-->und heute ist er besonders lang. Viel viel Spass.

THE MOST RECENT DOW THEORY LETTER HAS JUST BEEN POSTED TO OUR SITE.

May 19, 2003 -- Our uncomfortable Treasury Secretary Snow is providing the world with a new definition of a"strong dollar." Snow said that his understanding of a strong dollar is the people should have confidence in it."You want them to see the currency as a good medium of exchange, you want the currency to be a good store of value, something that people are willing to hold, you want it hard to counterfeit."

Hey, what about the dollar compared with gold or other currencies? Mmmm, well, the Treasury secretary didn't get into that.

Along those line, it should be noted that the Treasury has dreamed up an exciting addition to our currency. Yes subscribers, the Treasury will be adding color to the twenty-dollar bill. On Snow's encouraging words, the dollar slumped another 20 points today, while the euro rose to within a penny of its all-time high of just over 1.17.

It should be noted that not all it well on the part of President Bush's economic team. Receiving their walking papers, so far, have been the Secretary and the Deputy-Secretary of the Treasury, the head of the National Economic Council, the Chairman of the Council of Economic Advisers, the Director of the Budget, and the head of the Securities and Exchange Commission.

In the meantime, the IMF warns that Germany is at high risk of deflation and that Japan might suffer further price declines. The IMF added that Hong Kong and Taiwan are also experiencing deflationary pressures. The IMF appointed a special task force to study deflationary risks in the world's 35 largest economies in December amid rising concern about global price declines.

So what's really happening? The world is suffering from too much in the way of goods -- and consumers are exhausted from too much debt and too much spending. A major problem aside from over-supply and under-consumption is the vast differential in wages between the developed nations and China, India and the Asian nations. The fact is that China alone could easily supply the entire world with all the manufactured goods that it needs -- but even that would not solve chronic Chinese unemployment.

All this puts a frightened US Federal Reserve in a difficult spot. The US is confronting a half-trillion dollar (or more) budget deficit, a half-trillion dollar (or more) current account deficit, a dragging economy, and in the face of this the Bush Administration is pushing for major tax cuts and stepped up spending.

No currency can hold up in this kind of climate. Something had to"give," and that something is the dollar.

The Fed has little choice but to open the spigots of the money supply and warn of even lower rates to come. At the same time, the Fed, almost daily, predicts that some of the surging liquidity will somehow be spent by consumers who are already"spent up," and by manufacturers who don't need to build new sources of supply.

The more the forces of deflation press on the US economy, the more panicky the Fed, and the more the Fed will work the liquidity spigots while warning of lower interest rates to come.

The beneficiary of this gathering economic nightmare is real money -- better known to you and I as gold.

June gold has now rallied up to its resistance level at 360. The formation that I see in gold is a huge potential"head-and-shoulders" bottom. The"left shoulder" is now formed, the"bottom" is now formed, and I'm wondering whether gold is now going to back off a bit, thus forming a"right shoulder." In certain cases, where the item is very insistent and powerful, the item (in this case gold) can push right up above resistance (in this case resistance is at 360) and keep on going (which it now seems to be doing!).

As for gold shares, looking at HUI, it's current technical task is to rally to 140. Then either to back off slightly or to keep on rallying into the top area that was formed during December to February. The high for HUI came in at 155 intra-day on January 6.

The 200-day MA for HUI is at 127 today, while the 50-day MA is still below the 200-day MA at 125. Both MAs are in rising trends, but HUI will not be in its full bullish mode until the 50-day MA rallies ABOVE the 200-day MA.

As for the stock market, I have documented the persistent weakness of the Dow, the long string of declining Dow peaks, and the fact that the Dow has failed to confirm the better action of the Transports. This kind of action cannot go on, and indeed today could be the beginning of trouble.

What is so unusual is that the Dow has been considerably weaker than breadth. I don't know the reason for this unless it is that the broad decline in interest rates have helped a lot of stocks including, of course, the many preferreds and closed-end bond funds that are listed on the NYSE.

