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Richard Russell
March 17, 2010 — March 16 (Bloomberg) — Federal Reserve officials repeated their pledge to keep the main interest rate near zero for an “extended period” and confirmed that emergency measures to prop up the housing market will end as planned this month. While the economy has “continued to strengthen,” policy makers noted that “housing starts have been flat at depressed levels” and “employers remain reluctant to add to payrolls.”
Russell Comment — The Fed is bullish about the economy — but NOT THAT BULLISH.
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The great bull market in gold has been in force for almost a decade. I’ve shown where gold, since 2000, has closed higher for nine consecutive years. During that time gold has advanced from prices in the 200s to its current price of approximately 1124.
Now suppose the stock market had done the same thing. Can you imagine the frenzy that would be greeting stocks today? Yet, incredibly, the fantastic bull market in gold has elicited little or no excitement from the US public. Go to your favorite local store, buy a few items and try to pay for those items with an American gold eagle coin. The clerk will stare at the coin and likely say, “Sorry I can’t accept that for payment, we only accept dollars. By the way, what is that pretty coin?”
It’s truly remarkable. Within the space of three or four generations Americans no longer even recognize Constitutional money! I’ve said before that gold is imbedded in the DNA of mankind. We’re closing in on the time when, like a light bulb turning on, Americans will finally realize that they’ve been hoodwinked by one of the greatest swindles in the history of civilized man. They’ve been working and saving printed paper with the firm conviction that the paper they worked so hard for was money. Wait, why is that printed paper worth anything at all? It’s worth something simply because the government has pronounced by fiat that dollars are “legal tender for all debts, public and private.” So the “dollars” that we work our whole lives for, is backed by nothing but the “full faith and credit of the United States.” And how good is that credit? Two credit agencies are now threatening to lower the rating of US bonds. If that happens, it will be a monumental shocker? And yes, all sovereign money is now being judged and classified as to its worth. Did anyone ever gauge or debate the value of gold? As I see it, we’re watching the very beginning of the end of fiat money.
As we approach the era of suspicion about fiat money, knowledgeable investors will increasingly seek the safety of real, intrinsic Constitutional money — gold.
And the great irony is that highly-placed but ignorant “experts” continue to denounce gold as a “useless relic.” In the face of this pathetic propaganda, the price of gold continues to rise in terms of fiat money. Actually, the price of gold doesn’t change. It simply takes more dollars, more reals, more rubles, more bahts to buy one ounce of gold. What this really means is that fiat money in all its varieties is being devalued in terms of real, intrinsic money — gold.
I’ve said all along that the primary trend of the market cannot be halted or reversed. However, the Fed, Ben Bernanke and the Administration believe that with enough quantitative easing and enough stimuli the bear market can be halted and even reversed. Ah, but there’s the matter of “unintended consequences.” What are those unintended consequences? In their frantic efforts to avoid a painful and politically-unacceptable depression, the Fed and the Treasury and the administration have placed the very credit of the United States in jeopardy. They have loaded the US with the greatest mountain of debt the world has ever seen. Ultimately, this will lead to a different monetary system. And ultimately, the US public will be enlightened about the fraud of fiat money. And lastly, it will lead to a frenzy to own gold. Those of my subscribers who were with me during the 1970s probably remember this phase, “There’s no fever like gold fever.” Before this bull market in gold is over, I believe you’ll be hearing that phrase again.
Question — Russell, why do you continue to emphasize gold when for weeks your own PTI has been rising? Why gold and not stocks?
Answer — Rising gold implies a dollar that is devaluing. If this bull market in gold continues (and I think it will) at some point there will be a panic out of all fiat currency including dollars. If, or when, that happens, stocks will be slammed, since US stocks are denominated in a fiat currency, namely Federal Reserve Notes (we mistakenly call them dollars).
Therefore I had to make a decision for myself and for my subscribers. Are we better off siding with gold or siding with top-grade dividend-paying common stocks?
I chose gold. Interestingly, this is directly contra to the general American sentiment and opinion. The rising Dow and advancing stock market tells us that the retail public, and probably a good many funds, have chosen to trust their fate to the stock market. The low volume on the stock exchanges suggests that the professional and institutional money is not the crowd that is driving this market higher. I think it’s the retail public, those who are hoping to recoup some of the disastrous losses they took during 2008.
But what about rising gold? Since the US public is singularly ignorant and disinterested in gold, who is it that is buying and forcing gold higher, higher for nine consecutive years? I think it’s a sophisticated, knowledgeable group of investors. They, plus the populations of overseas nations, people have a tradition of keeping gold as the measure of their wealth.
One of the greatest bull markets in history — I’ve pictured below the phenomenal bull market in gold. (monthly closings). The rising blue line is the 50-month MA of gold, the rising red line is the 200-month MA of gold. The red arrow identifies the spot (April, 2005) where the 50-month MA crossed above the 200-month MA, delivering a powerful bull signal. Note that both MAs are continuing to rise. At some point I expect this bull market to go parabolic. When that happens, it will signal a worldwide flight out of fiat paper and into gold
(click on graph to enlarge)
“Gold, gold, head West.” In 1849 gold was discovered in California. Tens of thousands of family men packed their bags and headed West. The great quest for gold was on, and it opened up the American West. Incidentally, at the same time, tens of thousands of Chinese headed west in the great rush for gold.
In the Russell opinion, the gold rush of 1849 will be dwarfed by the coming frenzy for gold. The quest for gold harnesses not one, but two violent human emotions — fear and greed. Fear that your fiat money is a fraud — and greed that owning gold may make you rich.
