Best Russell letter - At least read Rogers interview,

March 3, 2009 -- Happily and luckily, my son Ryan is very computer-savvy, and he's turned out to be a wiz on charts and chart-making. I told Ryan yesterday that he may never again be making charts like the one of my PTI below, but there it is in all its bearish fury. Needless to say, with the primary bear trend recently reconfirmed as bearish, and with my PTI plunging to new lows and with the Lowry'sstatistics worsening by the day, my bearish view of the market has been confirmed by the only item that counts -- the market itself. By the way, yesterday was a 90% down-day, and these days are usually followed by snap-back rallies lasting 2 to 7 days. Russell's Random Comments -- First, as subscribers know by now, I believe in the truth of the markets. The markets are always telling us something. I've spent the better part of my life studying the markets and trying to understand the "language" of the markets. The Dow's extreme high, recorded in 2007, was 14,164. As I write the Dow is below 6800. The Dow is now selling at less than one-half its peak price. This represents a horrendous loss in a period of less than two years. My interpretation of this violent action is that we are probably heading into another Depression. I don't know how far the Dow is fated to fall, but I do know this -- the stock market is still far away from the values that existed at previous major bear market lows. Watching the stock market action, I'm getting the feeling (my instinct) that we're heading into chaotic times. We're going to see things that the most recent three generations have never seen or even imagined. The stock market is a fair game. The Industrial and Transport Averages have been plunging to new lows simultaneously. The Averages, after two years of disharmony and non-confirmations, are now sinking together in harmony. This is authoritative action. The D-J Utility Average, which often has a long lead time, is also plunging in harmony with the other two Averages. I interpret all this action as telling us that we are headed for very hard times. Over the last year I've been warning my subscribers that there's a "hard rain a'comin." The hard rain has now arrived, but it isn't showing up yet in the economy. It will -- I think by the end of the year. My advice again is to get in cash and gold, and get out of debt. Don't buy anything that will cost you money to carry. Sad to say, good jobs are now becoming scarce. The average American needs a job in order to bring in income. Daily we read about new lay-offs. Not only does this reduce the national income, it breeds deep fear. Against all this, our new government seeks to hold the economy and the banking system together by printing and spending us out of this mess. From the beginning, I didn't think we could print ourselves out of a bear market. In its desperation, the government is building up incredible deficits and debts. Even before the current bear market began, I warned that we were compounding our enormous debts into "dollar oblivion." Now the process is being hastened. I think the markets know this. It's the reason gold is up $48.50 or 4.98% over the last year. What should you and I do now ? My best advice -- "Prepare for the worst and hope for the best." How does one prepare for the worst? One way is NOT TO BE TAKEN BY SURPRISE. One reason this bear market has wreaked such havoc is that it arrived so quickly. Nobody was ready for it. Nobody had time to bail out, to get out of debt and jettison their stocks. Which brings up the question, "How does one prepare for the worst?" For months I've been urging my subscribers to move to cash and gold. I don't know how many took my advice, but my guess is "not enough." Ah well, if you're young and healthy, count your blessings. Technically, one of the most discouraging items that I see today is the succession of 90% down-days. These 90% down-days are panic "get me out of here at any cost" days. A succession of 90% down-days usually exhausts the desire to sell. But so far, that has not been the case. And that's discouraging. How much selling do we have to experience before the downside of this market (and the urge to sell) is exhausted? The sad answer is -- a lot more. .............................................. True Confessions -- I've been doing well in this business (subscriptions, so far, are equal to last year's). I get suspicious, and I ask myself -- why? For comparison, I watch two well-known advisory stocks, Morningstar (MORN) and Valueline (VALU). Both stocks have tanked. With this in mind, I continue to wonder why I've been doing as well as I have. Because we're in a recession, I almost feel guilty about it. Here's what I've concluded. I write about what I'm thinking and what I know. I have full faith in the markets -- I really am obsessed and fascinated with the markets. I do have one advantage -- experience. I've struggled with the markets for over 60 years. I know what I know, and what I don't know. I don't BS my subscribers that I know at all times what's going on. Subscribers know BS when they read it, and baloney makes them angry. I know it makes me