Dow almost touches November 20 bottom
Posted on 18 February 2009 with no comments from readersUS stock indices tumbled last night and the Dow Jones came within one point of its November 20 bottom at 7,552. Then Warren Buffett called a bottom and began buying.
This blog questioned his bottom-logic then, and will question it again now. The previous bottom before that was 7,286 on October 9, 2002 – the nadir of the dot-com stock market crash.
Stocks going lower
Yet can anybody seriously argue that the worldwide financial crisis is somehow less of a big deal than the dot-com crash? It surely has far wider implications and so that ought to mean stocks are going much lower.
The q-ratio which measures discount to net asset value has also not come close to the level that would mark a real stock market bottom, and to do so stock prices need to fall almost 50 per cent.
There is a whole slew of potential economic disasters lined up that might take us down again: from the Eastern European trillion-dollar debt crisis to the economic slump in Japan, and concern that Obamanomics do not add up.
Viewed from the other direction even the most die-hard optimist is hard pressed to come up with a positive scenario. It is like jumping off a cliff and hoping for a soft landing while on the way down.
Precious metal stocks
As a gold investor my one slug of optimism is that gold and silver stocks have been traveling in the reverse direction to the Dow, and that some of the smaller stocks have rebounded very strongly – admittedly after a tragic performance late last year.
However, the compunction to mortgage the ranch and buy gold stocks is still not that impelling. That might be a fear of getting fingers burnt again and a desire to see previous disasters come right first, but it is a barrier nonetheless.
And you have to concede that if world capital markets crash again, it could be that good and even golden assets fall along with the bad.
On the other hand, the protection of bonds is now called into question with global governments sudden enthusiasm for printing money, and that really only leaves gold and silver as safe havens.
no Comments posted by readers:
I have no doubt at all that, given the current global conditions, stock & bond markets are going to be horrendous in 2009.
Having said that, I’ve exited all of my mining stocks, and am happy to have had gains of anywhere from 70% to 110% over the past 5 months. I now have no stocks and no bonds, just physical gold & silver (and some paper gold & silver).
Richard Russell: The Verdict Is In – It’s a Bear
– Posted Friday, 20 February 2009 | Digg This Article | Source: GoldSeek.com
The verdict, at long last, is in. Today the D-J Industrial Average closed below its November 20 bear market low. In so doing, the Dow confirmed the prior breakdown of the Transportation Average. The two Averages jointly closed at new lows today, thereby signaling that the great bear market remains in force.
According to Dow Theory, neither the duration nor the extent of a bear market can be predicted in advance. However there are some useful hints. Most major bear markets end with stocks at “great values” or as some Dow Theorists put it, “below known values.” This has meant in the past that price/earnings ratios for the Dow and the S&P have fallen to single digit numbers. It has also meant that dividend yields have moved into to the 5%-6% zone.
According to the latest Barron’s, the P/E ratio for the Dow is now 18.62, 17.90 for the S&P. The dividend rate for the Dow is now 3.98%, for the S&P it is 2.78%. These are hardly the kind of figures I’d expect at a great bear market low. With the bear market reconfirmed, I’d advise subscribers to be largely out of common stocks (not gold stocks) and in cash, T-bills or gold, physical gold if possible.
The country is now at economic WAR. My objection to “paper gold” or listed gold items is that the government could halt trading in all gold items if it wishes to. The government is at all-out WAR against deflation and possibly at war with rising gold.
With a great bear market in force, we’re forced to think in terms of individual or family survival. My subscribers and I are on our own now, dealing with a government that is attempting to print itself out of a bear market. More inflation on top of a bear market that was created out of debt and inflation will not work, at least I don’t see it working (nor does the market). Gold will be “the last man standing,” as has been the case for thousands of years.
Legendary newsletter writer Richard Russell began publishing Dow Theory Letters in 1958, and he has been writing the Letters ever since (never once having skipped a Letter).
Russell gained wide recognition via a series of over 30 Dow Theory and technical articles that he wrote for Barron’s during the late-’50s through the ’90s. Through Barron’s and via word of mouth, he gained a wide following. Russell was the first (in 1960) to recommend gold stocks. He called the top of the 1949-’66 bull market. And almost to the day he called the bottom of the great 1972-’74 bear market, and the beginning of the great bull market which started in December 1974.