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Richard Russell snippet
Dow Theory Letters
Posted Sep 29, 2014

September 25, 2014

On yesterday’s site, I described the technical and fundamental mish-mash that now confronts us. I note that I’m still receiving advisories with long lists of stocks to buy. It’s not easy to make money when the trend is obscure. Along these lines, I note the thousands of hedge funds have thrown in the towel. CalPERS, an enormous California pension fund, has eliminated all the hedge funds from its portfolio.

One trouble with this business is that people won’t stop talking and advising even when they don’t have the slightest idea of what they’re talking about. It’s no mark of shame to admit that you are clueless, which is about where the investment industry finds itself today.

I note that there are five distribution days on the Nasdaq and three on the S&P. This is subtle evidence that institutions are quietly exiting this market.

The dividend yield on the widely followed S&P Composite is now at an historic low of 2.1%. This alone provides fuel for caution. For those wishing to avoid white knuckles and sleepless nights, I continue to suggest holding real constitutional money, better known as silver and gold. I thought of the Forty-Niners, who staked their futures on the hope of finding gold in the West. I thought of the prospectors who withstood freezing winters in their quest for gold in Alaska. Yet the wonder is that in a single generation, the Federal reserve has turned gold into an item of loathing. If you repeat a lie often enough, people will believe it. With the help of paper gold manipulation, the Fed has turned the public against constitutional money.

Gold is built into the DNA of mankind. My own conviction is that the Fed has committed one of the greatest crimes in economic history. Despite the anti-gold propaganda, gold will be the last currency standing. Buy gold while you can.

Suddenly, we’re dealing with a new Barack Obama; in a nutshell, he’s saying that he’s “had it.” The various Muslim factors are standing aside and watching the murderous ISIS gang have its way. Obama is saying that the US will do its part from the air in degrading ISIS, but the other Muslim factors must get together and stop ISIS on the ground. Furthermore, if ISIS directly menaces the US or its citizens, it will be stopped by whatever means are needed. This includes massive force which hints at atomic bombs.

Thus, the new Obama has made his case. The US will do its part in the air, for halting the murderous men of ISIS. The US is now upgrading its nuclear capabilities and if the US is directly menaced by ISIS, the tremendous power of the US military will come, if needed, and be used by the US to halt and dismember ISIS. ISIS, by its operations, is giving Muslims a fearful and horrendous reputation. At this point, it is up to the Muslim nations to stop ISIS. If the US must do it alone, so be it, says the new Barack Obama.

Turning to the market, the Dow has penetrated the 17,000 “support area” for the second time. The fact that the Dow has violated 17,000 twice eliminates 17,000 as a true support area. 17,000 now becomes upside resistance and 16,000 become the new target. The Dow has recently recorded new highs unconfirmed by the Transports. This makes the current decline rather ominous. Is it a stumble, the beginning of a correction, or the start of a bear market? At this point it is impossible to tell.

The whole universe of gold has firmed during the session. The upside bullish target for gold is above 1232 and more importantly above 1250 on a closing basis.

The P&F chart below shows the enormous base that is building in gold. The latest decline to 1217 has rendered gold oversold; any three box reversal to the upside will be bullish and significant.

(Click on image to enlarge)


Miscellaneous: It now costs 1.6 cents to produce each penny, thanks to the high price of zinc, which makes up 97% of each penny.

Is a college degree worth it? A new study from the Federal Reserve Bank of New York shows that workers with a bachelor’s degree typically earn around $300,000 more over their careers than workers who just hold a high school diploma.

The share of elderly Americans with student load debt jumped to 4% in 2010, up from 1% in 2004. But 20% of the oldsters’ student debt comes from loans they took out for their children. Thus seniors are more likely to hold defaulted loans than younger borrowers, making them more vulnerable to aggressive collection efforts. These include garnishment of their social security benefits, the prime source of income for roughly three quarters of single seniors.

The vast majority of millennials hope to one day be homeowners. But many are mired in student loan debt.

Russell comments – my God, when you look at the actual figures, the country is about broke.

The word is that millennials, failing to get even entry level jobs, are hanging out in their parents’ garages rather than marrying. Survey after survey shows that of Americans aged 18-34, only about 9% say they do not ever want to marry.

Sometimes I think I should be writing a book of short stories instead of writing about the markets. About half the e-mails I receive are requests for more WWII stories, or stories about my youth in Manhattan. Growing up in Depression era Manhattan was a most unusual experience. The Roseland Ballroom charged ten cents for a dance with a pretty “taxi dancer." In the summer I would ride out to Atlantic Beach with my good buddies, Wayne and Julie Marcus, and their gorgeous blond sister, Suzanne. Suzanne was a Vogue model and the Marcus boys both had a seat on the NYSE. Wayne had been a US Marine and was one of my best friends. We used to ride out to Atlantic Beach in the summer, park the car, and then climb over the fence into a swanky country club (this was about 4 am). Then we’d all strip and dive naked into the cool Atlantic Ocean, screaming and laughing like four out-of-our-minds two-year-olds.

Late Notes -- A few minutes before the close, the Dow is down over 220 with Transports down 101. Friday closes are always revealing and significant, and guess what—tomorrow is Friday.


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

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