© 2014 by King World News®. All Rights Reserved. This material may not be published, broadcast,

rewritten, or redistributed.  However, linking directly to the blog page is permitted and encouraged.

Subscribe to RSS
KWN Blog

Russell:  “This is what I call an “erosion market.”  It's one of the nastiest types of markets that you'll ever have to deal with.  It's illustrated in the Dow chart by a large cluster of back and forth movements, appearing almost like a solid block of fluctuating movements.  This is a market where you buy a stock and a day later you're sorry you bought it as the stock suddenly drops 10%. 

By the same token, this is a market where you short a stock and a day later the stock rallies six points and you're stopped out.  An erosion market can be as costly as a bear market.  Ten minor losing trades, when combined, can add up to one large, nasty loss.  I've asked my subscribers to stay out of this market, because an eroding market can murder any portfolio over time. 

I thought Friday was a key sentiment day.  On Friday I thought outright greed and extreme optimism suddenly turned to questioning with just a touch of fear.  The unimpressive employment statistics caused a strange and abrupt halt to the optimism.  It was as though the pros in unison thought -- “Has the Great Recession really ended?”  At Friday's close the Dow Industrials and Transports and NASDAQ were all down triple digits for the first time in many months.

Question -- Russell, I gather you don't care for this stock market since you have been on the sidelines except for physical gold and silver and one preferred stock.  If you don't care for this market, then why don't you recommend shorts?

Answer -- When you put out shorts you are depending on timing.  If you short the market, you may be perfectly correct, but before the market or your stocks go down, suppose there's a sudden violent rally.  In a few days you are in a horrible fix.  Should you cover?  Were you wrong about shorting?  You see, being on the sidelines takes you out of harm's way, and leaves you invulnerable whether the market collapses or rallies first before it collapses.

My experience with subscribers shorting is that they usually end up losing both money and sleep.  Don't do it.  If you must play for the downside, buy out-of-the-money puts in which case you can only lose the price of the puts -- even if you are wrong.

More on sentiment.  I've felt all along that the Great Recession never ended.  It was masked to some extent by the Fed's QE and zero interest rates.  But if it becomes obvious that the US economy is still in recession, then the Fed will have to halt its tapering and change tactics.  This kind of sudden change in strategy would be almost unheard of by the Fed.  Actually, if the Fed abruptly halted its tapering, investors would immediately know that something was wrong, and that the economy was in trouble.

Thus, I see the stock market in an incredible position.  The major stock averages are near or at record highs, based on investors' perception that the US economy is in good shape and getting better.  But if the perception of good times suddenly changes (which I think it did last Friday), then the stock market will be like Wile E. Coyote when he runs off the cliff and looks down and there is nothing but space under him!

I read a number of quotes by “name analysts” after Friday's close.  One well-known analyst said that he was so suspicious of the situation that he would not be shocked if the Dow “crashed” by twenty percent.  And my thought was that most of the bears are thinking of a worst case being the long-awaited ten percent correction.  My own thought is that if this market turns down, the fooler could be that the stock market may be completing the Bear market that started in 2007.  The fact is that if the stock market turns down, nobody in this world knows where its is heading.  Me, I vote for the sidelines along with physical silver and gold.

By the way, I note that one of my favorite newsletter writers wrote that “gold is just another currency.”  I disagree.  Gold represents pure wealth and unlike all other currencies, gold needs no nation to guarantee its worth or value.  The gold that Cleopatra wore around her neck represented wealth in her time.  And that same gold represents wealth today. 

All the gold ever mined in history represents wealth today.  Can any currency make that statement?  No, gold is not just another currency.  Tie up a bundle of hundred dollar bills, put them in a vault, and will them to your great-great-grandchildren.  Then place twenty gold one-ounce coins in a box and will those coins to the same great-great-grandchildren.  Which is a better and more valuable gift?  Odds are the bundle of hundred dollar bills will, in due time, be worth nothing unless they have some collectible value.

Below we see the silver/gold ratio.  And what's this?  The ratio has turned up in favor of silver.  I encourage subscribers to take actual physical positions in silver.  I think something is quietly brewing in silver.  Buy the “monster” pack of 500 ounces of silver.  The pack comes in a special green box, put out and packed by the US Treasury.

To subscribe to Richard Russell’s Dow Theory Letters CLICK HERE.

© 2014 by King World News®. All Rights Reserved. This material may not be published, broadcast, rewritten, or redistributed.  However, linking directly to the blog page is permitted and encouraged.

IMPORTANT - KWN has many more interviews being released today.

The audio interviews with Egon von Greyerz, Dr. Marc Faber, Rick Rule, Ben Davies, Rob Arnott, Dr. Paul Craig Roberts, Andrew Maguire, Art Cashin, Gerald Celente, Eric Sprott, Bill Fleckenstein and John Mauldin are available now. Other recent KWN interviews include Jim Grant and Felix Zulauf -- to listen CLICK HERE.

Eric King

To return to BLOG click here.