When dealing with the stock market, it's better not to look for reasons or excuses. It's best to take the action at face value. The simple fact is that the Dow has not confirmed, and history tells us that when the Dow is in trouble and when the Dow stays in trouble, sooner or later whatever troubles the Dow will trouble the rest of the market.

My 21 day momentum line (rate-of-change) for the Dow is now turning down, and my 13-day moving average of the Dow is about the break below its 26-day MA. Both of these are signals of weakness, while the stochastics for the Dow are now bearish.

Cycles and periodicity -- Do they work? Personally, I've never been completely convinced that cycles and periodicity intervals work. Or let me put it another way -- if they do work, I don't think they're reliable enough for me to depend on -- not with real cash anyway.

For instance, I've heard it said that the market has never been down during the third year of the presidential cycle. Well, that's been true except during the bear market years of 1931 and 1939. The year 1931 saw the Dow open at 169.84 but at the end of the year 1931 the Dow was at 77.90. The year 1939 saw the Dow open at 153.63 and close at 150.24. Both of these instances occurred during bear markets.

Again, it's a truth that only once before has the Dow declined on four consecutive years. That occurred during 1929 to 1932, which were, of course, bear market years.

The year 2002 saw the Dow end December 31 at 8341.63. Therefore, boys and girls, if by the end of 2003 the Dow closes below 8341.63 this market will be making history. And so, dear subscriber, let's see how she goes.

Subscriber continually ask me"Russell, how far will the dollar drop?""How far will the market decline?""How high will gold go?" I tell them that I don't know, and neither does anyone else. But I will make one comment --"In my experience, these primary trends, once established, go further than anyone at the time things possible."

TODAY'S MARKET ACTION -- The decline has arrived, as expected, although it arrived a bit late. The question now, of course, is how far down does she go, and what the rebound AFTER this decline looks like?

My PTI was down 7 to 5369 with the moving average at 5247. PTI remains bullish.

The Dow was down 185.58 to 8493.39. There were two movers, IBM down 2.54 to 86.45 and MRK down 2.80 to 56.65.

June crude was down.31 to 28.83.

Transports wee down 58.37 to 2360.94.

Utilities were down 3.61 to 231.47.

There were 955 advances and 2327 declines. Down volume was 85% of up + down volume.

There were 195 new highs and 8 new lows. My High-Low Index was up 187 to minus 4280.

Total NYSE volume was 1.35 billion shares.

S&P was down 23.53 to 920.77.

Nasdaq was down 45.76 to 14892.77 on 1.66 billion shares.

My Big Money Breadth Index, which has been fading, closed down 10 to 676. This is its lowest level since 671 of April 9, at which time the Dow was 8197.94. Careful.

June Dollar Index was down.21 to 93.97. June euro was up.59 to 116.24. June yen was down 1.09 to 85.26.

German DAX was down 138 to 2850. June Nikkei was down 175 to 7965.

Bonds were mixed. The June 30 year T-bond was down 7 ticks to 119.01 to yield 4.46%. June 10 year T-note was up 5 ticks to 118.06 to yield 3.45%.

June gold gapped up 9.50 to 364.40. July silver was up 3 to 4.82. July platinum was up 6.10 to 652.20. June palladium was up 5.85 to 165.70.

Gold/Dollar Index ratio was up 11.20 to a new high of 388.10.

Gold advance-decline line was up 20 to a new recovery high of 154.

XAU was up 2.25 to 73.97. HUI was up 5.56 to 140.82.

ABX up.43, AEM up.33, BGO up.06, DROOY up.23, GG up.75, GLG up.24, HMY up.81, KGC up.61, MDG up.44, NEM up.44, PDG up.46, RGLD up 1.29 to 19.79.

A good day all around for gold, but today shows that it's hard to pick THE individual gold stock that's going to be THE winner. You buy a basket of gold shares, and in a bull market one by one they each"do their thing.'

STOCKS -- My Most Active Stocks Index was down 13 to 193.

