Will government market manipulation extend this stock bear market?
*Dow Theory Letters, by Richard Russell, November 20, 2008
“A trillion dollars has been created and distributed by the Fed in the Fed’s desperate effort to ward off and reverse the forces of deflation. But I think the forces of deflation are fated to win out. The Fed’s manipulations are creating a dangerous situation. The Fed and the Treasury will do anything, no matter how far-fetched, in their grim struggle to defeat deflation. Ultimately, something is going to give. It may be the dollar or it may be the US economy.
Question — Russell, what do you think the net result will be from the government’s policy of trying to keep the banks and the big corporations from going bankrupt?
Answer — The primary trend of the stock market and the economy is bearish. Normally, the bear market would correct all the excesses of the preceding bull market. But in its attempt to thwart the bear forces, I’m afraid the government’s interference with the natural forces will simply extend this bear market and in the end, render it more vicious and more difficult to deal with than would have been the case had the government not entered the battle.
Question — Russell, what do you note about the whole picture so far?
Answer — What disturbs me most is that the Dow has now collapsed along with most stocks, and meanwhile Lowry’s Selling Pressure Index (supply) continues to climb to new highs. Gad, what will it take — or how much selling lies ahead, before this towering inventory of stock to be sold will be exhausted? This makes me think that this market could go a lot lower. Lower, in fact, that even the most rabid bears are envisioning.
Question — You’ve been saying that the last two generations of Americans are the only generations in US history that have never seen hard times. You added repeatedly that you see ‘a hard rain a’comin’.’ Do you still feel that way?
Answer — Sadly, my answer is yes, the coming hard times are going to make up for all those years when Americans basked in the never-ending sunshine. After the calm, comes the storm. After the day, comes the night. Night must fall.
Question — What should our investment stance be?
Answer — What I’ve been advocating all along. Cash and gold (gold preferably in your possession). I note now that the dash for cash has become so wide-spread that the short T-bills pay practically nothing (less than 0.1% this morning before the open). People just want to be sure that their money is returned. But can they be sure that the money they saved will be worth anything? That’s where gold comes in. I foresee the same frenzy to own T-bills being diverted to a frenzy to own gold. This would be the Fed’s worst nightmare. But I see it coming. Already, physical gold is hard to come by — or else it is available only at huge premiums over the spot price of gold.”
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