“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.”

Peter Schiff’s Critical Advice to Retirees

Speaking with Yahoo Breakout, Euro Pacific Capital CEO Peter Schiff chastised the Federal Reserve for maintaining ultra-low interest rates at the expense of retirees.  But the outspoken critic of the Fed has a strategy for older Americans to survive the crisis in the U.S. dollar without taking on unnecessary risk.  Sign-up for my 100% FREE Alerts

First, Schiff warns all investors of the trend of the U.S. dollar.  It’s down.  The Fed, in its effort to prevent a sovereign debt and banking collapse, is on course to print the dollar “into oblivion” to replace the financial hole left from bad debt still maintained on the books of the banks and at the Fed, according to him.

“I think what retirees need to understand, is that when the dollar is wiped out, all dollar denominated debt instruments are going to go with it,” Schiff stated.  “So what they have to do is get out of the dollar completely.”

That means, though ‘safe’ assets denominated in U.S. dollars, such as U.S. Treasuries, municipal and corporate bonds will most likely return the face amount of the bond to maturity, the value of those bonds will drop rather rapidly over time, according to Schiff.

A return of two percent on a 10-year U.S. Treasury won’t keep up with food and energy costs, if those commodities appreciate at an average rate of, say, 6 to 8 percent per year.  In other words, Schiff believes the U.S. will continue a repeat of the ‘stagflation’ of the 1970s, but during this decade, the rate of inflation could turn out markedly worse.

Moreover, due to the low rates paid on dollar denominated bonds, Schiff sees a troubling trend by some fund managers who offer retirees ‘higher yielding’ U.S. Treasury funds.  These higher yields can only be achieved by ‘leveraging up’ the fund, a risky proposition to retirees, according to him.

“A lot of them [retirees] are buying longer-term U.S. Treasuries, you know, maybe 30 years to get extra yield.  In so doing, they’re taking enormous risk,” Schiff explained.  “In fact, many of the funds that are out there are actually levering up longer-term debt.  That’s incredible risk.  Other people are buying overpriced stocks.”

Schiff outlines the dilemma presently facing retirees (and other investors), that the financial media refers to as ‘financial repression’, a term used to describe Federal Reserve policy of coaxing investors into assets as a potential means of achieving a meaningful yield by taking on more risk.

Schiff thinks Fed policy is wrong, but he also believes there is a way out for retirees.

“So retirees need to buy gold and silver,” he said, a recommendation also made by famed author Richard Russell of Dow Theory Letters.  “If they want more current income, they need to look toward foreign sources.  I particularly like high-dividend paying foreign stocks.

“But if you can’t take that risk, you can still buy bonds denominated in foreign currencies.  But what you don’t want to do is make the mistake of buying long-term U.S. dollar denominated bonds, because I think the biggest losses in this financial collapse are going to be absorbed by ,felt by, the bondholders.  Even those who own U.S. government bonds or municipal bonds, bonds that are thought to be low risk are still going to be wiped out as the dollar collapses.”

As a summation of the Schiff strategy for retirees, he suggests that the techniques of wealth preservation today differs from a more ‘normal’ investing environment in that assets held should be denominated in foreign currencies, not U.S. dollars.

Allocations between stocks and bonds may not necessarily need to vary from a typical retiree portfolio of investments; it’s the currency in which the assets are denominated that matters in a Schiff strategy.

He likes the currencies Swiss franc, Australian dollar, Norwegian krone, Singapore dollar and Canadian dollar.

Additionally, Schiff suggests that gold and silver should be held as a hedge against all currency risks to a portfolio allocation between foreign stocks and bonds.  Sign-up for my 100% FREE Alerts

Source: Yahoo Breakout

Gold:Silver Ratio Screams BUY SILVER

If ever a chart signaled a time to buy, it’s the silver chart.  Breakouts are everywhere, with the big one at $37 still ahead of us.  Then there’s nothing between that price and $50.   Sign-up for my 100% FREE Alerts

But it may get much better, of course.  Silver investors are already aware of the explosive moves in the metal.  The chart (gold:silver ratio), below, serves as a visual reminder of how wild the runs can get when compared with the more tame precious metal cousin, gold.

Previous violent compressions of the gold:silver ratio manifested, starting on Oct. 3, 2003, when the ratio briefly touched 80 on a Friday (keep that in mind).  Silver closed at $4.80 on the day.  Six months later, on Apr. 6, 2004, the ratio bottomed at 51, for a drop of 36 percent in the ratio.  The silver price closed at $7.21, a gain of 50.2 percent for that period.