The 15 most active stocks on the NYSE were -- PFE down 1.87, LU down.08, DNA (Genentech) up 16.71, AOL down.51, GE down.31, NT down.15, HD down 1.26, LOW down 3.96, BMY down 1.54, AWE down.11, HPQ down 1.15, MRK down 3.20, C down.99, EMC down.70, JNJ down 1.67.

VIX was up 2.03 to 23.04 as option-writers got just a bit worried.

McClellan Oscillator plunged 96 today to minus 45. Market is now in"sell mode," based on the action of this Oscillator.

CONCLUSION -- Today would look like a normal"pull-back" following three weeks up on the Dow and five weeks up on the Nasdaq. All except for one thing -- and I'm not hearing this anywhere else, which makes me think it's IMPORTANT. The Dow has failed persistently to confirm the Transports.

Worse, the Dow has carved out a long string of declining peaks -- this while the Transport bettered all previous peaks going back to, and even above, its August peak.

Nobody seems to follow either the Dow Theory or the action of the Averages any more, which is really strange in an industry that involves trillions of dollars. At any rate, Richard Russell follows both the Averages and the Dow Theory, and anytime I see this kind of flagrant non-confirmation, I call it to the attention of my subscribers.

Obviously, I don't know whether today's decline was a one-day wonder or the beginning of a more extensive decline. But the Dow did gap down today, and it hasn't confirmed the Transports, so this could be the start of something important.

From an investment stance, I'd rather have my subscribers in gold and gold shares and thus in harmony with the primary trend -- than in common stocks hoping to scalp some points while speculating against the primary trend.

Well, Monday's out of the way -- let's see what the markets can come up with on Tuesday.

And I'll be here watching --

Your scribe from the Great American West,

Russell

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I receive a visit yesterday from my old friend, international traveler, and gold expert, Doug Casey (Doug writes the"International Speculator" (800 528 0559). Doug just arrived here from New Zealand, a country which he loves, Doug says NZ is"like the US back in the '50s but with modern technology.: It was both a pleasant and a coincidental visit because I had read Doug's latest report the day before, and I wanted to include a few most interesting paragraphs from the report. Doug said,"Go ahead, use it."

The following is from Doug's report --

"Unfortunately, it seems that most Americans are impervious to the current economic trend. foolishly ignoring 2,500 year of monetary history. A history which is littered with the lessons about the consequences of virtually every monetary and financial phenomenon we are witnessing today.

"Excess debt and consumption brought down every major power in history. Stock market and other asset bubbles, whether they were speculative manias (the tulip bubble of the 1600s), market frauds (the South Sea bubble of 1720), easy money bubbles (the Mississippi Company disaster of 1721), or bubbles caused by innovations (the canals bubble of 1837 and the railroad bubble of 1873), all ended with crashes and subsequent depressions. Additionally, we are all familiar with the economic aftermath of the 1929 stock market crash and the more recent Japanese stock market and real estate crash.

"Finally"preemptive" wars and other types of military adventurism are also nothing new and the end result in economic terms is never pretty.

"Inevitably, a combination of these events is almost always followed by subsequent currency debasements (as invented by Dionysus of Syracuse in 400 BC) and practiced regularly by every major world power since, especially with the introduction of paper money. America will be no different. It's only a question of time.

"Since none of us knows how long before that day arrives, I suggest that at the very least investors should diversify out of US dollars and hedge their portfolios with at least 15% gold content."

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Click on to www.2000wave.com and be sure to read John Mauldin's fine piece on deflation -- Russell.
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Click here: http://www.rich.frb.org/pubs/eq/pdfs/winter2001/broaddus.pdf

Hi Richard.....Please note the end of the second page and beginning of the third page......it states the Federal Reserve can buy securities of private businesses, state and local paper just to name a few......I respectfully submit that if push comes to shove and deflation raises its head the Fed will buy everything in site and declare moratoriums on payment of principal and interest until the economy picks up......it is also possible they can buy credit card loan portfolios,mortgage portfolios,etc. and do the same....the amount of money this will put into State,corp and public hands could be monumental!!!......inflate or die...you bet.....we just have not yet seen the Fed put the" pedal to the metal"....some think what they are currently doing is not working....they have much,much more they can do.....

