July 12th, 2012
I just had to share this daily post from Richard Russell, one of the many financial experts I read. Richard is 87, I believe, and he posts every weekday on his website. He is one of THE most respected financial experts in the world, and is read by heads of state, Fortune 500 CEOs, and nearly every on-the-know person interested in financial markets. I have been reading him for about 30 years, and he isn’t often wrong. His website is www.dowtheoryletters.com. I take his opinions very seriously. Please read:
July 12, 2012 – Some of my new subscribers may think that I enjoy bear markets. Believe me, nothing could be further from the truth. I have five children: four girls and a boy; I have two ex-wives, and a sister who is four years younger than I am. I feel responsible for all these souls, and the last thing I need is a brutal bear market to struggle with.
I also have a real allegiance to my subscribers, many of whom have been with me for over half a century. In view of all the foregoing, I can say with full honesty that I don’t enjoy or look forward to bear markets.
I say this with the knowledge that “whatever can go wrong, tends to go wrong in a primary bear market.” And we are in a bear market — one that ultimately may turn out to be the worst in history.
I assume that most subscribers were surprised by yesterday’s site, in which I wrote about the US unilaterally raising the price of gold. By now, everybody knows about the danger of our nation continuing on its current path. Aside from the “fiscal cliff” coming up, our whole politico-economic set-up isn’t working. Something drastic must be done — such as a new monetary system, and a new government set-up. The fact is that our Congress isn’t functioning intelligently — in fact, it just is not functioning. Congress is disgustingly corrupt and much of Congress is in the grip of lobbyists. Too many people enter Congress medium-poor and leave Congress rich. The President spends far too much time running for a second term. We should elect presidents for a single six-year term, and then the president should go home and do something else, that hopefully, is useful. The Supreme Court members should be elected, not appointed.
In other words, our whole system is, today, tied up in knots; it’s just not working. We need a non-corrupt political system and a new monetary system. Personally, I’m in favor of any system that actually works on an honest and sustainable basis. Our current system doesn’t work. If it did work, we wouldn’t be in the God-awful mess we are in now. And no, I don’t enjoy bear markets. And I don’t enjoy bull markets that ultimately take stocks far above known values, followed, usually, by a crash.
The old gold standard worked reasonably well. It forced monetary discipline on the nation. The Federal Reserve is an abomination. The nation ran for many years without a national bank, and it was never in the fix it is today.
The Fed is a monopoly run by bankers, for bankers. It should be abolished. Well, there’s no sense in my going through the whole government piece by piece.
The gruesome fact is that this country is not running in a way that is sustainable. As it is, we are leaving our children and grandchildren with a debt-choked nation that is technically bankrupt. We’ve substituted fiat, man-made paper notes for gold. Our whole nation is in hock. Cities, counties and states are now bankrupt and are unable to pay their bills. Raising the price of gold is a stop-gap measure. We’ve got to toss out what doesn’t work, and go back to the drawing board. And if that’s what a bear market will do for us — then let it rip.
But it won’t be that easy. When a nation has a fundamental disease, nobody (certainly not the voters nor the politicians) wants to take the pain of a real, honest, bear market cure.
Subscribers ask me how we could unilaterally raise the price of gold. Easy, one day the president (Roosevelt did it) announces, “The price of US gold is now $4,000 an ounce.” Period.
Three of California’s cities — Stockton, Vallejo, and San Bernadino — have filed for bankruptcy. What about their muni bonds?
Last Friday, the city of Scranton, Pennsylvania, sent out paychecks to its employees, as it does every two weeks. But these checks were for amounts significantly smaller than usual because Mayor Chris Doherty reduced all city employees’ pay — including his own — to the state minimum wage of $7.25 an hour.
I note that new highs on the NYSE are dropping off with each new day. Today there were only 107 new highs.
Of the 19 sectors that Dow Jones posts each day, 16 were down today, signifying broad weakness. The VIX is still low, at below 19, and calmness and confidence is apparently the order of the day. Today, with such low volatility, it’s inexpensive to buy downside protection (puts). The thought is that if there is any danger, the Fed will immediately act. Thus traders feel safe, which is one reason the VIX is so low. This is a very professional market. Joe six-pack and his wife are not in this market. They’re still in shock (if not broke) following the 2008 crash..
Is history repeating? This is the longest job recession, 53 months, since the Great Depression. The Midwest is suffering the worst drought since the “dust bowl” of the 1930s. The movies are showing the scariest stories since the 1930s. Then it was Dracula, now it is vampires. Then it was the birth of radio and news beamed across America, now it is the birth of the Internet and news beamed across the states and the world.
[This is not Russell's entire daily post, but I thought was important that you read it. His subscription isn't cheap, but well worth it. Consider subscribing if you can afford it.]