“Important” – Get Out of Stocks, Says Richard Russell

By Dominique de Kevelioc de Bailleul

Octogenarian and 53-year financial markets veteran from Loyola, California, Richard Russell, announced it’s time to get out of stocks—pronto!  The market expects a Greek exit of the EMU and further trouble from the other PIIGS, according to him.

In his latest missive, the venerable Russell stated that the 80-year old Dow Theory market-timing indicator he has plied throughout his newsletter writing career has triggered another “textbook bear signal” and advised his subscribers to avoid the stock market at this time.

“IMPORTANT — Dow Theory — The D-J industrial Average recorded a high of 13,279.32 on May 1, 2012,” Russell began his latest addition of Dow Theory Letters.  “This Dow high was not confirmed by the Transports.  The two averages then turned down and broke below their April lows.  This action confirmed that a primary bear market is in progress — it was a textbook bear signal.”

Russell’s remarks come off the heels of another respected market watcher Marc Faber of the Gloom Boom Doom Report, who told CNBC, Friday, he’s “100 percent” confident of a global recession next year.

Considering stocks discount expectations of the future—with recent signs of a feeble economic recovery rolling over once again—the rally in stocks from the March 2009 lows could be an echo of a similar bear market rally of 1935-7, during the Great Depression.  But by the second quarter of 1937, the rally fizzled out and stocks sold off sharply, taking the Dow down approximately 50 percent from the rebound rally high.

“This bear market will be deeper and longer than most people think,” Russell said in a Mar. 29, 2009 speech at a banquet in his honor. “People got optimistic too quick” about stocks, and added, “none of the characteristics of a major bottom” are in place for a major bear market bottom.

Though dividend-paying stocks exceed US Treasury yields, the ‘manhandling’ of exceedingly low artificial rates by the Fed has induced investors to take on inflation risk by buying stocks, which, at the moment, washes out after inflation to a negative real rate of return from dividends paid.

Moreover, many analysts suggest that much of the rally in U.S. stocks during 2011 came mostly from investors fleeing the euro.  Bank runs in Europe, especially in Greece and Spain, end up in mattresses and the U.S. stock market.  But as investors witness the alleged decoupling between Europe and the U.S. that never will be, stocks won’t be the place to be to preserve wealth, after inflation.

“I believe that the bear signal is telling us that Greece will default, to be followed by Spain, and the whole Eurozone may then fall apart,” Russell stated in his letter of last week.  “I consider the April-May action to be a continuation of a primary bear market that started on October 9, 2007, with the Dow at 14,164.53.  We are now dealing with the latter part of the primary bear market that began in 2007.”

Russell’s recommendation today hasn’t changed from his March 2009 speech, when he said, “Stay on the sidelines,” in cash or gold.  The gold market rally won’t end in a whimper; it will end as all bull markets end: in a “speculative explosion.”

Dow Theory Letters Richard Russell: to tell you the Truth, I’m Scared

In his latest edition of the longest-running financial newsletter ever penned by a single author, that author, Richard Russell, announced to his readers what his gut tells him is around the corner as 2011 moves closer to a close.

In short, he wrote, “I’m scared.”

The 87-year-old Russell, publisher of the 53-year-old newsletter Dow Theory Letters has seen enough of the best, and certainly more than his fair share of the worst American experiences throughout his long life—all, of which, has awarded him the additional respect from his peers in the financial writing business, above and beyond his rare acumen for the markets.

Among the worst of the Russell experience, stored in, what Market Watch’s Peter Brimelow refers to as, that “brilliant” mind, most certainly would include the Great Depression, WWII, all post-WWII recessions—especially the stagflation years of the 1970s, which nestled nicely within the 1968-1982 bear market in stocks—and various currency collapses throughout the world during his unsurpassed longevity working the charts, indicators and exercising prudent judgment.

Today, Russell wrestles with his emotions during his day-to-day observations of markedly increased homelessness in his affluent town of La Jolla, Calif., with “signs of hard times” everywhere you look, he wrote, “but will it get harder?” he asked.  “It all brings back bad memories of the 1930s.  And to tell you the truth I’m scared.”

And to drive home the gravity of the seriousness of Russell’s sixth sense for trouble, especially to those still sitting on the fence wondering what to do next with their portfolios, let’s review Russell’s expectations for 2011, originally published on the Internet as early as January 10, 2011.  You may agree; his nose for future events has developed quite well throughout the decades.

“This year [2011] might even be a black swan year,” stated Russell. “Certain events are now in place, events that have never been seen before in human history … we are dealing with debts so monstrous, so huge, that most people can’t fathom them … The Muslim community is huge, and it has moved heavily into many European nations. The radical Muslims intend to express their world leadership … Dictators in North Korea and Burma and Iran and Africa are no longer safe in that they can no longer keep their populations ignorant and in slavery,” he added.

“There is a huge disparity between the wealthy and the poor. The poor greatly outnumber the wealthy. This has all the ingredients for revolutions in the age of instant and world-wide communication.”

The makings of a “black swan” event are in place for 2011, he concluded.

Russell’s intuition apparently told him that the Bernanke Fed was about to upset the applecart with his well-telegraphed plans—first, in disrupting those countries with very low global Purchasing Power Parity among its population.  Inflation raises food and energy prices, initially, destroying family budgets in poor countries such as Tunisia, Egypt, Morocco and other faraway places, where more than half of household income spent there goes to food and energy expenses.

Now it appears money printing will resume once again—and at a big clip, too.  The eurozone bailouts, the Japanese weak-currency policy, the Swiss loosely pegging the franc to the euro, China’s reinstatement of a U.S. dollar peg, the further monetary easing at the UK, and the U.S. Fed now hinting that additional easing above ‘Operation Twist’ may be necessary.  It’s not much of a stretch to wonder why Russell is scared.

“Gold — When all else is suffering from devastation, when politicians have destroyed their own sovereign money, gold will still have value, and gold will still represent buying power,” he wrote earlier this week. “I’m holding mine for the same reason that I own health insurance.”

Echoing Russell’s sentiments regarding the merits of owning gold at this time, precious metals specialists, GoldCore recently wrote in a recent gold market assessment piece on its Web site, and linked from zerohedge.com. “This demand [for gold] is due to concerns about the global economy, growing inflation risks and the real risks posed by currency debasement being seen globally.”

Adding, “Should gold go parabolic, it may be time to reduce allocations to gold – but we appear to be a long way from there yet.”

Continuing, “This is not the end game which unfortunately looks increasingly like an international monetary crisis – centered on either the U.S. dollar or the euro or both.”

“This demand is due to concerns about the global economy, growing inflation risks and the real risks posed by currency debasement being seen globally.”

Yup, scary times, indeed.