Richard's Remarks:
February 2, 2002 An amazing milestone -- for the first time in 46 years Japan's Nikkei stock average is selling below the price of the Dow. The Nikkei topped out in 1989 at a price of just below 40,000. Did you ever believe this could happen?

Here's a thought. Could the price of gold ever top the value of the Dow? The Dow is now a bubbly 9907 and gold is a lowly 287. I don't know the answer to this one, but my thinking is that the Dow is priced ridiculously high and gold is priced ridiculously low. Ah well, what do I know?

From every quarter, the"word" seems to be that the recession (if it even was a recession) is about over, and that we're now in the"recovery phase."

What's this got to do with the stock market? It's hard to say, but my instinct tells me -- not much.

Investor's Business Daily's Mutual Fund Index at Friday's close was down 3.9% for the year so far. This is a group of 23 of the best equity growth funds, and I have to believe that this group is doing better than the average investor is doing. So my guess is that the average investor, despite the"recession being over," has been losing money so far this year.

Another strange situation comes from a study of the Lowry's statistics. Normally (pardon the use of that word) when a bear market is over or when a new up-leg starts, or even when a bear market upward correction begins, there is a huge surge in Buying Power while the Selling Pressure literally crashes.

But that's not what has happened this time. Lowry's Buying Power Index hit a little peak on October 11. Since then Buying Power has moved essentially sideways. As of Friday's close, the Buying Power Index was only 3 points above its October 11 little peak. This demonstrates that investors' desire to get into this market has been very, very mild since mid-October. Strange.

Furthermore, the Selling Pressure Index did come down substantially over the last few months, and this allowed stocks to"float" higher. But on January 4 the Selling Pressure Index hit a low, and since then it has been trending higher. Thus, since January 4 investors have reversed their stand and have been selling into the market. This is not bullish, and if the selling continues the market will run into trouble.

That"big money" is leaving this market is also seen in my daily advance-decline line of the 15 most active stocks on the NYSE. Here we see a large head-and-shoulders pattern with this index now having violated its support level and heading down.

Again, the above observations are confirmed by the poor action of my Big Money Breadth Index (based on the 10 largest cap stocks in the S&P). This Index has been very weak.

Summing it up, let me put it this way. If the recession is history and the US economy is heading higher, the stock market is not that impressed. Of course, something else may be bothering the stock market, and what that"something else" is we can only guess at.

The new Bush budget is going to be a whopper with huge deficits built in. This could be the straw that breaks the"dollar's back," and it could also be the impetus to send gold higher.

I've said this all along and I'll repeat it -- I believe the Achilles heel of the US is the dollar. The dollar has only three competitors, the weak yen, the untested euro and gold. I suspect that nations are now starting to diversify out of dollars. I know that while the British are selling their gold, the Chinese are accumulating it.

In case you haven't noticed, XAU was around 43 back in last November. On Friday XAU closed at 63.06. That represents a gain of 46%, a gain which seems to have gone largely unnoticed. I suspect that the gold shares are leading the metal, and I've urged subscribers to take a position in gold ever since NEM (now over 23) was selling in the area of 16 plus and Homestake was selling around 3.

Time to check the weekly figures. The true advance-decline ratio for the NYSE runs as follows: Jan. 28 minus 14; Jan. 29 minus 34; Jan. 30 minus 10; Jan. 31 up 14; Feb. 1 plus 7.

For the week ended Feb. 1, the Dow was up 0.68%, Transports were down 0.74%, Utilities were down 0.44%, S&P was down 0.98%, Nasdaq was down 1.27%, the Wilshire 5000 was down 0.82% and the Russell 2000 was up 0.14%.

For the same week on the NYSE there were 1,880 advances and 1,491 declines. There were 327 new highs and 116 new lows.

The Dow is selling at 26.95 times trailing earnings while yielding 1.83%.

The S&P is selling at 28.57 times trailing earnings while yielding 1.40%.

Barron's Confidence Index remains the same at 84.6, indicating that bond people continue to be worried about the quality of credit and they are certainly worried about the huge volume of defaults in bonds.

I'm watching the March long T-bond. If this bond can rally above its close of 104.11 recorded on January 16, I would consider this an important upside breakout. As you know, the broad consensus is that the bond market has seen its high and is in the process of topping out. But it's not acting that way.

I'll see you all on Monday.


Russell,

Please turn to the following site -- http://www.tocqueville.com and read"The Case for Gold." It's very long but well worth reading. Note the first chart in this article. The most recent formation that we see on this chart is a parabolic rise in the ratio of the Dow to gold. This is an absolutely critical chart. When this parabolic curve blows out on the upside and reverses (and I think it could be near a reversal), we'll see gold embark on the long rise against the Dow.

The article makes that case that the Achilles heel of the current situation is the"dollar bubble." This is also my opinion, an opinion which I've expressed many times in the past. Please read this article.

If you haven't done so before, I suggest that all subscribers own some NEM and perhaps AU and AEM.



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