Pac-Arts monthly Film Forum now open to non-members
Scott Marks 2:48 p.m., May 23
La Jolla's Richard Russell, who has published Dow Theory Letters since 1958, has stated that stocks are now in a primary bear market. Russell is the preeminent interpreter of the Dow Theory, which is based on essays written by Charles Dow, founder of the Wall Street Journal. There are a number of tenets of the Dow Theory, but Russell bases his current call on the fact that the Dow Jones Industrial Average rallied beginning in early December, but the Dow Jones Transportation Average did not. Then both averages turned down. Under Dow Theory, this means the overall market is in a primary trend, says Russell
Russell told one publication that the Dow Jones Industrials could sink to 8000, 6000, 4000 or even 2500. "I'm afraid [the Dow Jones Industrial Average] has a long way to go," he told the publication.
Some criticize Russell for being too bearish through the years. I don't agree with that. For example, during the 1980s, he told his readers that the market was quite overvalued, but still in a bullish trend. It turned out to be a very good call. Personally, I consider the Dow Theory only one of several reliable technical market indicators. My problem with Dow Theory now is that it tends to correlate moves in the market with moves in the economy, when it seems clear to me that stocks are moving on central bank-created liquidity, not economic performance or prospects. Indeed, stocks today are supported by a weak economy that motivates central banks to pump in more liquidity. That said, however, I believe in Richard Russell. He has an excellent record. He is 88 years old and last year had hip replacement surgery. Dow Theory Letters has 12,000 subscribers at $300 per. Do the math.
Comments
nokomisjeff June 11, 2012 @ 3:18 p.m.
I like Russell, and admire his longevity in writing about the markets. But one must remember that Russell is merely an observer, a guy on the sideline just adding his $0.02. If I had to compare Russell with someone, I'd like to measure him against a good friend of mine, the nonagenarian sage, the oracle, the brilliant Sam Eisenstadt of Value Line, who unlike Russell, has always his money where his mouth is. Eisenstadt disagrees with Russell in this next move and happens to be rather bullish. Sam understands the movements of the Fed and other Sam has some venerable supporters like Fischer Black(of the Black Scholes option pricing equation) who wrote this. http://www.jstor.org/discover/10.2307/4529615?uid=3739600&uid=2&uid=4&uid=3739256&sid=47699080550787. Sam is one of the few gentlemen I have ever met in the markets and happens to be a first rate human being and a man in full. I would compare him to a 1929 John Maynard Keynes(in predictive market outlook, not philosophy). Not diminishing Russell, but I think that the mention of 12,000 subscribers at $300 a pop is a pretty fallacious argument. But then again, the financial media has deadlines and does need to get their inches.
Don Bauder June 11, 2012 @ 5:29 p.m.
We're all observers on the sidelines, Jeff, when our positions are compared with the market's overall capitalization. Personally, I remain in stocks -- about 33% of the portfolio, which is more than I usually own. (I buy utilities, pharmas, oils, pipelines, royalty trusts, some consumer staples yielding at least 3.5%. Allmost always I want a yield of 4% or more.) I have no plans to dump stocks now, although I am nervous about the fiscal abyss we may face at the end of the year, after the election. Up until the election, the Fed and other central banks will be easy, although I won't rest easy, because I could be wrong. As to Russell: I have been quoting him regularly since arriving in San Diego in 1973. However, as I said, I am wary of technical indicators now, because I believe that, generally, stocks are riding on liquidity and tend to be inversely correlated with the economy's performance. Best, Don Bauder
nokomisjeff June 12, 2012 @ 10:39 a.m.
While I'm not bearish on equities, my bullishness is more of a function of stocks going up because the fiat dollar is going down. I look at this much like the market performance in the Weimar Republic in 1921-22, although not quite to that scale. Whether the Fed is "easy" or not, one notes that the Fed bought 61% of the all treasury debt last year. http://www.moneynews.com/Headline/fed-debt-Treasury/2012/03/28/id/434106 The last few auctions have had an increase in Fed participation since 2011 sometimes approaching 80% since traditional lender countries have largely abandoned the Fed auctions. The result of this bad behavior is that the Fed is subsidizing the recklessness of the government and also distorting the market by keeping interest rates very low, even the 30 year rate is abysmal.
Don Bauder June 12, 2012 @ 6:17 p.m.
Well said, Jeff. We have never seen a balance sheet like the Fed now has. So we have no experience from which to draw conclusions. There are good comparisons with the Weimar Republic, for certain, although U.S. inflation (at least as the government tells us), remains moderate. (Our government understates inflation, of course.) But this madcap money creation can create financial bubbles. Didn't we learn in 2008? Best, Don Bauder
Sign in to comment
Or login with:
OpenID