The more recent and ever more dramatic decline in the gold:silver ratio began on Jun. 4, 2010, when the ratio briefly touched 70, on a Friday.  The silver price closed at $17.41 per ounce.  Nearly 11 month later, on Apr. 29, 2011, the ratio pierced 31, for a drop of 56 percent.  Silver ended the day at $48.48, for a 178 percent gain for the 11-month hyperbolic move.

Then, of course, the raid on silver began within 30 minutes of the open of trading on Globex.  The silver price plunged nearly $6 in literally minutes, according to Kitco’s database for May 1 (May Day).

It appears that another compression rally is underway.  This time, on Dec. 30, the gold:silver ratio touched 57, again on a Friday.  Since then, the silver price has soared, taking the ratio back down to 51.  Silver closed at $27.86.  A ratio of 50, if broken, could start the avalanche to a much tighter ratio.  Everyone is watching closely.

So a compression in the gold:silver ratio to, say, the extent of the Oct. 3, 2003 – Apr. 6, 2004 rally of 36 percent, the new ratio calculates to 36.5 for this present move.  If the compression reaches the Jun. 4, 2010 – Apr. 29, 2012, rally, the ratio calculates to 25.

During the Oct. 3, 2003 – Apr. 6, 2004, silver rally, gold closed at $372.50 on Oct. 3 and $418.50, respectively, for a gain of 12.3 percent for that time period.  Silver rallied 50.2 percent during that period, or a 4.08 times more powerful move in favor of silver.

The monstrous rally in silver from Jun. 4, 2010 to Apr. 29, 2011, was a 178 percent move, against gold’s move of 28.3 percent—from $1,220 to $1565.70.  Silver’s move again trounced gold’s to the tune of 6.3 times!

Assuming gold and silver are indeed in a power move up and that Jon Nadler and Nouriel Roubini are dead wrong, the combinations of potential gold prices and ratios are too numerous to present here.

But let’s assume the 2010-11 rally in the precious metals repeats.  A 28.3 percent return on gold from the Dec. 29, 2011, close of $1,565.70 calculates to $2,009.  Taking a gold:silver ratio of 25 and dividing that number into $2,009, that calculates to a silver price of $80.36.

If to match the duration of 11 months from the 2010-11 silver rally to the present one, by year end, silver would reach $80.

But of course, after silver passes the $50 threshold, $100 is assumed to be the next target.  That’s the Stephen Leeb scenario, and it makes a lot of sense.  Traders love round number targets.  But then there’s the cartel who’s watching, too.  $100 might be their target, as well.

Richard Russell once stated that as far as the price of gold is concerned, traders will look at $2,000, $2,500, then $5,000, and then $10,000.  So, at $2,500 gold on this move and a ratio of 25 gives us that $100.  Sure makes David Morgan’s target of $60 tame, but traders would still make out like bandits.   Sign-up for my 100% FREE Alerts

Marc Faber Fears Gold Confiscation

Aside from the cherished and entertaining Faberisms deployed from time to time in his fight to preserve the truth in front of television audiences controlled by a media-based establishment propaganda machine, Marc Faber also demonstrates why he’s the go-to man for clarity and thoughtful insights in the midst of today’s Orwellian headache.

Speaking with FinancialSense Newshour’s (FSN) James Puplava on Wednesday, Faber, the editor and publisher of the Gloom Boom Doom Report discusses a range of topics, from geopolitics, to freedom and tyranny, to his concerns of people living in an age of central bank monetary cannons gone completely rogue.  He also touched on one of his favorite asset classes, gold, and the third-rail subject of interest to every gold bug: government confiscation.  Sign-up for my 100% FREE Alerts

Note: James Puplava’s FinancialSense.com Web site is loaded with some of the most informative interviews from the brightest minds assembled on the Internet.  See its audio archived interviews.

As far as how high the price of gold can go, it depends upon who has control of the printing presses, according to Faber.  Right now, he said, the power hungry in Washington won’t let gold bugs down, as each sign of a lurking systemic collapse or stock market meltdown has been propped up by the Fed.

“If I could show you a picture of Mr. Ben Bernanke and Mr. Obama, then I would have to say that the upside is unlimited,” said Faber.

And the downside risk to gold rests on the shoulders of central bankers, as well, as the Fed, and now the ECB, will go to any length to feed the global financial system with creative and backdoor credit expansion mechanisms.

