Richard Russell: “A hard rain lies ahead”

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Love him or hate him, 85-year old Richard Russell is the doyen of investment letter writers – having been at it for more than half a century – and his views as expressed in his daily Dow Theory Letters always make for stimulating reading. The paragraphs below summarize the R man’s “big picture” view of the U.S. stock market.

“I want to say that I have a number of reasons for being convinced we have been in an upward correction [referring to the rally that commenced in March 2009] in an ongoing primary bear market. Some of this is based on my interpretation of the 50% Principle, plus my analysis of the very poor action of the “internal market” [i.e. market breadth] over recent weeks.

“I envision the Dow dropping to test, and possibly violate, the 6,547 level. I don’t know whether this will take place this year, but I wouldn’t be shocked if it does. It would not surprise me if the Dow tests the 6,547 level. And if that happens, I can almost guarantee the US will have sunk into the much-feared “double-dip” recession.

“If the US begins to shrink into a double-dip recession, I expect the Obama administration to go ‘wild’ with new stimuli and ‘make-work’ programs, all of which will be financed with higher taxes (‘soak the rich’) and a further major expansion of the Federal Reserve balance sheet. I would also expect every central bank in the world to simultaneously open their money-printing spigots wide, wide, wide.

“Conclusion in a nutshell: the secret of the forthcoming picture lies with the action of the U.S. stock market. Again I’ll remind my subscribers that the function of the stock market is to discount the future, not to mirror the present. All news is history. Or as Wall Street puts it, “news known is news discounted”.

“One of the biggest mistakes amateurs make is to think something they know is unknown and not already discounted by the market. Despite this, the media insist on describing every move of the stock market as being a reaction to some current event or some new government statistic. They couldn’t be further off the mark. As I read it, the poor action of the current stock market is telling us that the future for the U.S. is bearish and a hard rain lies ahead.

“At this juncture, sophisticated, wealthy people are not concerned with increasing their fortunes, rather they are searching for ways to conserve what wealth they have.”

Source: Dow Theory Letters, July 19, 2010.

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8 comments to Richard Russell: “A hard rain lies ahead”

  • Bob Sellers

    I get it… the market is going down because he hates Democrats.

  • No Name Republi "c**t"

    No Bob Sellers, the market is in for a “Hard Rain” as needed to wash away the filth like that seen in today’s headlines “Extension of Unemployment benefits to continue the economic recovery”.

  • rick arm

    By price to book, price to dividend yield and price to sales the market is overvalued–by a lot. Gross says the 10 yr treasury is priced for near depression. Rosenberg says debt is the big problem worldwide (US too) and states that there are a lot of risks for a double dip. I am sure at least one of those folks is a democrat.

  • Paul Sandison

    I think there are a lot of democrats everywhere.
    They seem to be in factories, houses, shops, offices, whereever you care to investigate. There are even some in the government. You know what too? If your car doesn’t start in the morning it must be because of a democrat.

    I hear they are spreading to various countries too.

  • RN

    “I expect the Obama administration to go ‘wild’ with new stimuli and ‘make-work’ programs,”

    How can one listen to this moron when he doesn’t even understand that Obama CAN’T pass stimulus programs, congress must. And congress won’t, due to political realities.

    How can anyone take this old coot seriously on anything if he can’t even get the most basic facts right?

    These “the sky is falling but I can’t trouble myself to understand the way things actually work” types are as bad as Kramer and Kudlow on the upside.

  • RN

    The truth is this is class warfare, and I wish we’d just own up to it and move on. Republican c*#ts just want to keep their wealth and not help anyone else, and Democrats want to help people that Republicans have screwed with their unregulated free-market thievery, raping anyone they could get their paws on at any opportunity that comes along. See: “Goldman”.

    Fine, that’s just the way the world works. But let’s not pretend it’s any different. Let’s just have this fight and get on with it.

  • Paul Sandison

    Go RN!

    However sometimes another kind of warfare intrudes into the lives of kind peace-loving individuals. Has everyone got their A-shelter, rations, and iodine tablets ready for Monday morning?

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