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The creature from another world

Richard Russell snippet
Dow Theory Letters
Jul 12, 2006

Extracted from the Jul 11, 2006 edition of Richard's Remarks

I wrote on yesterday's site that I was going to say a few things about "the amazing spending machine" which we call the US consumer. Personally, I was never a spender. I guess it's because I come from a different world, the world of the Great Depression -- this was the world in which a dollar was hard to come by and a good dinner cost 75 hard-earned cents. It's difficult to break old habits, and I'm talking about habits like turning off leaky faucets or making sure all the lights are out before you go to bed. I never could get used to spending more than I was earning or taking out loans on a car or buying a house with a mortgage attached. So when I write about spending, you have to take it with a wee grain of salt.

But I have grown-up kids, and I see the way they spend. I used to lecture them about spending, but I gave up a while back because talking about the ridiculous price of a cup of coffee at Starbucks gets boring, and my kids couldn't relate to "a nickel cup of java" anyway. I guess talking about "expensive coffee" just makes me sound like "the creature from another world," and maybe that's what I really am.

From what I gather, Americans on the lower 50 percent of the economic scale are having a tough time. Their wages haven't kept up with inflation, interest they pay on their credit card debits is rising, college tuition and medical expenses are surging, and their mortgage payments are steadily rising, particularly if they took Alan Greenspan's advice and chose a variable rate mortgage. During this year and next year about $2 trillion in variable-rate mortgages are due to be reset, and that should put a squeeze on the "bottom 50 percent's" spending. If that doesn't put pressure on them, the current price of gasoline and will make them think twice about taking that thousand mile vacation trip in the family SUV this summer.

The government puts out glowing figures on the growth of the US Gross Domestic Product. And of course, a large portion of this "growth" is simply the US public taking on more debt. Total US mortgage debt is now about $9 trillion, and in case you weren't aware of it, that's one gigantic load of Federal Reserve Notes that America's consumers owe to the banks and the savings & loans.

...But big money is coming back into gold. The daily chart of GLD below shows gold closing above its blue 50-day moving average. Since the 50-day MA is above the 200-day MA, and gold today broke out above both MAs, this is what I term a "moving average buy signal."

Wife Faye likes and puts more trust in the weekly charts, and she's probably right. So let's take a gander at the weekly chart of gold below. Gold bounced off the red 40-week moving average, and today gold closed above its blue 10-week moving average. RSI has turned up, and the histograms have contracted toward zero for three successive weeks. So weekly gold looks excellent.Prognosis -- we wit with all things golden.

lots more follows for subscribers...

Jul 11, 2006
Richard Russell
website: Dow Theory Letters
email: Dow Theory Letters

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