“In my view the downside exists if money printing by government is insufficient to revive or maintain credit growth at this level and you have a credit collapse,” he said, and also noted that competing asset classes would most likely fall more, thus retaining gold holders purchasing power during a bona fide deflationary collapse.

But, first, the globe will undergo roaring inflation, according to Faber, then, second, the Robert Prechter, Gary Schilling and David ‘Rosie’ Rosenberg deflationary spiral scenario will play out.

“One day there will be a credit collapse, but I think we aren’t yet there.  Before it happens they’re going to print,” Faber speculates.  “And when printing as it has done in the last 12 years in the U.S. leads to discontent populations, because when you print money then only a few players in the economy that benefit, not the majority of households.”

However, Faber warns that the gold market’s extremely volatile, a normal symptom of a fiat-backed financial system inducing the public into schizophrenia—of clinging to the familiarity of a 67-year-long financial system, moving to periods of fearing total loss at the currency graveyard—will chase investors out.

“A 30 percent correction or 40 percent correction cannot be ruled out, but as I maintain, again and again, I’m not going to go and sell my gold,” Faber said forcefully, as he explained that owning gold is should be viewed as the ultimate insurance policy to cover financial calamity, a viewpoint shared by famed Dow Theory Letters’ Richard Russell—another periodic guest of FSN.

Whether the gold price is in bubble territory, as a few prominent analysts claim, Faber doesn’t see it that way, at all.  In fact, he said, very few people own it or talk about it.  History clearly demonstrates that every bubble will suck in the very last investor before collapsing under its own weight.

Besides, the powerful propaganda machine, which endlessly repeats the party line of a system predicated on a fiat system of dollar hegemony, will not allow cheerleaders of the gold bugs to expend too much airtime away from Wall Street advertisers and obvious shills (to the trained eye) of CNBC, Bloomberg and other ‘mainstream’ media.

So far, the propaganda has only delayed the inevitable rush into gold—the next and longest stage of the bull market.

“I have one concern about gold.  I was recently on Taiwan and South Korea, at two large conferences, nobody owned any gold,” Faber said.  “Gold is owned by a minority, even in the U.S..  Most people in the U.S. have no clue what an ounce of gold is or looks like and so forth.  The same in Europe.”

But as the ‘wealthy’ begin to acquire gold, the chasm between the ‘rich’ and poor will widen substantially, not just between the 1 percent and the rest, but between the upper 10 percent and the growing-poorer middle class.  That’s when the democratic process turns ugly, morphing from a society of rights to a nation ruled by a tyrannical banana republic political dynamic.  See FSN interview, Ann Barnhardt: The Entire Futures/Options Market Has Been Destroyed by the MF Global Collapse.  Or transcript.

Populist political leaders vying for votes from the masses will opt to score easy points with the 90 percent have-nots at the expense of the haves, with draconian taxes on assets such as gold and silver held by the haves, not just through taxes on capital gains, but maybe even through a wealth tax on the holdings.

“This is what the tyranny of the masses can do,” Faber explains.

“You can make it, advertise it to the masses by just taking away from a few people, he added.  “I’m worried most about is the case of gold, not the price; that I’m not worried . . . but I’m worried about the government taking it away.”

The interview moves on to the discussion of the bull rally in gold and silver.  After 11 years of continuous gains in the price of gold, why, then, do so few investors hold the metal?

Faber explains that there remains too many deflationists holding to their thesis of a tumbling gold price, though, as Faber suggests, there has been no factual evidence to support the argument since the pop of the Nasdaq bubble of 1999.

What deflationists point to as proof of their contention, declining housing prices and stock prices, are really manifestations of inflation moving out of those asset classes into others, such as commodities, precious metals and overseas assets, of all kinds.  Inflation, Faber has stated in the past, doesn’t move all asset prices up simultaneously.

“I don’t hear about gold.  I lived through the last gold bubble between 1978 and January 1980.  The whole world, whether you were in the Middle East or in Asia or Europe or in America was trading London gold, buying and selling every day,” he recalls.  “This has not happened yet, and it hasn’t happened.  Your friends, the deflationists, have been telling people that gold will collapse to $200 an ounce for the last 10 years and that’s it was in a bubble.

“[They] said it [gold] was in a bubble at $500; they said it at $600, and they’re still maintaining it.  So a lot of people they don’t own it; they bought it and sold it again.  But in the meantime, gold has moved into sold hands.

