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Russell: “This is not the same market that we dealt with a year ago. That was a market that lived on buys and sells of the public. Today's market is run by the hedge funds. This morning my old broker from E.F. Hutton came over to talk to me. He told me that the quickest way to lose a customer is to keep them out of a rising market. The public will stomach a loss, but will not forgive you if you keep them out of an advancing market.

That applies to today's action. Hedge funds and money managers must be in this market; they cannot afford to be out. The money managers ignore bad news and above all they remain in the market. As a result, the stock market continues to rise regardless of the Ukraine, Gaza, or any other negative news. The question is, how high will the tree grow? At some point, and nobody knows when, the stock market will become top-heavy, at which point it will fall of its own weight. 

From my own standpoint, my position is to focus on preservation of capital rather than the risk of striving for capital appreciation. I have picked silver and gold as my form of capital preservation. Both are trading solidly in fixed ranges, which is fine with me. If the stock market drops 25% and a money manager is down 23%, he considers it a good performance. That's not the way I see it. If the stock market is down 25%, and gold remains in its trading range, I consider that an excellent outcome. 

Any fool can be in this stock market and ride the waves. 60 years of experience tells me that being in this market is not worth the risk. 

Anxiety and worry can take years off your life. Have you ever wondered how or why I've lived to be 90? I started Dow Theory Letters in 1958, and during all the years since then I've never allowed my subscribers to ride through a bear market. I like that record and intend to keep it. Good luck to the hedge funds and the money managers, most of whom are half my age, and are bold and brave with other people's money. I have always treated my subscribers' money as if it were my own, and will continue to do so. 

This is a different market than it was a few years back. Remember the odd-lots? We all followed them. They represented the public's reaction to market moves. But today nobody cares about the odd-lots. Simply because the public is not in this market. Today the market is run by money managers, and every money manager must be in a market that is rising.

But how far will the market rise? No tree grows to the sky, and this market will be no exception. At some point the stock market will become top-heavy and fall over on its own weight. But when will that time come? Nobody on earth knows. But every money manager believes he'll be able to exit the market before the fall. I guess all my subscribers know what a “black swan” is. A “black swan” is a totally unexpected event which has wide and international implications. Examples are the fall of France in 1940 and the recent shooting down of the Malaysian jetliner. Obviously, by definition, we can't know when the next “black swan” will arrive, but I have the intuitive feeling that somewhere ahead we will experience it.

Over the weekend, I've had a chance to do a lot of thinking. One thing I've noted is that consumers are strapped for cash, and are now cutting back on their spending. This will have a marked effect on the nation's GDP.

I read an article in a great magazine, The Christian Science Monitor Weekly, that the youth of the world are disgusted with the world we have left them. They are in the mood to revolt. They can't find jobs and are moving back in with their parents. They equate Islam with a revolt against the current world. As a result, thousands of young people from all over Europe are leaving their homes to fight in Syria. This is now becoming a real problem in Europe, and particularly in France. 

The rule, “thou shalt not spend more than 30% of thy after tax income on housing,” has become impossible for the average person. I think we are becoming a “mac n cheese” nation. If the squeeze continues on the middle and lower classes, I'm afraid we are going to see a revolt of the masses. I'm also afraid that we will see blood in the streets. As a result the safest place to be will be on a small farm away from large populations. 

Again, I suggest you think in terms of capital preservation rather than capital appreciation. For this purpose, I personally have chosen silver and gold. I also notice that diamond prices are surging. Gem diamonds represent portable wealth that is often handed down from generation to generation. 

The Russell advice: “stay with silver and gold and pray for the good of the nation.” I must say that I'm fascinated to see how the US will deal with its surging and compounding debts. What worries me is the continuousness of those two eternals -- Inflation and War.

The first chart is a weekly arithmetic chart of gold. The four rising bottoms speak of accumulation.

This next chart shows the D-J Industrials climbing up a five-year rising trendline. The key here is that the Dow must hold above 17,000 -- or it will have fallen below the trendline.

Here we see the yield on the key 30-year Treasury breaking down. Why are bonds advancing and yields falling? Easy, the Fed is still buying bonds.

Below, the gold mining stocks are outperforming the S&P. Is the market preparing for trouble ahead?

The VIX is getting jumpy and erratic. Preparing for a storm ahead?

Evidently the Fed Open Market Committee is going to debate whether they should taper or not. My opinion is that the Fed has somehow gotten wind of an upsetting scenario. The scenario could be that second quarter GDP will be down. In other words, the Fed is hedging its bullish bets. If it turns out that the Fed is calling off its tapering, I expect Precious Metals to surge.”

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© 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.

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