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Imaginary Profits

Richard Russell
Dow Theory Letters
Apr 8, 2009

April 7, 2009 -- The market situation has seldom been more confusing. Many analysts are convinced that we are in a new bull market. Others (me included) believe we are in a bear market correction (rally).

Because of the confusion, I'm going to step out and make a few guesses (might as well, since nobody really knows what's going on).

(1) I believe that we're in a secondary (upward) correction of a bear market. I'm going to guess that this correction could rise further or at least last longer than most people are expecting. A bear market rally is supposed to convince the majority that a new bull market has started. The rally will often continue until a large number of investors are back on board, and then the bear will kill them as it fades away, leaving the new optimists high and dry and with losses.

(2) Gold is in a downward correction of its primary bull market. Gold may decline or stall until it convinces the majority of gold-fans that the gold bull market has died. Holders of "paper gold" and gold futures and options will be frightened out of their holdings. What we're experiencing now is the big correction that often occurs prior to the third speculative phase in gold. Holders of physical gold (coins, bars) will do best, since they will tend to hold on to their gold positions no matter what.

So what are the markets trying to do? They're doing what they always do, keep investors in the bear market and keep investors out of the gold bull market. Why would they do that? Because that's the very nature of markets. Markets tend to thwart the majority. And that's logical and self-evident. If markets existed to make money for the majority, then most market participants would be millionaires, and we know that sadly, that is not the case.

Markets can be compared with gambling at Las Vegas. When you gamble at Vegas, you are bucking the house odds. Which is why if you play long enough at Vegas, you will always lose your money. Vegas is stacked that way. Las Vegas is constructed to separate players from their money. The stock market is a bit classier. When you buy stocks, you are at least buying something. It feels good to say, "I bought 500 shares of Johnson & Johnson."

When you put your money down at Las Vegas, you are not buying anything, but with a slim chance (the odds are against you) of winning more than you put down. Las Vegas is one of the few places where you pay your dollars, and are guaranteed to receive NOTHING of any value. "Gambling is a tax on people who don't understand money," that's my favorite adage about gambling. Investing in the stock market is a long-term tax on people who want something (profits) without doing any real work for those imaginary profits.


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

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