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What about real estate? I just received the latest mailing by my friend, Robert Campbell, who edits the great “Campbell Real Estate Timing Letter” (858 481 3235). This the best and most interesting real estate report I have seen anywhere. Robert writes a unique and very original report, using his original brand of technical analysis for real estate, this plus his own extensive experience with real estate.
So what does Robert Campbell think now? In a paragraph, he writes, “Now is not the time to jump into the real estate market because some analysts are telling you we’ve hit a bottom. NOT only are my timing models telling us that the market hasn’t turned yet, but if the Fed stops buying mortgages via its quantitative easing at the end of the month, and if the government allows its tax credits to expire as planned in June, chances are good that we’ll see lower housing prices through the rest of this year — not higher prices.”
Robert further reports — “Lifting caps on Fannie and Freddie: Do you wonder why? On December 24, 2009 — in a kind of Christmas Eve surprise — the Treasury decided to lift the caps on how much bailout money the failed mortgage giants, Fannie Mae and Freddie Mack could receive in order to stay in business. The previous caps were $400 billion for both companies. Not any more. Now the US taxpayers are back on the hook for unlimited financial support to keep Fannie and Freddie functioning –which could amount to as much as $8 trillion in taxpayer liability.
“Why did the Treasury do this? Because today, the FHA, Fannie and Freddie government agencies fund 90% of all U.S. mortgages and guarantee 97% of them. And in January, Fannie and Freddie reported combined losses of $94 billion for 2009. In other words, if Fannie and Freddie can’t keep providing hundreds of billions of dollars worth of mortgage financing, the real estate market will likely collapse.
Mortgage delinquencies are still sharply rising - which is why these ailing mortgage giants require an extended bailout of more capital to cover anticipated future losses and stay afloat. At Freddie, 4.03% of its single family mortgages were at least 90 days past due at the end of January 2010, up from 1.98% in January 2009. Fannie is even worse: 5.38% were 90 days past due in December 2009, up 2.42% in December 2008.
TODAY’S MARKET ACTION:
My PTI was up 8 at 6081. The moving average at 6017, so my PTI is bullish by 64.
The Dow was up 47.69 to 10733.67.
Transports were up 4.29 to 4378.41.
Utilities were up 1.24 to 384.01.
NASDAQ was up 11.08 to 2389.09.
S&P was up 6.75 to 1166.21.
April crude was up 1.23 at 82.93.
Total Volume on the NYSE and associated exchanges was 5.43 bn.
There were 2161 advances and 886 declines on the NYSE.
There were 627 new highs and 2 new lows.
My Big Money Breadth Index was up 3 at 830.
Dollar Index was down 0.07 at 79.92. Euro was down 0.03 at 137.54. Yen was up 0.01 to 110.78. Currency prices as of 1 PM Pacific Time.
Bonds: Yield on the 10 year T-note was 3.64. Yield on the long T-bond was 4.57. Yield of the 91 day T-bill was 0.15%.
April gold was up 1.70 to 1124.20. March silver was up 0.169 to 17.50.
GDX was up 0.15 to 46.27.
HUI was down 0.27 to 426.47.
My Most Active Stocks Index was up 5 at 214.
CRB Commodity Index was up 2.76 at 276.30.
The VIX was down 0.86 to 16.86.
Late Notes — OK, today I got three important bull signals, the great tide of the stock market has turned to bullish on the three counts I’ve been waiting for. The Dow closed at 10733.70 — at last above the critical 10725 level. This is a new high for the Dow, and it means that the Dow has finally confirmed the new high for the move on the part of the Transports. A Dow Theory bull signal — the primary trend of the market is bullish. At the same time, the great arm of the Dow has swung back above the 50% level. The Dow is now back in the bull zone above 10725. At the same time there were 627 new 52-week highs on the NYSE, a new high-total and well above the 523 new highs of January 11. Breadth on the NYSE was up 21 to 9. Up volume on the NYSE was 67.4% of up + down volume. And all-around historic bullish day.
What am I personally going to do about it? Honestly, nothing. Stocks are generally overvalued in this area, and I explained why they are overvalued on yesterday’s site. Money is made in the buying, and if we buy here or own stocks here, the market is not priced for future profits over the next five to ten years. My PTI was up a full 8 today after being up 8 yesterday.
Of my Big Three, the Dollar Index was down, bonds were very slightly higher and April gold closed up 1.70 to 1124.20.
March silver was up and April platinum closed up 4.90 to 1635.60. CEF and GDXJ were both up just a bit.
That’s it for Wednesday,
Russell
Gold — an advance to the 1150 box would be an important bullish breakout for gold. Gold appears as though it is now carving out a base.
(click on graph to enlarge)
It turns out that China continued selling US Treasuries in January, trimming its holdings by $5.8 billion to $889 billion, this after a 43.4 million cut in December.
Russell Comment — Obviously, China has all the US Treasuries that it wants — or really a lot more than it wants.
Late note on China — China has just passed Germany in exporting. China is now the world’s largest exporter of goods.
I note that Congress is preparing a paper that accuses China of “manipulating their currency.” This is an accusation the particularly irritates China. Since China is the US’s largest creditor and biggest buyer of US debt, I wonder about the sanity of those congressmen who are bent on angering China. After all, does it make sense to aggravate your largest creditor. Already, China is selling off large chunks of its holdings of US bonds. Madness to spit in the face of your largest creditor. In the end, it seems that China will do what’s best for China..
