyond their wildest dreams.

Now we're witnessing another such primary bull market. This bull market in gold started around 1999 when gold was selling for 259 an ounce. I did my best at the time to push my subscribers into buying gold stocks (which, at the time, were selling at pitifully low prices) and into buying gold bullion. At no time since then have I ever suggested that we sell our gold items. Nor do I suggest that now.

Throughout history gold has moved to the strong, and that's still the case.

When World War II ended, the US literally "owned the world." We came out of the War undamaged and with the finest production and creative facilities on earth. But we got lazy and we forgot how to compete, and we forgot how to save. We had the best standard of living in the world, and we wanted even more of it; but we didn't want to pay for it. Instead we borrowed. But we had one fabulous advantage, with our Federal Reserve we could create our own money out of thin air, and it was money that the world respected and wanted, even though (after 1971) it had no intrinsic value. We built debts that were denominated in our own money, money that we created out of an accounting book. It was "magic money."

But economic magic, like the Houdini's magic, is built on an illusion. Our illusion was that our good life and great standard of living could go on forever -- without our ever paying for it. And the rest of the world went along with our dreams. But dreams only last the night.

Now we're moving into "pay-me-back" time; the bills must be paid. Yet our illusions continue. We think we can continue to maintain prosperity by creating more and more of our fiat money. We think we can buy our prosperity by printing ever-more money. But the world is ceasing to buy our illusion. The ironic fact is that only our own stock market is buying our illusion.

And as the dollar slides in international value, sophisticated investors and frightened central banks around the world are substituting their dollar reserves with a currency they can trust -- gold.

And as far as timing all of the above, it's probably around the middle of the story. The last quarter to a third of the story lies ahead. We've done it all with our magical, cost-us-nothing, money. BUT...

I've said all along that money that is made "legal" by fiat is illogical, it's immoral, it's a fantasy, it's counterfeit, and it's against the great Constitution of the United States. My advice; "Like rotten food, spit out the fiat money -- and go for the real intrinsic money -- gold."

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Richard Russell
website: Dow Theory Letters
email: Dow Theory Letters
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