angry. When the re-confirmation of the bear market occurred a few weeks ago, I had to depend on my firm belief in the Dow Theory. At that time I heard a lot of objections to the Dow Theory -- people in publications saying that the Dow Theory was antiquated, that it wouldn't work because of the "unrepresentative Industrials Average and the outmoded Transportation Average." I wrote that, as usual, I was taking the Dow Theory at face value -- no alterations, no "ifs ands or buts." As it turned out, the Dow Theory re-confirmation of the bear market was correct -- it worked. After the re-confirmation, the stock market continued to melt down. Occasionally, I insert a few of my personal opinions on the site (which some subscribers don't like), and occasionally I tell one of my WW II stories, which, for some reason, subscribers seem to love. But it's the markets, the markets, that keep me fascinated and in business. And based on subscriptions coming in, I guess I'm doing something right. At least I hope so. I don't do any advertising or mass mailings. I depend strictly on word of mouth. Incidentally, people are always fascinated with dinosaurs. Well, you're reading one. I lived through the Great Depression and WW II. The other day one of Ryan's friends asked about the War and what I did. I told him that I had been a bombardier in the 12th Air Force. He asked "What's a bombardier?" I told him that the Air Force doesn't use bombardiers any more, but that I was the guy who aimed and dropped the bombs. The kid looked puzzled and asked, "Didn't they do that automatically?" I said, "No, we had to do it with a top secret instrument called the Norden Bomb sight." The boy looked puzzled as he took it all in. Then he said, "Gosh, I never knew all that." You see, I'm a living dinosaur. ............................................... Maria Bartiromo interviewed Jim Rogers for the current issue of Business Week. Rogers was George Soros' partner when they started the fabulous Quantum Fund. Rogers retired and invented his famous commodity index. Here are some tidbits from the interview. Question -- What do you think of the government's response to the economic crisis? Rogers -- "Terrible. They're making it worse. It's pretty embarrassing for President Obama, who doesn't seem to have a clue as to what's going on -- which would make sense from his background. And he has hired people who are part of the problem (Treasury Secretary Tim Geithner who was head of the New York Fed, which was supposedly in charge of Wall Street and the banks more than anybody else. And you remember Obama's chief economic adviser, Larry Summer, helped bail out Long Term Capital Management years ago. These are people who think the only solution is save their friends in Wall Street rather than save 300 million Americans." Question -- So what would you be doing? Rogers -- "What I would like to see happen? I'd like to see them let these people go bankrupt, let the bankrupt go bankrupt, stop bailing them out. There are plenty of banks in America that saw this coming, that kept their powder dry and have been waiting for the opportunity to go in and take over the assets of the incompetent. Likewise, many, many homeowners didn't go out and buy five homes with no income. Many homeowners have been waiting for this, and now all of a sudden the government is saying: "Well, too bad for you. We don't care if you did it right or not, we're going to bail out the 100,000 or 200,000 who did it wrong." I mean, this is outrageous economics, and it's terrible morality." On Wall Street- "Wall Street has paid something like $40 billion or $50 billion in bonuses in the last decade... Stan O'Neal (of Merrill Lynch)... He got $150 million for leaving, even though he ruined the company. Look at the guy at Fannie Mae, Franklin Raines. He did worse accounting than Enron. Fannie Mae and Freddie Mac alone did nothing but pure fraudulent accounting year after year, and yet that guy is walking around with millions of dollars. What the hell kind of system is this?" On agriculture- "I really think agriculture is going to be the place to be. Agriculture's been a horrible business for 30 years. For decades the money shufflers, the paper shufflers, have been the captains of the universe. That is changing. The people who produce real things will be on top. You're going to see stockbrokers driving taxis. The smart ones will learn to drive tractors, because they'll be working for the farmers. It's going to be the 29-year-old farmers who have the Lamborghinis. So you should find yourself a nice farmer and hook up with him or her, because that's where the money's going to be in the next couple of decades." TODAY'S MARKET ACTION -- My PTI was down 6 to 5813. The moving average is 5872, so my PTI is bearish by 59 points. The Dow was down 37.27 to 6726.02. Transports were down 37.89 to 2294.89. Utilities were down 9.94 to 302.57. March crude was up 1.50 to 41.65 Total Volume on the NYSE and associated exchanges was 8.47bn. There were 1005 advances and 2105 declines on the NYSE. There were 3 new highs and 738 new lows. S&P was down 4.49 to 696.33. NASDAQ was down 1.8 to 1321.00. My Big Money Breadth