the Fed needs borrowers and consumers...if their borrowers and consumers run out of the means to borrow and consume......the Fed has the medicine to cure that ailment...relieve them of their debts and obligations to repay.....what a great system and country???.....if they don't do this the country is in danger of collapse as you and others have pointed out many times........your motto"inflate or die".....you bet...the game is just starting...I doubt they will quit in the early innings....I suggest a new motto for the Fed,"borrow and spend today for tomorrow you wont have to repay"

Ron Rosen

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Pravda.RU:Russia:More in detail

14:14 2003-05-16

President Putin: Russia must ensure full convertibility
of the ruble

Russian President Vladimir Putin has assigned the country
the task of ensuring full convertibility of the ruble,
meaning both"internal and external" convertibility"for
current and capital transactions." Russia used to have
one of the most solid currencies in the world, the
president reminded the Federal Assembly in his State of
the Nation address on Friday."The value of the 'gold
ruble' showed what the state was worth," he said.

"I'll put it straight: The country needs a ruble that
would be tradable on international markets, it needs a
solid and reliable bond with the world's economic
system," declared the president. He stressed that Russia,
a fully fledged member of the group of eight
best-developed countries, simply had to achieve this
goal.

Once this goal is achieved, the country will really begin
to integrate into the world economy, Putin stressed. What
will this mean for Russian citizens?"Whenever they
travel abroad, they will only need two things, a Russian
passport and Russian rubles," he said.

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Sites: One of the best sites for charts (fabulous daily up-dated collection of charts of all kinds) plus important data is http://www.decisionpoint.com. Try it, you’ll like it - no, you'll more likely love it - price is only $20.00 a month and absolutely worth it - just a huge bargain. Personally, I wouldn't be without it.

For a wide range of valuable info, I recommend http://www.smartmoney.com. Their “map of the market” is brilliant. So is their extensive info on individual stocks. This is one outstanding site.

I have a special relationship with the Lowry’s service (561 799 1889). Lowry’s provides statistics for Buying Power and Selling pressure on the NYSE. Buying Power is figured by adding up all the upside points of all stocks on the NYSE each day, and the points are adjusted for upside volume. Selling Pressure is figured the same way. The final figures are placed on 30-day moving averages. Lowry's is invaluable in showing the market in terms of supply and demand. Lowry's also identifies major oversold market areas.

Lowry's also provides"power ratings" on a long list of stocks. The Lowry's statistics are followed by serious investors and institutions throughout the nation and the world. (Lowry’s has been in business since the early 1930s). I will be making occasional comments on the position of Lowry’s on my daily sites. This is the one service I would not be without (Lowry’s, 1201 US Highway One, Suite 250, North Palm Beach, FL. 33408). info@lowrysreports.com

Go to and check in on http://www.bloomberg.com “columns”. All the Bloomberg columnists are very good. Don’t miss columnist Caroline Baum on the money markets and the economy - she’s terrific, sophisticated, and as smart as they come. This is the first column I turn to.

Want a great search engine? Try http://www.google.com. I really like this site. And they seem capable of finding almost anything but your lost wallet.

One of the finest analysts in the business is Dr. John Hussman, www.hussman.net. I find John is always worth reading.

Don’t miss John Mauldin’s weekly great discussions on his site -- www.2000wave.com

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Richard.
Re: Deflation

I don’t buy $100 sneakers or even $50 ones. For years I have been buying sneakers (now called fitness shoes) at Wal-Mart for about $20. The prices have been coming down. $20, $17, $15, $12. Last week I bought the exact same brand for $9.26. Made in …guess where? How can anyone, even the Chinese, make such nice shoes, ship them half way across the world and truck them to Florida, add the store mark up for $9.26?
My wife says don’t buy them because some little kid is being paid 17 cents an hour to work 6 days a week, but I say he is keeping his family from starving. Just like your friend with the sander I look at the bottom line.

Al Thomas
Author of"If It Doesn't Go Up, Don't Buy It!"

