Richard Russell: Bear Market Remains in Force

The verdict, at long last, is in. On Friday the D-J Industrial Average closed below its November 20 bear market low. In so doing, the Dow confirmed the prior breakdown of the Transportation Average. The two Averages jointly closed at new lows Friday, thereby signaling that the great bear market remains in force.

According to Dow Theory, neither the duration nor the extent of a bear market can be predicted in advance. However there are some useful hints. Most major bear markets end with stocks at "great values" or as some Dow Theorists put it, "below known values." This has meant in the past that price/earnings ratios for the Dow and the S&P have fallen to single digit numbers. It has also meant that dividend yields have moved into to the 5%-6% zone.

According to the latest Barron's, the P/E ratio for the Dow is now 18.62, 17.90 for the S&P. The dividend rate for the Dow is now 3.98%, for the S&P it is 2.78%. These are hardly the kind of figures I'd expect at a great bear market low. With the bear market reconfirmed, I'd advise subscribers to be largely out of common stocks (not gold stocks) and in cash, T-bills or gold, physical gold if possible.

The country is now at economic WAR. My objection to "paper gold" or listed gold items is that the government could halt trading in all gold items if it wishes to. The government is at all-out WAR against deflation and possibly at war with rising gold.

With a great bear market in force, we're forced to think in terms of individual or family survival. My subscribers and I are on our own now, dealing with a government that is attempting to print itself out of a bear market. More inflation on top of a bear market that was created out of debt and inflation will not work, at least I don't see it working (nor does the market). Gold will be "the last man standing," as has been the case for thousands of years.

Legendary newsletter writer Richard Russell began publishing Dow Theory Letters in 1958, and he has been writing the Letters ever since (never once having skipped a Letter).

Russell gained wide recognition via a series of over 30 Dow Theory and technical articles that he wrote for Barron's during the late-'50s through the '90s. Through Barron's and via word of mouth, he gained a wide following. Russell was the first (in 1960) to recommend gold stocks. He called the top of the 1949-'66 bull market. And almost to the day he called the bottom of the great 1972-'74 bear market, and the beginning of the great bull market which started in December 1974.

Comments

[GMiki1:]

Yes, although if the government is smart (an oxymoron), it will end its war on gold and go with dollar devaluation to get rid of debt.

Feb 22 12:26 PM

[Badcowboydan:]

Although I agree with everything in this article you have to remember Russell had posted the Bull on his site around the top in early January and some of his subscribers are still smarting from that bad call. So I'm not sure I would bet with him on anything. You should get Robert Prechter to write something, at least he does his homework.

Feb 22 04:08 PM

[a believer:]

Eventually the only option the US government has is to print its way out and devalue the dollar, thereby decreasing the national debt which will be in relatively fixed dollars. This argues well for gold and commodities ownership long term. In the short term there will be bear market rallies.

Why would the government ban 'paper gold' (gold futures) ownership? I don't see why this would happen or how it would benefit the government.

Feb 22 06:44 PM

[Prudent Man...:]

FDR banned the ownership of gold by U.S. citizens and tried to stack the Supreme Court. A liberals answer to problems is to reduce citizens freedom. Now that we have a Socialist president and non-term-limited Congress anything can happen and it won't help free markets.

Taxes (confiscation of wealth) are being raised as I write this and a small amount will be redistributed to the non-productive with the rest to graft. Government revenues will drop because of the lack of incentive to be productive so taxes, again the liberals answer, will be raised again. Obama will slip in more government programs that cannot be funded in order to give the voters the impression that they are getting something. This will result in a shortage of goods and services, especially health care and our standard of living will rapidly decrease. Obama will be reelected because the majority of Americans like a good talker while he is picking their pockets. He may even try for a change in the laws and go for a third term.

That, my friends, is the result of Socialism.

Feb 22 07:03 PM

[GMiki1:]

I'm glad to hear everything was fine under George W. Bush.

Feb 22 08:21 PM

[E.D.Hart:]

It is best to keep most political discussion out of economic discussion...but because the current crisis is partly the result of politicians...lets go hunting for people to blame. (also because of some previous posts)

1) Obama the Socialist---this is a good one. Wasnt it the bailout of Wallstreet banks (socialsm) proposed by the other guy that was in that big house for 8 years?

2) Taxes = bad = confiscation= socialism. This is some good critical thinking. So when we fight two wars, one of them unnessary, triple the nations balance sheet debt, and cut taxes, this is smart money management right? Taxes are bad, but debt that drives up taxes in the future is good? Taxes are bad, but massive war spending, medicare spending, and wall street bailout spending is good?

I dont know, but it almost seems like taxes and spending are, like somehow, ahhh, related.....

3) The best course of action would be no taxes--then we could default on our debts, and go back to bartering, hunter gathering, and anarchy---the only real freedom. Ill be happy then because their wont be evil taxes and evil government.

4) Clearly the answers are keep lowering taxes, until you run out of ideas (oops, aready there) keep talking about the F word ()"Freedom" as a patriotic slogan rather than a real idea--so its citizens cant see the wizard behind the curtain reducing our real freedoms--such as the GREAT PAtriotic act, FISA reform, and the necessary and oh so useful wiretapping against our citizens. Clearly there should only be one political party--the Republicans who are the nations vanguards of freedom and democracy.

5) Please do no critical thinking when reading or listening to political ideas, just go with whatever is consistent with the winning ideology and the current zeitgeist. Then we can get back to blaming and self righteousness, instead of all this problem solving that is currently going on, messy though it may be.

Feb 22 10:01 PM

[Jimbo:]

Gmiki and EHart: Yes, Republicans, congressional and presidential, have deeply contributed to our dire straights. We desperately need term limits for Congress as well as a law making it a CRIMINAL act for a former Congressperson to lobby (Remember Tom Daschle?). Unfortunately, you cannot separate politics from economics, that is why the Brits refer to "political economy". BTW Sarcasm is the weapon of a person on the defensive.

Feb 23 11:52 AM

[E.D.Hart:]

Jimbo,
Thanks for responding--as a proud teacher, libertarian, and history/literature buff, I can tell you with absolute confidence gained from experience that sarcasm is a very offensive weapon (both senses of the word intended) .

Mark Twain, Shakespeare, et. al. Sarcasm is great stuff. I fully expect to get way more negative hits than positive, but so what? It actually puts the other person on the defensive---and every so often stimulated more thinking than a straight argument.

So, there you go, I couldn't disagree more. I abhor hypocrisy, and sarcasm seems one way to get people to think about it where they wouldn't otherwise.

Feb 23 01:01 PM