Index was down 4 to 628. Dollar Index was up .13 to 89.07. Euro was down .23 to 125.68. Yen was down .64 to 101.70. Currency prices as of 1 PM Pacific Time. April gold was down 26.40 to 913.60. March silver was down .28 to 12.79. Metal prices as of 1 PM Pacific Time. HUI was up 6.48 to 274.70. Bonds: Yield on the 10 year T-note was 2.92%. Yield on the long T-bond was 3.66%. Yield of the 91 day T-bill was 0.27%. CRB Commodity Index was up 2.18 to 343.94. My Most Active Stocks Index was up 1 to 26. The VIX was down 2.57 to 50.05. Late Notes -- Again following a 90% down-day, the market failed to produce the usual automatic 2-7 day rally. This suggests extreme weakness and is an ominous sign. My PTI was down 6, the PTI hasn't had an up day since February 24th. Over trading sessions since then, the PTI has dropped 29 points. New lows today were 738 which represents 23% of all stocks traded on the NYSE. As Forest Gump would say, "ugly is as ugly does," and this day did ugly. The test-- with the market now super-oversold, tomorrow should produce a rally. If it can't, treat this as one scary market. ......................................................................... A recent Reuters article that I think subscribers may find interesting. Dow Theory still valid despite calls for overhaul Wed Feb 25, 2009 1:53pm EST By Deepa Seetharaman - Analysis NEW YORK (Reuters) - As criticism mounts to make over the Dow Jones Industrial Average .DJI, the godfather of one of the oldest stock forecasting methods known as Dow Theory sees few pressing reasons for upending its lineup. Debate about how well the Dow industrials reflect the broader economy, and therefore the worth of Dow Theory, has swelled in recent months. Critics argue that an overhaul of the price-weighted index is needed now that five of the Dow's 30 components are trading well below $10. But Richard Russell, editor of the famed Dow Theory letters, said the blue-chip index's recent plunge past lows set in November serves as evidence that the index, even with the inclusion of battered stocks, is still capable of signaling market trends. Dow Theory aims to identify the primary trends in stock markets, lasting from one year to several years. It stipulates that the industrials index must "confirm" a high or a low in the Dow Jones Transportation Average DJT for a trend to last. According to Dow Theory, the Dow's value as a barometer of market trends was borne out just this week because the industrials dropped nearly one month after the transportation index shattered its November low, suggesting future market losses. "The fact is those same stocks were in the average on November 20th and here we are below the November low," Russell said in an interview. "And they didn't pull the stocks under $10 from the average." Russell has done more than anyone to popularize Dow Theory, the analytic system developed in the late 1890s by Charles Dow, founder of The Wall Street Journal, which is published by Dow Jones & Co. The company, part of Rupert Murdoch's News Corp (NWSA.O: Quote, Profile, Research, Stock Buzz) ,also owns and maintains the blue-chip Dow average. In November 2007, a trough in both the Dow industrials and the transportation index signaled a looming bear market one month after the Dow and S&P 500 scaled record highs. Since those highs, both indexes have halved. Still, Dow Theory has its limits. One is its underlying belief that the Dow contains major market movers, a notion that has been hotly debated for decades. The continued Dow membership of battered stocks including Citigroup (C.N: Quote, Profile, Research, Stock Buzz) and General Motors (GM.N: Quote, Profile, Research, Stock Buzz) have reignited the debate. "Institutional investors just don't see it as a reflection of the market," said Fred Dickson, market strategist for D.A. Davidson & Co. Dickson said investors "don't pay any attention to the Dow Theory because of the massive changes in the Dow over time and the Dow includes stocks that are no longer representative of the leaders." On the other side of the debate are those who say the Dow is still a good barometer of troubles in the economy. The Dow "for all its faults, is a sentiment indicator and you can see that things just feel bad," said Warren West, principal at Greentree Brokerage Services. Russell himself has at times been one of the Dow's doubters. In an interview last week he said that without adequate representation of the financials, the Dow may take longer to confirm a bear market signal. But he changed his mind days later when the Dow plunged to a 12-year low, followed closely by the S&P 500's tumble below its 12-year closing low. "The reconfirmation came quicker than I thought it would," Russell said. "As far as the Dow Theory goes, the relationship still holds."

Thanks for posting Russells thoughts. I always enjoy them. IT

Thanks for posting Russells thoughts. I always enjoy them.

IT

Your welcome, I thought the Rogers interview was interesting.

JDJ

Thanks for posting Russells thoughts. I always enjoy them.

IT

Your welcome, I thought the Rogers interview was interesting.

JDJ

Thanks also Mr. JDJ for posting RR's thoughts.

DL