At nearly 90 years old, the Godfather of newsletter writers, Richard Russell, warned that he expects this ongoing crisis to get very ugly. The 60-year market veteran also included some very troubling guest commentaries warning that, sadly, people are simply going broke in the United States.
Russell: “The market fooled me. I thought the Dow would advance to a new high, unconfirmed by the Transports. But what actually happened was that the Transports advanced to a new record high, unconfirmed by the Dow! If the market turns down from here, and the two Averages break below recent lows — well, it could get very ugly.
The dreaded fact that nobody wants to face — the world is suffering from a deflationary depression. Germany, the strongest economy in Europe, is slowing down. China, too, is suffering from a real estate collapse. Economist John Williams predicts that second quarter GDP will be down. If so, with two successive quarters lower, the US will officially be in recession. With the US, China, and Europe sinking, I would expect the various central banks to fight deflation and open their spigots wide.
I read Barron’s early Saturday, and I was surprised at what I read. Therefore, I read Barron’s page-by-page a second time, and I was not mistaken, Barron’s had turned cautiously bearish. The lead article by brilliant editor Randall Forsythe noted that despite the fact that employment news was good, consumers are not spending. I include charts below of companies mentioned in the lead article in Barron’s.
Actually, I think the dreaded news is now out and accepted that second quarter consumer spending will be down. Considering that consumer spending accounts for 70% of Gross Domestic Product, this is a serious situation. For this reason, I’m giving up on my thought that the Dow will have the strength to test its recent record high.
I might add that this market is in no shape to deal with a bearish surprise-revelation such as second quarter GDP will be down. But as for my subscribers and me, all is well in that we are not in the stock market but are mainly in silver and gold items, which should stand up against bearish economic news. If second quarter GDP is down, the Fed will be in an embarrassing spot, and I think they will have to reverse their strategy of terminating QE — they will elect to continue QE. If so, this will be an admission that the Fed has been dead wrong on the trend of the economy.
Below is the gold-bond ratio. When the ratio is rising in favor of gold (as now) it’s telling us that inflation is the wave of the future.