“In my case, I’m not going to sell my gold unless I have to.  In other words, everything else is bankrupt, bond market, stock market, cash and real estate.”

Faber also points out, even though the price of gold appears to look like and quack like a bubble duck, with the price of the yellow metal sporting gains of 700 percent since the year 2000, the monetary base and credit creation by the Fed has been so large for so long, the gold price has much more room to move higher to reach ‘fair value’.  See Goldmoney Founder James Turk’s analysis on this very point: BER article, Goldmoney’s James Turk, $11,000 Gold Price.

“I can turnaround and say, look if I consider the price of gold, an average price in mid-1980s, then we take $400 or $450, or whatever it is,” Faber explains, “and we take the monetary base at that time; we take the international reserve; we take into consideration that China hasn’t really begun in earnest to open up; and we haven’t had this wealth expansion in emerging economies, and so forth and so on.  Then, I can maintain, well, actually the gold price is not up; it’s just the price of money, or the value of money, has declined so much against a stable anchor.  So I don’t think that we’re in a bubble stage.”

For the newcomers to the gold market, Faber stresses, “Don’t buy it on leverage.”

Reiterating his previous comments during the interview, Faber leaves the FSN listener with his overriding observations of a U.S. government (other Westerner countries, as well) that shows signs of eventually taking the next steps in its fight to maintain a hopelessly broken political and financial system: confiscation, not necessarily though a highly unlikely and dangerous door-to-door search of proof of non-paid taxes on a citizen’s bullion stash, but through confiscatory levels of taxation and possible criminal penalties to those who daring to escape the Marxist or Fascist regime’s grip on power over its population’s wealth.

“My only concern with the gold insurance is government will take it away,” Faber concluded.  “That is my only concern.  I’m not concerned about the price.

“I also have a concern generally speaking about our capitalistic system.  For sure people with assets, they will be taxed more heavily, that’s for sure.”

Dow Theory Richard Russell: Gold, “Island of Safety”

Following the surprise announcement on Wednesday that six central banks have lowered dollar swaps rate by 50 basis points in an effort to allow European banks to bypass a rising LIBOR rate, Dow Theory Letter author Richard Russell told King World News investors should expect a jolt in commodities price in the future.

“The world’s major central banks launched a joint action to provide chief emergency U.S. dollar loans to banks in Europe and elsewhere,” Russell stated.  “In a desperate effort to raise stocks, the central banks of the world coordinated by forcing more money into the world system.”

The announcement incited a stampede into equities and commodities, as traders fell over each other to buy more of their favorite inflation play, resulting in pre-holiday gifts of a 400+ points rally in the Dow, $30 rise in the gold price and a nice spike of a dollar to the price of silver.

“This is exciting for now,” added Russell, “but it will result in inflation within 6 months to a year.”  Sign-up for my 100% FREE Alerts!

Moreover, and more importantly, the bold action by the Fed and five other central banks to lower rates in the swaps market also sent yet another clear signal that the Fed-led cabal of central bankers are not about to allow the epic ongoing debt destruction to get ahead of money printing.  It’s simply a matter of inflate, or die.

And the consequence of inflation of money supplies is commodities price inflation, including higher gold and silver prices.

But it appears that a recent RBC Capital Markets report suggests that Russell may have to come back on King World News with an encore inflation warning.  In the spirit of coordinated central bank easing, Wednesday’s Fed announcement now opens the door to an easing on the other side of the Atlantic.

“It is now cheaper for foreign banks to borrow dollars from their local banks than it is for U.S. banks to borrow dollars from the Fed, so we could see a 25 basis point cut in the discount window in the coming days to level the playing field,” stated RBC Capital Markets’ Michael Cloherty.

Other Fed watchers believe, that as the year winds down, the timing of a Cloherty Fed-easing event could coincide with a “quiet coup” at the Fed come the first of the year, according to zerohedge.com, who cites a SocGen report which notes that 3 of 4 Fed hawks presently voting at the FOMC meetings will rotate out on Jan. 1, 2012—just in time for the next FOMC Meeting of Jan. 24-25.

“With under 30 days left in 2011, the current roster of 4 rotating voting Fed governors is about to be swept out, only to be replaced with 4 new ones,” stated zerohedge.  “ . . . the rotation will probably be the most dramatic in Fed history as 3 die hard Hawks (and 1 dove) are eliminated only to be replaced with a panel which is almost exclusively Dovish.”

