A guest at the wedding worried. Unemployment is rising. The stockmarket is crashing. Investors are fleeing the market. He instanced a weekend New York Times chart:
He worried the world we were leaving our kids was not what we wanted for them.
No question. But, there is good news — it’s been worse. We climbed out of much worse troughs (like the big wars) and managed handsome progress for ourselves, and (most importantly) for our kids. This time it’s taking a little longer. We’re more impatient.
Which brings me to Richard Russell’s weekend newsletter. The man is the doyen of stockmarket newsletter writers. At 85, he’s seen it all. His latest piece is ultra-pessimistic (for the short-term). He’s felt pessimistic for months and has advised all his readers NOT to go anywhere near the stockmarket. Here’s an excerpt from his latest piece:
August 20, 2010 —
“I, for one, would like to see the debate shift from class warfare over tax rates and targeted tax relief to tax reform. Either scrap the tax code and introduce a simple flat tax with no deductions, or scrap the IRS and move to a consumption tax..” From Caroline Baum, my favorite Bloomberg columnist.
Russell comment — If I was Obama, I’d campaign on my second term based on an honest tax system as outlined above. If Obama promised to scrap the current disgusting tax system, I think he might even make it to a second term. The single most hated duo in America is the IRS and our complicated, rotten, Congress-manipulated tax system.
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On to the markets. The stock market is crumbling — actually crumbling before our very eyes.
“Crumbling?” Russell, what the hell are you talking about?
I’m saying that half the issues in the Dow, the NYSE, S&P and NASDAQ have now sunk below their important 200-day moving averages. And the same is true of the big stock averages. You don’t believe it? Then let’s check ’em out below.
And the incredible thing is that even as the stock market is falling apart, the experts and the media are taking in and believing the government reports, and they think everything is bright and sunny.. It’s as if they can’t see or take in what the market is doing — the whole financial world seems to be brain-washed. “Hey, stay happy, and never mind that the stock market is coming unglued. I mean I’ve never seen anything like it.
Below is the Dow, and you can see that the Dow has bearishly plunged below both its 50–day and 200-day moving averages.
Next, is the widely-followed S&P 500 — same bearish juxtaposition.
Below is the NASDAQ composite.And down she goes, bearishly below both moving averages.
Next, we see the Russell 2000 small cap stock average. Same bearish story.
Here we have the NYSE Composite, which includes every stock on the Big Board. The same ugly, bearish story.
Here’s the stock run by the famed “Oracle of Omaha.” Warren Buffett recently announced that stocks “are a buy.” Russell says the Omaha Oracle is wrong. I show Berkshire is sinking below its 50-day MA.
I’m looking at yesterday’s Investor’s Business Daily. On the front page is an article with the headline,”Deflation Risk Not Worth Hype. Not turning Japanese. Analysts really think so, stressing that inflation is tame, but isn’t dead.”
In other words, according to IBD, the idea of deflation is a far-fetched fantasy. You see, it’s just low inflation that we’re looking at.
The Russell opinion. It’s the markets that are telling the real story, not the analysts or the government..Believe me if the stock market continues the way its been going (particularly if it crashes) it’s going to scare the living hell out of America’s consumers. If consumers freeze up, you’re going to see all the deflation you want. So who to believe, the analysts and economist or the stock and bond markets?
By the way, bond yields are shrinking almost daily. The bond market is smelling deflation. When bonds smell deflation, rates collapse and bonds move higher. When bonds sense inflation, rates go up and bonds sink. Many bonds are now sporting their lowest yields ever. They smell deflation.
At this point, who’s running the nation? It’s not Obama, it’s not Geithner or Bernanke, it’s not even the Fed — IT’S THE MARKETS. And we’ll watch ’em as intently as a barn owl watches a mouse.
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China — And how about this? Why worry, China with its huge consuming capability will save us.And the Russell answer is “Who’s going to save China? The chart below shows the FTSE China 25 (comparable to the Dow) breaking below both its moving averages. Exit the dragon.
A final take — It’s simply uncanny to see the stock market (most stocks) falling apart while the media and the government tells us that “things are looking better.” It’s as if the nation is watching a horror movie and is reacting with a case of the giggles.
As for Richard Russell, he’s resting easy. I’ve been urging my subscribers to “clean house” and be OUT of all stocks. I think (hope) I’ve got a lot of happy, solvent subscribers, which is exactly what I want as this market teeters on the edge of an historic collapse.
Question — Russell, recently you wrote up certain utilities as a source of income. What are your latest thoughts now?
Answer — My thoughts now is that I want subscriber OUT of all stocks and bond except for gold and gold items. Before this bear market is over, it’s going to take down everything. We’re in cash and gold, and probably less cash as time goes along.
Little bottles can make you rich. They’re been one of my continuing themes. Here’s a collection of chilli bottles I found at a country store in Vermont.
Here’s a closeup of the most creatively named ones:
Why it’s all worthwhile.
Saturday, wedding day. Susan, Michael, Anne and myself. The mother looked great. The son and bride floated three feet off the ground. I cried.
We’re so happy to have Anne as part of our family. The rest of her family is pretty neat too. There are lots of them. Our universe is expanding wonderfully.
To keep your marriage brimming by Ogden Nash
To keep your marriage brimming,
With love in the loving cup,
Whenever you’re wrong admit it;
Whenever you’re right shut up.
Michael’s cousin, Dan, read the poem at the wedding.
If wear glasses I can actually see. What a revelation!
What a great place to have a wedding. Thank you, Pittsfield, Vermont.
Congratulations Harry.
I am very much for tax reform with the FairTax bill HR 25. One consumption tax to repeal the IRS income tax, Social Security and Medicare taxes(no changes to the programs), capital gains tax and estate tax. Plus it offers a broad range of solutions to many existing issues.
* Get your whole paycheck without federal withholding and tax fillings
* Taxes the under ground economy; including illegal aliens, drug dealers and present evaders
* Stops punishing good behavior like income, profits, savings and rewarding bad behavior like debt; opposite of present tax code
* Takes hidden business taxes actually paid by final consumer out of our pricing system, $.23 in ever dollar of purchase, to lower prices and improve US exports
* Will create jobs, stimulate GDP 10% and attract $10 plus trillion in offshore capital to US with a “no cost” stimulus plan with only a change in tax code
* Dramatically lowers middle and lower income effective tax rates
* Be able to earn, save and invest freely without tax; but be taxed on consumption as you enjoy and spend your wealth
* Greatly reduces political power to use tax code to reward and punish, divide and conquer…and hide and deceive.
* Raises the same $$$ tax revenue as 67,500 pages of code with a simple and transparent consumption tax
To learn more about the FairTax visit http://www.fairtax.org.
May the grandchildren come soon….
With all due respect to Richard Russell and technical analysis (astrology-IMHO), look at the equity fund flow chart you put at the beginning of your commentary for a contrary approach. For example, all the inflow was with equities in 2000 before the bubble popped. Perhaps make an opportunity of the current fear and loathing to “go where few men have gone before.”
Congratulations Harry. I remember your first rule of investing… family.
Mark Cuban has a good article today on why to get out of the stock market http://bit.ly/9Rf1cc
The duration between Investor, Imitator and Idiot has shortened considerably.
Beautiful. I cried at my son's and will cry at my daughter's. Only thing better was standing with my son as he held his first born. Suddenly, the circle was even more understandable for him and me….