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http://www.boston.com/dailyglobe2/139/oped/An_economic_menu_of_pain_+.shtml

An economic 'menu of pain'

By Laurence J. Kotlikoff and Jeffrey Sachs, 5/19/2003

UR GOVERNMENT is going broke. The feds face bills that are far beyond our capacity to pay -- by $44 trillion to be precise. The longer we ignore them, the bigger they get. Yet President Bush is working overtime to deepen our fiscal trap. This $44 trillion figure is not ours. Nor is it some other academics' calculation. It was produced last fall by economists and budget analysts at the US Treasury, the Federal Reserve, the Office of Management and Budget, and the Congressional Budget Office. The study was ordered by then Treasury Secretary Paul O'Neil and was slated to appear in the president's budget, released in February.

O'Neil instructed his team, led by Jagadeesh Gokhale, Federal Reserve senior economist, and Kent Smetters, then deputy assistant secretary for economic policy at the Treasury, to answer the following question: Suppose the government could, today, get its hands on all the revenue it can expect to collect in the future, but had to use it, today, to pay off all its future expenditure commitments, including debt service net of any asset income. Would the present value (the value today) of the future revenues cover the present value of the future expenditures?

The answer is no, and the fiscal gap is the $44 trillion. Now, that is big bucks by anyone's definition. It's four times current GNP and 12 times official debt. Imagine everyone in the country working for four years and handing over every penny earned to pay this bill, and you'll grasp its size.

Unfortunately, we can't ascribe the $44 trillion calculation to overly pessimistic assumptions. On the contrary, the assumptions are optimistic with respect to future longevity as well as growth in federal health expenditures, discretionary spending, and labor productivity.

Gokhale and Smetters asked a follow-up question: By how much would taxes have to be raised or expenditures cut on an immediate and permanent basis to generate, in present value, the $44 trillion? Their ''menu of pain'' is mind-boggling. Entree A is raising federal income tax collections (individual and corporate) by 69 percent. Entree B is raising payroll tax collections by 95 percent. Entree C is cutting Social Security and Medicare benefits by 56 percent. Entree D is cutting federal discretionary spending by more than 100 percent, which, of course, is not feasible. Combination platters are also available. For example, we might select quarter portions of entrees A through D. But no matter what combination we order, digesting this medicine is going to be plenty painful.

Why are the nation's fiscal affairs in such a mess? The reason is straightforward. Baby boomers are just five years from starting to collect Social Security retirement benefits and eight years from starting to collect Medicare benefits. When all 76 million boomers are retired, we'll have twice the number of elderly beneficiaries, but only 15 percent more workers to pay their benefits.

If the fiscal gap and its associated menu of pain are unfamiliar, there's a reason. You can scour the thousands of pages of the president's FY 04 budget, and you won't find the analysis. It never made it in. When Secretary O'Neill was replaced last December, the analysis was yanked from the budget.

To be clear, limiting our need to know is not just a Republican responsibility. When it came to publishing a generational accounting analysis in the FY 92 budget, President Clinton's political watchdogs overruled OMB and pulled the same trick. And bankrupting has been a collective effort of all postwar administrations, each of which has cared more about the next election than the next generation.

Our current team leader, President Bush, is doing his part. Taken together, his first tax cut and his proposed second tax cut, which is about to be passed by Congress, account for roughly a sixth of the fiscal gap. The president, an ardent believer in voodoo economics, is convinced his tax cuts will stimulate growth and dramatically raise revenues. Neither economic theory nor economic facts supports this view. In fact, the president is not only burying us in explicit and implicit debt, he's undermining the economy's future performance.

The stakes are now too high for more political games and flaky economic theories. Democrats and Republicans alike need to send our leaders a firm message: Deal responsibly with the coming generational obligations! If we don't, we can look forward to massive cuts in future Social Security and Medicare benefits, tax hikes, high inflation, and bitter political strife. Putting aside the president's latest tax cut would be an excellent start on the road to responsibility.

Laurence J. Kotlikoff is chairman of the Department of Economics at Boston University. Jeffrey Sachs is professor of economics at Columbia University.

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