SocGen concluded in its report, stating, “Buy gold ahead of QE3 as money creation has a strong impact on prices,”

Russell agrees with the SocGen thesis, but his advice to investors is dispensed with a long-term horizon in mind, irrespective of further Fed easing speculated for January. He’s looking at the endgame for the U.S. budget and the value of the dollar, as inflation reasserts itself on top of a landscape of Fed-engineered artificially low interest rates—a recipe for a coming convulsion by holders of U.S. Treasury debt, according to Russell.

“Along with rising inflation will be its cousin, higher interest rates,” he stated. “This will impact everything from commodity prices to the rising cost of financing the federal debt. Right now the federal debt is being rolled over at extremely low interest rates, but as rates climb, compounding will occur and the cost of rolling over the federal debt will become a critical problem.”

Putting some numbers behind Russell’s analysis, compiled from the Heritage Foundation and the U.S. Treasury, Russell’s point becomes much more clear.

Year           Tax Rev.*   Debt*         Int.*           Avg. %       Int./Tax Rev. %

2000          2,025                  05,674       362            6.4             17.8

2005          2,153                  07,932       352            4.4             16.3

2008          2,523                  10,024       451            4.5             17.8

2009          2,104                  11,909       383            3.2             18.2

2010          2,160                  13,561       414            3.1             19.2

2011          2,150                  14,780       454            3.1             21.1

* billions (US$)

Fiscal 2012 is expected to end with a total debt level of $16.4 trillion, well over 100 percent of GDP and nearly triple the total federal debt of the year 2000.  When interest rates eventually rise back to an average rate of interest of, say, 6 percent, the federal budget deficit will explode into a Greece-like scenario.

What if the day of reckoning for the U.S. Treasury market hit during fiscal 2012?  Calculating the average interest paid (rate of 6 percent) on a projected total federal debt of $16.4 trillion for fiscal 2012, the percent of total interest payments to revenue would reach 45.8 percent!

2012          2,150                  16,400       984            6.0             45.8

As interest rates rise, the death spiral in the dollar begins.  Russell advises investors to just let the magic of compounding interest work its damage on the federal budget and “to sit tight” with gold as the Fed must expand its balance sheet as it monetizes the new debt, kicking off the aforementioned death spiral.

“The first bubble to be crushed will be the ridiculous federal debt,” Russell concluded his comments to King World News on Monday.  “The second crushed will be the U.S. dollar.  The compounding federal debt will act as a steam roller, rolling everything in its path.  The island of safety will be pure wealth, better known as gold.

“Patient subscribers will be rewarded for their patience.  The great enemy will be the act of compounding pressing its weight of the U.S. debt.  Just as compounding turned rising money supply into fortunes, compounding the rising interest rates will turn fortunes into shoestrings.”

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.

Dow Theory Richard Russell’s sage advice

As the wearying action in Europe takes a brief intermission, Dow Theory Letters Richard Russell was busy penning his 12 Commandments for surviving the upcoming “bad times.”  For those who think we’re already in the midst of the worst, well, that mantra of a “new normal” thrown about by the big names of finance is today’s euphemism for bigger trouble is a comin’.

For years, the “Dean of newsletter writers”, as KWN’s Eric King refers to the 87-year-old Richard Russell (Sage of La Jolla), has written extensively about a troubled and dangerous world he witnessed as a child during the Great Depression, and later, as a very young man who fought in the European theater of WWII.  Given all his experience, a surf to a synopsis of Russell’s recent letter to investors, outlining his 12 Commandments for the survival of the coming financial storm makes for a good quick read.

Not unlike the 10 Commandments of the Bible, the King Richard version, backed by more than 60 years of financial wisdom, can also be condensed into a cheat sheet of 10, plus two more, to make it an even dozen.

The bottom line to Russell’s advice, especially for baby boomers, is to start acting like their parents (or grandparents) once acted.  In other words, no frivolous spending and make do with what you got.  There’s a very good reason for the huge cash balances piling high on balance sheets of the Fortune 500 companies, as the executives of job creation and wealth know very well that the Keynesian magic of yesteryear when governments filling the income gap with stimulus is done.

And let’s no forget about the bullion expert Jim Sinclair of JSMineset, who has repeatedly warned his readers, “This is it!”, referring to the inevitable von Mises crack-up boom phase coming to U.S.

If you can manage to complete step one of Russell’s advice, that is, squirreling away as much money and resources as you can in preparation of the K-wave Winter, the acorn thieves will, as sure as the sun will come up in the morning, try to ingratiate themselves into taking some of your stash.  Wall Street, working with its clever advertising buddies, are masterful at this art form.

