Today the Godfather of newsletter writers, 90-year old Richard Russell, warned that we will see violent action ahead. The 60-year market veteran also covered the Great Recession, the Bank of Japan, the U.S. dollar, gold, silver, stocks, and a plethora of other topics as only Russell can at the age of 90.
The Russell opinion is that the world is still embedded in the Great Recession. Thus, I am arguing with the stock market. This is risky and perhaps stupid, but it is what I think, and what I think is what I write. Obviously the stock market has taken its lead from the bullish stance held by the Fed. If I am correct in my opinion, in disagreeing with the Fed's optimism, we will see some violent action ahead.
One central bank giveth and another central bank taketh away. The Bank of Japan, smarting from years of deflation, decided to unveil some “shock and awe.” The Bank of Japan stunned the markets by saying that it would boost asset purchases. Barron's brilliant editor, Randall Forsythe, put it this way:
This is truly a dazzling example of 21st century government finance. The government runs a deficit covered by IOUs, or bond borrowings. The Central Bank buys those bonds to fund the budget shortfall and also purchases bonds sold by the pension plan, all reserves it creates out of thin air. The pension fund uses the newly printed yen it receives from the BOJ for its bonds to buy claims against the future earnings of private industry — that is, common stocks.
In other words, the central bank monetizes the debt with money created out of thin air. The old adage tells us, “There’s no free lunch.” This is also true when applied to real money, which is gold. Gold cannot be created by computer entry. It takes capital, long years of searching and mining expenses to recover gold from the ground. Thus gold, or real money, costs men’s labor, risk and capital. Yet fiat money, created from the computer, is, in effect, “free lunch” money.
At one time the dollar was freely convertible to gold. But over the years the US went off the gold standard, meaning that the dollar was no longer convertible to gold. Whereas the pre-1930 dollar implied that the holders of dollars actually owned a certain portion of gold, with the advent of fiat money, the dollar began saying, “I owe you nothing.” Thus, as I see it, fiat money is immoral in that no risk or capital was exerted to produce the fiat money. Fiat money is, in truth, “free lunch” money. No man hours or risk are represented by fiat money.
Because of Japan’s shocking move to increase quantitative easing, traders dumped commodities, including the precious metals. Silver and gold sagged while stocks around the world boomed.
As I write, half an hour before today's close, Industrials and Transports are both lower. This is surprising, since the market ended Friday's session with exciting upside momentum. With half an hour to go, I'll see how the market closes. The big picture today is the world's central banks battling against deflation. The Bank of Japan is going all-out against deflation and in the process creating additional billions of yen. The world's safe haven at this time appears to be the US dollar. Money from all over the globe is pouring into the US dollar. As the dollar firms, the dollar cost of gold declines. Thus the dollar price of gold is a function of dollar strength or weakness (gold is priced around the world in dollars). With the Fed keeping short rates at zero (ZIRP), I expect an eventual collapse of the dollar.
On another subject, I've been interpreting the fabulous covers created by The New Yorker magazine. Last week, in reference to the stock market, the cover showed three packed-to-the-limit bookcases and a huge, wobbly pile of books reaching almost to the ceiling. The inference was that the stock market is comparable to a huge, wobbly pile of books, which, it seems, has nowhere to go but down. This week's cover shows a man in a restaurant being offered an expensive bottle of wine. The man, tattooed and obviously a member of the middle class, is looking away from the waiter while he eats a hamburger and fries and holds a glass of beer in his hand. The inference: the middle class man is forced to eat a hamburger and beer while a bottle of expensive wine is beyond his reach.
I note that some spiritual teachers believe that the way to success is to change the unconscious of their followers. I believe it is next to impossible to change one's unconscious. Furthermore, it is extremely difficult to get a picture of a person's unconscious. The unconscious is always disguised. And to even uncover one's unconscious is unbelievably difficult. I spent six years in psychoanalysis in an effort to uncover my own unconscious. Now, after 75 years of working on it, I am still in the process of trying to discover what my unconscious is all about. The unconscious is formed during the early years of infancy and once it's been formed, it influences your thinking and actions for the rest of your life.
I note that Tim Cook announced that he is proud to be a homosexual. My first question was: why is he proud? He did nothing, no action, to become gay. He was born that way. And it has nothing to do with pride. I might as well say that I am proud to be a heterosexual and a Jew. Pride has to do with an accomplishment, not something you were born with.
… I've been recommending WR Berkley, an insurance company stock. The company has come through with great earnings and is selling at an attractive price of 10x earnings. Buy it as a long-term hold. I like WRB, even though it is overbought at this time.
I'm a magazine-a-holic and I read every magazine I can get ahold of. I note that I'm getting bargain offers from every magazine and I wonder, is print going out of style? Or are people ceasing to read? My two favorite magazines are The Week and The Christian Science Monitor Weekly. Newsweek no longer publishes a paper edition and Time has gone the way of all no longer profitable mags.
Late notes — At the close, the Dow is down 24 and the Transports were up 12 (a new record high). The close surprised me, but that's what makes this such a fascinating business.
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IMPORTANT – KWN has many more interviews being released today.
The audio interviews with Andrew Maguire, Eric Sprott, Rick Santelli, Bill Fleckenstein, Rick Rule, Michael Pento, Dr. Paul Craig Roberts, Andrew Huszar, MEP Nigel Farage, John Mauldin, Egon von Greyerz, Michael Belkin, and Marc Faber are available now. Other recent KWN interviews include Jim Grant and Felix Zulauf — to listen CLICK HERE.