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The Desperados
How do I see the picture in the USA today?

Richard Russell
Dow Theory Letters
March 8, 2004

How do I see the picture in the USA today?

Two men, each desperate to prove something.

The President, George Bush Jr., took over the presidency still seething over his father's "failures." Dad's first failure was allowing Saddam to escape Scot-free during the Gulf War. The second and even worse failure (for shame) was dad's failure to win a second term as president. The second failure was a result of the Fed clamping down on the money supply and squeezing the economy. Result -- a little recession. That wasn't going to happen this time, even if George Jr. has to personally wring Alan Greenspan's scrawny little neck.

So George Jr. vowed to "repair" his dad's first failure. From the beginning it was war with Iraq and capture Saddam. Now we're in the second phase -- re-election. George Bush Jr. must, at all costs, be re-elected to a second term. Failure is not an option. He must not fail. He absolutely MUST be re-elected.

The other man I refer to is Fed Chairman Alan "Easy Al" Greenspan. Greenspan is desperate to repair, or I should say gloss over, his enormous failure to recognize the stock market bubble of the late-90s. Now Greenspan must address his legacy. So we hear the Greenspan nonsense which runs -- we can't recognize a bubble until after it bursts; therefore we can't do anything to halt a bubble. Our true job is to confront the damage a bubble can do -- AFTER it bursts.

Thus we have the unprecedented spectacle of the Fed driving rates down to a 45-year low while flooding the economy with liquidity -- all in a desperate effort to thwart or at least hold back the natural and normal forces of the bear. But the jobs, the jobs, where are the blasted jobs? Alan can hear it in his tortured sleep, "It's the jobs, stupid."

Result -- Over a trillion dollars in liquidity, federal deficits of $1.7 billion a day, and a host of new Fed-created bubbles -- bubbles in stocks, real estate, bonds, inflation and -- debt.

That's the world today as Richard Russell sees it. That's the reality of USA 2004.

Next, let's take it through the weekend with two P&F charts. The first is the Dow. What we see is a consolidation (or is it a distribution?) pattern A bullish upside breakout would entail the Dow climbing to the 10800 box. A bearish downside breakout would entail the Dow sinking to the 10400 and more decisively to the 10350 box.

Meanwhile, stock volatility has collapsed. The seven-year low level in the VIX hints that we may not see a breakout either way -- for a while.

The second P&F chart depicts HUI, the widely-followed Gold Bugs Index. Like the Dow, HUI has been holding bullishly above its blue rising trendline. HUI, like the Dow, is currently in a consolidation pattern. A breakdown would entail HUI sinking first to 216, then to 208 and more decisively to 204.

A bullish breakout to the upside would require HUI to rise first to the 244 box, and then to a new high at the 260 box.

And that winds up my weekend report (written at 4:00 AM, Saturday morning).

Now for 20 minutes on my StairMaster, some breakfast with Faye at 6AM at "Harry's" restaurant, maybe a quick trip to the cactus garden - and then I'm free for the weekend. How about that?

Wait - one more item.

My best to all my beloved subscribers.

Your buddy from lovely, exotic La Jolla,

The R man.
Richard Russell
Dow Theory Letters

© Copyright 2004 Dow Theory Letters, Inc

Richard Russell began publishing Dow Theory Letters in 1958, and he has been writing the Letters ever since (never once having skipped a Letter). Dow Theory Letters is the oldest service continuously written by one person in the business.

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