“Real estate never goes down.”  Remember that one?  “Stick with stocks for the long haul.”  How have stocks performed overall since 2000?  Was that advice meaningful from 1968 to 1982?  “The recovery is here” is another favorite.  According to John Williams of Shadowstats.com, there’s never been a recovery.

“Buy stocks on the dips.”  You get the picture.

And for additional laughs, read the quotes of the officialdom back during the Great Depression.  We expect public officials to lie and scrape in front of the electorate, but take careful note of what the alleged masters of business were saying as well during the 1930s.  As you read the quotes from the titans of those days, Warren Buffett may come to mind.  Will that one-trick pony from Nebraska still be around to see the historic climb in the price of gold as well as the impoverishing real rate of return on his paper empire crumble in the coming decade?  Will anyone remember how he was bailed out along with the banks, Fannie and Freddie, GM and a bunch of broker-dealers?

Which brings us to Russell’s thesis of where to front run the coming financial devastation yet to come.  He, unlike the Orifice of Omaha, has suggested for more than a decade that holding gold is the way to go to protect from a Ponzi-like debt scheme gone horribly wrong.  In fact, Russell told his subscribers he holds a personal record amount of gold in his portfolio, with the rest of his stash held in very short-term Treasuries—in other words, cash he expects won’t be lost to an outright default, only a loss in purchasing power.  But his gold has hedged that cash very, very well for some years now.

Where to now for Gold? Peter Schiff, James Turk and Richard Russell weigh in

The three men most well-known to the broader investment community seeking a fair shake and honesty from the financial industry, Peter Schiff, James Turk and Richard Russell, all have recently gone on the record as raging bulls on the gold price in the coming weeks and months.

Each man has his unique style of communicating the fundamentals underlying the move in the precious metals; the widely misunderstood concepts regarding money, in general; and why it’s vital to act now to protect wealth from monetary events expected to materialize one way, or the other—with both outcomes varying in degree of tragedy.

Either politicians and monetary authorities will standby idle and let nature takes its course regarding irreparable insolvencies of governments and many of the largest financial institutions, globally, or they will attempt to fix only the symptoms of a malaise that cannot be ultimately fixed without profound consequences, which are inevitable anyway, but will take on a different guise.

All told, both outcomes point to gold as a no-brainer asset of choice during the widespread and profound awakening coming soon, globally, and will most likely avail is itself in earnest some time by New Year.

Starting with the man with the most stamina and passion for waking up the mainstream investor: Peter Schiff of Euro Pacific Capital.  Schiff possesses the business sense to promote almost any investment, making a living while guiding his clients through both calm waters and avoiding tidal waves.  A win-win situation for him and his clients.

“ . . . gold is going to go higher because people want refuge, Schiff told King World News, yesterday.  “In fact the other safe havens in the currency world, like the Swiss franc or the yen, the central banks there are trying to undermine their currencies.”

Investors thinking that they can avoid the decision to acquire the politically incorrect asset, gold, by buying Swiss francs, instead, will ultimately be disappointed, according to Schiff.  A very strong currency can be almost as troubling to portions of an economy than a weak one is other part of the economy.

Both Japan and Switzerland have taken measures to halt the rapid appreciation in its currencies against the two major reserve currencies of the U.S. dollar and euro.

“I mean the Swiss are actually thinking about pegging their currency to the euro,” Schiff continued.  “One of the reasons people were buying the Swiss Franc was to get out of the euro.  Now they are threatening to turn the Swiss Franc into the euro.  So what’s the one asset that central banks can’t print?  That’s gold and so gold is the last man standing and everybody is going to be piling into it.”

Next, James Turk of goldmoney.com, the man who is presumably closest to the bullion market than either Peter Schiff or Richard Russell given his experiences of running a bullion storage business on a day-to-day basis.  Turk has been as accurate with his short-term predictions as one can with the information, deep knowledge and vast experience he possesses.

“Gold has been rising against all national currencies, and that’s significant,” Turk told IB Times, Monday.  “Politicians and central bankers are making decisions that debase national currencies, and the resulting bad monetary policies they are following are causing the gold price to rise.”

Turk continued, “When there are problems with a national currency … (investors) begin to worry about the value of their money, whether they’re going to lose purchasing power because of inflation or other problems. As a consequence, they look for safe havens.”

