Do I have enough gold?

Richard Russell (big snippet)
Dow Theory Letters
Mar 9, 2009

March 6, 2009 -- This is one big, angry, nasty grandpa bear. Thursday's losses wiped out all of Wednesday's gains. Yesterday was the second 90% down-way this week. Breadth on the NYSE was awful, 12/1 or 12 stocks declined for every lonely one that advanced according to Dow Jones, 747 stocks on the NYSE closed at new lows yesterday. 3166 stocks were traded yesterday on the NYSE, and this means that 23.5% of all the stocks traded yesterday on the NYSE broke to new lows. Almost one out of four! Awful! To top off this grisly action, all three D-J Averages, Industrials, Transports, Utilities -- broke to new lows simultaneously. Talk about harmony on the downside, you're seeing it. Incidentally, the Dow has been down 12 of the last 14 days (85.7%). Remarkable.

Below is the updated point&figure chart of my PTI. It's a falling stone.

I thought the piece below was interesting and worth taking in.

March 5 (Bloomberg) -- U.S. government plans to spend more than $11.6 trillion to revive the economy are going to accelerate the pace of inflation and send raw-material prices surging, said Michael Pento, the chief economist at Delta Global Advisors who correctly predicted last year's commodity collapse.

The CHART OF THE DAY shows expectations for U.S. inflation during the past two years have anticipated changes in commodity prices measured by the Reuters/Jefferies CRB Index. In May, the Reuters/University of Michigan survey of consumers' expectations for five-year inflation climbed to the highest since 1995, and by July, the CRB index had surged to a record.

Inflation expectations tumbled in the second half of last year, and by December had reached the lowest since September 2002. During that period, the CRB had its biggest six-month decline since the index was created in the 1950s. Expectations for inflation have since rebounded, signaling commodities will climb, Pento said.

"The government has created a massive increase in the monetary base, and it means we are entering a massive inflation cycle," Pento said in a telephone interview from Holmdel, New Jersey. "Inflation will be intractable. All of these commodities will start to act as an alternative to currency and start to pick up. Gold should be the primary investment, and energy and base metals should be second."

Gold -- Gold came down to test its rising trendline. It hit the trendline and rallied over 20 points yesterday, not that there's anything wrong with that.

I showed this same study on yesterday's site. But just in case you missed it, here it is again. Gold or GLD -- made three attempts (red arrows) to break out of the upper trendline of this large "flag). On the third attempt, gold broke out above the trendline, which is promising action.

Russell's instinct and observations -- I've asked around a lot, and from what I gather, I'd say that most people have not sold their stocks. Most are convinced that there's a bottom in the days ahead, and that the next "big rally" will recoup at least part of their losses. I think this is hopes and wishes. I don't see anything in my work that hints of an important bottom. The losses in this bear market so far, have served to allow many to reason that "it's been so bad, these losses can't continue, and that it's time for a big recovery."

Since October 2007, when the bear market started, the Dow has given up an amazing 7,640 points. I'm looking at the market now. The Dow is at 6512. At this price, the Dow has lost more than half of all its gains since its lowest point in the Great Depression, which was 41.22 recorded in July 1932.

The stock market doesn't live in a vacuum. This huge decline in less than two years is telling us (me) something. It's a warning. I think it's a warning of very hard times to come, maybe as difficult as those times we saw during the Great Depression.

I know that I stand pretty much alone with this scenario. I don't think most Americans see or even envision the potential danger ahead. They don't believe in the "truth of the stock market." Over 60 years of studying the stock market and the economy, I've learned to believe the "language of the market."

One problem -- If you're 70 years old or younger, you've never seen really hard times. You probably doubt that they even exist. Believe me, they do.

I know that great bull markets and great bear market tend to overrun at the extremes. Let me leave you with one thought -- prepare for the extremes. Just as the bull market that ended in 2007 rose to the extremes, I believe this bear market will go to the extremes. At the end, the market and the economy will be worse than even the bears envision. The worst thing you can do now is to be complacent. Most Americans at this point have done nothing to change the same complacent, "normal" life they have been living over recent years. If today you are relatively debt-free, stay that way. If today you have no savings and much debt and you're living over your head -- change something, do it now while most Americans are still innocent and complacent.

"When coming events cast their shadows before, those shadows fall on the New York Stock Exchange." - William Hamilton, Pioneer Dow Theorist and author of "The Stock Market Barometer." Russell Comment -- The shadows are already falling on the NYSE.

I just received the latest issue of Rolling Stone magazine. The cover features an article by Nobel Prize winning economist Paul Krugman. Here the title, "Obama's Bailout. The Nobel Prize winning economist says there's only one problem with the President's $787 billion stimulus plan. It isn't big enough." Russell response: Good Lord, they'll be spending more. My first thought -- "Do I have enough gold." The budget deficits are going to be mind-blowing.

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