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Plain Talk: Primary Bear Market May be Returning


The Gold Report   Printer Friendly Version
March 10, 2006

OK, enough technical talk. How about some plain talk. I have a sinking "feeling" that the primary bear market that started in late-1999 to 2000 is in the process of resuming.. . .

Russell, spit it out in plain language. What do you think is going on in the markets and the economies now?

Answer — I hesitate to write this, because it's so "early" in the game, and a lot of what I'm going to say is simply instinct or, call it experience. I'm worried that we're seeing the beginning of a world contraction. I'll call it "fading inflation and rising interest rates meet debt."

The U.S. and probably the rest of the world are swimming in the greatest edifice of debt ever seen in world history. Probably the core of the picture is the U.S. consumer. The big-spending U.S. consumer has been the engine of the worldwide boom. But now the U.S. consumer is running into trouble. Housing has leveled off and in many areas has even turned soft. The U.S consumer is not saving, on the contrary, he's actually spending more money than he is taking in. This spells trouble, and it's deflationary.

The world's business has been expanding with the help of very low interest rates and massive liquidity. But trees don't grow to the sky, and liquidity doesn't expand forever. Neither do interest rates stay low forever. And I sense that we've reached what I call "the great divide." I hope I'm wrong, but I'm afraid I'm right. An invisible hand is taking the punch bowl away.

The CRB Commodity Index hit its high on February 1, Since then it has carved out a lower peak. The stock markets of the world are starting to back off. Even those exciting emerging markets are backing off. The Dow, the backbone of the U.S. economy, has refused, time after time, to confirm new highs in the Transports. The Dow has never bettered its 2000 peak, Both of those situations have bothered.

All of this has me thinking that between Dow Theory and my PTI and the Lowry's statistics — something is wrong. The most negative possibility is that the primary bear market has resumed.

The situation is very complex. We're dealing with the whole world, with suspect currencies, with a fragile oil situation, with questionable energy in general, with brutal world competition, with ridiculous levels of debt, and with a shaky real estate boom. I could go on and on, but much of it is condensed into the movements of the stock averages. And in that area, as I said, I don't care for what I'm seeing.

Why the steady distribution as seen in the Lowry's statistics? Why the movement to the "safety" of the big-cap stocks? Why the selling into every rally? Why has my PTI finally broken down? Why has the Dow gone nowhere over six years?

Well, we can ask a thousand questions — it's easy to talk and hard to take action. The action to take, I believe, is what I've been advocating over recent weeks. My choice is to be basically in T-bills and gold bullion. T-bills because the bills are safe and because you're guaranteed to get your money back. Gold because if all goes wrong, gold is real, time-tested wealth. Gold stands alone as money outside the central bank system. If the Federal Reserve was abolished tomorrow and the U.S. was to renege on all its debt -- gold would still be money.

My sense is that the U.S. and the world economy is at the "creaking stage." Strains are beginning to show in the fabric of the world economy. I think its time to get defensive.

Let me put it this way -- if the bear market is about to resume, it's catching people at a very unfortunate time. Everybody, it seems, has real estate, homes, stocks, mutual funds, cars, things. But few people have liquidity -- savings, cash, gold. I don't care for the picture, but I'm sure the bear loves it.

by Richard Russell


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