And last, but certainly not least, Richard Russell, the publisher and editor of Dow Theory Letters, has been successfully guiding subscribers of his investor newsletter for more than 50 years.  The 87-year-old survivor of the Great Depression, WWII, and many recessions as well as a few inflationary scares told his readers to hunker down like no other time of the past 65 years.

“ . . probably 90 percent of living Americans have never seen or lived through what I call really ‘hard times,’” Russell noted in his newsletter last week, implying that many investors suffer from a term floating around recently, a normalcy bias.

“When chaos reigns, people look for certainty,” he continued.  “When all is lost, only one item stands supreme and has been supreme for thousands of years. That item is gold.”

And if it wasn’t for Russell’s stellar reputation as a man of rigorous reason and steady hands, the notion of the gold price reaching the cost of a used Ford sedan at the end of the bull market in the world’s safest of safe havens would appear to most unfamiliar with the true meaning of money as ridiculous.

“At 2,000 [gold price], the next objective would be 2,500, and from there, 5,000, and from 5,000 – 10,000.  As gold marches higher, it’s playing the death knell for fiat money. And every central banker knows it.”

That statement, coming from the Godfather of financial newsletter, is not to be taken for the purpose of entertainment.

Dow Theory’s Richard Russell: Gold $1,880

As the gold price doggedly trades above $1,600, the Godfather of stock market newsletter writers, Richard Russell, recently wrote that he’s targeting $1,880 for the king of currencies, gold.

“There isn’t much clear and defined in this market except for gold,” stated Russell, the author of The Dow Theory Letters.   “How much of this is based on the Washington shenanigans I don’t know, but once the debt boost is solved the test will be whether gold tends to hold its gains.  By the way, the P&F [Point & Figure] chart shows a price objective of 1,880.”

Incidentally, according to stockcharts.com, the technical rule for a breakout price objective for gold suggests a target of $1,910.

Nevertheless, today’s GDP report only buttresses Russell’s assessment for the future direction of the gold price.  Friday’s GDP report came in at a dismal 1.3% rate for the second quarter, while the real shocker in the Commerce Department announcement was the drastic downward revision for the first quarter to 0.4% from the initially published pace of 1.9%.

Plunging GDP and jobs puts the Fed in a situation not dissimilar to the summer of 1933, but, back then, the debt levels were a mere fraction of Boston University Professor Laurence Kotlikoff’s estimate of $200 trillion in today’s unfunded federal liabilities—which is an amount too unimaginable for creditors to anticipate anything other than a some form of default.  Under that scenario, gold could be just beginning to gather additional steam.

“I’ve studied bull and bear markets for over half a century,” added Russell.  “In my experience, great extended bull markets, such as the current ten-year bull market in gold, don’t die with a wheeze and a whimper.”

The gold market is telling Russell the American public has yet to fully comprehend the no-win policy decisions yet to be made in Washington and at the Fed, as well as much higher food and energy prices in store for Americans during the second half of 2011 due to the Fed’s QE2 (inflation) program—a prediction made this week by Euro Pacific Capital’s Peter Schiff.

And like Schiff, the older Russell relies upon his more than 50 years of acquired instincts for anticipating another gold craze he thinks is destined to be launched by the retail investor—a craze he’s stated in the past could dwarf the gold mania of 1979-80.

“They [gold bull markets] die amid excitement, torrid speculation and finally the wholesale entrance of the retail public,” continued Russell.  “I’ve yet to see any of those characteristics in the current gold bull market.  Therefore, I’m trusting history, and I’m sitting (in) the gold bull market.”

Russell also sees the possibility for a divergence in the Dow and gold, which, from the start of the rebound in both assets off the March 2009 lows have moved in tandem between a ratio of as high as 10:1 and 7.8:1.  But this week, the Dow-to-gold ratio has fallen through the 7.8 level to the 7.5 level—a sign that gold has usurped the dollar as the premier safe haven asset.

“Wait, does it make sense for the Dow to sink while gold moves higher?” Russell asked rhetorically.  “Under one scenario it does.  Here’s the scenario.  Bernanke continues to stimulate, but the newest stimulation (like the old ones) don’t work, and the declining stock market is already discounting Bernanke’s continuing failure.”

And what does Russell say about this year’s rage of the precious metals—silver?

In his latest edition of his daily newsletter, he wrote, “Silver broke out above both its 50-day and 200-day moving averages, and its MACD has turned bullish.”

Growth in gross domestic product — a measure of all goods and services produced within U.S. borders – rose at a 1.3% annual rate. First-quarter output was sharply revised down to a 0.4% pace from a 1.9% increase.

