first majestic silver

Wall Street Turkey Time

November 29, 2002

Can you trust the markets just before "Turkey Time"? Listen, they're the only markets we have, so we better trust them. The Dow opened with an impressive pop today -- the Dow was up 71 points but my eyes were fixed more on the Transportation Average. It was up 28 points, but still 115 points below its November 6 closing high of 2413.

Remember, according to Dow Theory a movement of one average above (or below) a preceding point must be confirmed by the other average before valid conclusions can be drawn.

The Dow has been doing very well, but still -- no confirmation on the part of the Transports. So what about those who are holding the Diamonds (DIA) in the hopes of higher prices? No problem at all -- just keep holding them with stop losses under the stocks. If the market "craps out," at worst you're out with a profit.

The sentiment is changing now, and people are becoming optimistic that the worst is over. Why the increase in optimism? The market -- a rising market can do that.

Today they announced that durable goods orders were up. What's next, Greenie singing "Let's Face the Music and Dance."

By the way, a subscriber objects to my calling him "Greenie." It's not dignified, he says. Listen, I graduated from NYU in 1947, the same year that Greenie graduated from NYU. I don't remember seeing him at college, but we were still classmates so I have a perfect right to call him Greenie. So there -- Greenie, Greenie, Greenie, Greenie, Greenie, Greenie.

Greenie, if you're reading this you can call me Richie, or Russ or Dickie.

Is the worst over, is the bear market over, have we seen the worst? Russell simple answer -- "No."

A number of subscribers have asked me what I'd expect to see at a true bear market bottom, not a temporary secondary bottom, but a real "end of the bear market" bottom.

Here's what I would expect to see.

Great values in blue chip stocks, and I mean great values as measured by price/earnings ratios and by dividend yield. Because this bear market is following the greatest bull market in US history, I'd expect this bear market to end with extreme-type bear market valuations. This would mean price/earnings ratios in the 6, 7 or 8. It would also mean dividend yields of 6% or more on the Dow.

Next, I'd expect to see black pessimism and actual anger if not hatred towards Wall Street and stocks. I'd also expect to hear such expressions as "The end of capitalism as we know it," and "Wall Street and stock market are finished, they'll never come back" or "Don't even mention stocks to me, I never want to see a stock again."

Finally, I'd be looking for a major downside non-confirmation between the Industrials and the Transports. This last does not have to happen. It didn't happen at the 1949 lows but it did happen at the 1974 lows. At any rate, this would be a situation I'd be watching for.

Coming back to the present, there are two current "miracles" that I've been fascinated with. The first "miracle" is the continuing buying proclivities of the American consumer. I'm referring to the almost obsessive buying of autos and homes. This in the face of these two numbing facts -- Consumer debt is now more than 100% of consumer disposable income. And each day we hear of new lay-offs on the part of industry.

The second "miracle" relates to the US dollar, which despite mind-boggling negative trade balance figures, continues to hold up. One reason for the firm dollar is the weakness of the world's third largest economy -- Germany. The German economy (which is the economic engine of Europe) is weak and probably in recession. This is causing weakness in the euro, which in turn means a strengthening of the dollar.

CONCLUSION -- The rally was getting a bit frothy today, but I still don't believe the retail public is in this market. What you see here are the pros and hedgies buying in and running the shorts ragged.

Marty Zweig's two rule were --

Don't fight the Fed.

Don't fight the tape.

The first one hasn't worked for a long while, but it might be working now. The second rule is always valid -- this is obviously no time to fight the tape. And we aren't fighting the tape. Those who bought DIAs are very much with the tape.

Question -- can this turn into a mini-bull market? The market can do anything. Just stay with the Diamonds and don't do anything stupid.

Signing off until Saturday. Oh yeah, I'm being interviewed on Bloomberg tonight (radio) at 10PM Eastern time.


Communication -- Today's WSJ featured a two-page story about Jack Welch, former CEO of GE, and a former industrial icon. But Welch's icon status has been shattered by a vicious and stupid divorce. Here's the way I see it (and I went through two friendly divorces).

Welch is a man used to having is own way. He didn't have to communicate at GE, he gave orders and they were obeyed. He didn't communicate with his wife either. For instance, he decided to stay on an extra year at GE, but never told his wife of his decision. He just did it on his own.

Obviously he and his wife started growing apart. They never discussed this unfortunate but very common situation. Welch simply had an affair, and his wife found out about it. By that time the situation had turned bitter. Welch, ever the dictator, decided on divorce and presented his wife with a list of lawyers she could use. His wife, an associate lawyer, decided to pick her own lawyer, and revealed to the world Welch's shocking list of perks that he was receiving from GE. The world was shocked. At that point, Welch's icon status plunged, and he was seen as just another greedy ex-CEO.

As of today, nothing has been settled, the nasty divorce is food for daily gossip, and Welch's basic defect has exploded in his face. The defect -- the man has a huge ego, and instead of having learned to communicate, he spent most of his life simply issuing orders and having his own way.

Life is, or should be, a learning experience. Will Jack Welch learn? I doubt it, his ego will get in the way. And it's an ego that's now going to cost him -- a lot. Oh, I forgot one thing. Welch found out that his wife was having an affair with her chauffeur. Talk about a blow to his ego -- that did it.

Is there an answer to China's massive ability to ship goods at a fraction of US costs? The only answer I can think of would be TO DEVALUE THE DOLLAR? That or just let the trade deficits accumulate. If you know a different outcome, please write and let me know.

We can't devalue our way out as China has its Renmimbi pegged to the dollar.

The answer we will eventually get to is to combine with the EU and force China to revalue its currency upward under threat of a massive tariff or even embargo.

This 'solution' will create a more dangerous problem. China's population of young men is growing so fast that even with their trade surplus and inbound capital investment they have huge unemployment. a Trade shrinkage will result in either a massive revolution there or they will have to create a war to use those bodies. Taiwan and other local nations, particularly oil producers are at tremendous risk if that happens.

Producing an equilibrium that reduces our trade imbalance and doesn't explode their unemployment will be the Holy Grail the world will have to attempt to accomplish. (from a subscriber).

Gold and debt below --

Let's see ....262 million ozs. times $320 market price equals roughly $84 billion to collateralize $6 1/4 trillion in debt...not including GNMA,FNMA etc. which are not guaranteed just approved by Government...but they would probably bail them out anyway...national debt grew over $525 billion in last 14 supply at market equals $84 billion 14 months national debt grew more then 6 times the value of U.S.Gold supply....I'm getting dizzy from this madness.....think I'll hug my Gold investments tonight...however being prudent I'll start with my wife.... R. Rosen

With gold stolen by Conquistador Francisco Pizarro from the Inca Empire in 1532, Spain financed its conquest of Europe.
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