Economists had expected the economy to expand at a 1.8% rate in the second quarter. Fourth-quarter growth was revised to a 2.3% rate from 3.1%.

Citigroup’s call for the Silver Price

Here comes yet another prediction for the precious metals.  This time, Citigroup Global Markets chimes in with its price prediction for the most popular “thing” to front run the coming full-blown repudiation of paper money in our future—silver.

“If the final rally in the last bull market repeated then we can expect $100 over the long term,” Citigroup’s (NYSE: C) Tom Fitzpatrick and two other analysts wrote in a research report of July 15. “While the high so far this year was at the same level as the peak in January 1980, we are not convinced that the long-term trend is over yet.”

Fitzpatrick’s mention of January 1980, the month of panic, mania and silver’s meteoric rise to $50 on the backs of the Hunt Brothers, takes us back to a time when Jimmy Carter was president, Abba and the Bee Gees dominated the music charts, and a new home could be built for $76,400—though, the median-size of a new home back then was approximately 20% smaller than today’s, according to U.S. Consumer Financial Protection Bureau Special Advisor to President Obama, Elizabeth Warren.

Nevertheless, a comparison of some reasonable benchmarks between 1980 and today reveals some food for thought regarding the ultimate price silver can achieve during a riot rally soon to spark in gold’s kissing cousin.

In 1980, the Dow reached a high of $903.84 on February 13, 1980, and a low of $759.13 on April 21, 1980. The average close of the Dow 30 Industrials in January 1980 was $860, about the same price as an ounce of gold at that time, and 17 times the peak price of silver at $50.

For the same ratio to be reached between the Dow and the silver price, today, silver needs to climb to $735 per ounce, the Dow must drop significantly, or the two must meet somewhere in the middle—or, in the deep out-of-the-money hyperinflation scenario, the Dow and the silver price could add a bunch of zeros to today’s levels.

As the federal debt limit talks move into the bottom of the ninth inning in Washington, the Tea Party pushes Republicans to make the $14 trillion federal debt an issue during the upcoming 2012 political campaign.  Similarly, in 1980, Americans were up in arms regarding a federal budget nearing the, outrageous at the time, $1 trillion mark.  A few years later, Ronald Reagan became the first $1 trillion president during his first term in office (1981-84).

Using the federal budget as a comparative metric, the peak price of silver at $700 wouldn’t seem that crazy.  In fact, some pretty intelligent and steady-handed bullion analysts have suggested numbers not too far off that number.

In 1980, U.S. GDP reached $2.8 trillion, while federal spending topped $590 billion at the end of fiscal 1981.  Fast forward to today, and we find Washington spending $3.6 trillion, which includes interest on $14 trillion of accumulated debt.  The silver price when compared with federal spending and total federal debt (not including more than $150 trillion in unfunded liabilities, according to B.U. professor, Laurence Jacob Kotlikoff and economist John Williams), calculates to $305 and $250, respectively.

In terms of the Fed’s monetary base statistics, the monetary base in 1980 stood at $133 billion, compared with the $2.7 trillion at the close of business on July 17, according to Federal Reserve statistics.

“The price of silver would have to reach $980.57 before it is in 1980 bubble territory,” according to CQCA Business Research, the firm that posted on its Web site the calculations when comparing the Fed’s monetary base and a $36 silver price.

Using 1980s peak price of $50, the silver price of $1,325 would look like today’s gold price at the end of this bull rally.

Back to Citigroup’s research report.  The boys at Citi feel the nosedive decline in the silver price, which began in May, is now over, giving investors the green light to back up the truck and load it up with silver.  A less gutsy call than James Turk’s call for a bottom (presumably) when silver was still in free fall as it hit the $33 level.

“The move down from the April high this year has come to an end and the double bottom is a good platform for a turn back up,” the three Citigroup analysts said in their report.

At today’s price of $40 the ounce, silver has already soared 650% from the average price of $5.33, set in 1999.  If investors had hooked onto the likes of James Turk, Jim Sinclair, Peter Schiff, Richard Russell, and the raft of bullion experts and old hands frequently interviewed on King World News, the massive profits could have already been made in silver.

But, after reviewing the particularities between the years 1980 and 2011, Citi’s call for $100 silver isn’t quite going out on the limb.  Jim Sinclair’s call for $12,000 gold and, presumably, $600+ silver (given the historical ratio between the tow metals at their peak prices), is, indeed, a bold call—but not an unreasonable one.