ein langes Wochen-Ende steht vor uns, hier ein paar Facts from Richard Russel

verfasst von Emerald, 24.05.2003, 08:10

-->May 23, 2003 -- Let's see, what've we got? Market opened with the US dollar at an all-time low against the euro. June euro selling at 117.73. What does this mean? For one thing, it means that Europe is going to have a hell of a time selling their exports. Germany now in recession, and France and Italy could be next.

I noted this on the front page of today's New York Times."Senators Sharply Criticize Iraq Rebuilding Efforts.... In a particularly testy exchange, Senator Biden of Delaware berated Mr. Wolfowitz for the Administration's failure to acknowledge publicly that the postwar efforts would cost billions of dollars, require years of involvement and get the United States bogged down just as it is in the Balkins.

"When is the president going to tell the American people that we're likely to be in the country of Iraq for three, four, five, six, eight, 10 years, with thousands of forces and spending billions of dollars, because its not been told to them yet. I don't know about you, but my home constituency doesn't understand that. They think Johnny and Jane are going to come marching home pretty soon."

Ah yes, as I've said before,"It's the old vase syndrome -- you break it and you own it." We"broke" Iraq and we're in"for the duration," however long that is. But maybe, just maybe, that's what this Administration wants.

Then we have the tax bill, which I doubt will do very much for the economy. To me, the most interesting part of the new bill will the tax on dividends, 15%. This mean, as I've advocated all along, that you have to have stocks that PAY dividends to get any benefit from the tax bill, and this means good UTILITY stocks that pay better than 5% in dividends. And there are quite a few of them out there -- and I've listed many of them.

As for the rest of the tax bill, I'm not impressed by it, but it will add multi-billions to deficits and the national debt.

Enough -- I'm going to give you the real story on investing. First, if you want to invest, really invest instead of screwing around with every rally and decline, you've got to understand one basic thesis. In real investing, everything depends on the valuation of stocks at the time when you first plop down your money.

If stocks are"cheap" (great values) at the time you invest, you're going to make money on those stocks in coming years. If you bought stocks in 1942 or 1949 or 1974 or 1980 or 1982 you were almost guaranteed to make money on those stocks as the years went by.

But if you bought stocks in 1929 or 1937 or 1946 or 1966 or 2000 you were almost guaranteed to take a bath on those stocks in coming years.

How do you know whether stocks are cheap or expensive? You don't have to guess, just use the price/earnings ratios on the S&P.

History tells us that when you buy stocks with average P/Es under 10, then over the coming ten years you'll receive a median return of 16.9%.

When you buy stocks when P/Es are 12 to 14, then over the coming 10 years your median return will be 14%.

When you buy stocks when P/Es are 16 to 17 then over the coming 10 years your median return will be 10.7%.

When you buy stocks when P/Es are 18 to 20 then over the coming 10 years your median return will be 7.5%.

When you buy stocks when P/Es are 22, then over the coming 10 year you median return will be 5.0%.

What about today? Today, the P/E on the S&P is 34. What can you expect is you buy stocks here? My answer is that over the coming ten years you'll show a loss.

And all the above include reinvesting dividends -- of course, today the dividend on the S&P is only 1.74%, which doesn't help your compounding very much.

Brilliant economist, Peter Bernstein, using a different method based on a ten-year average of previous earnings shows that if you buy stocks now the odds are that over the coming 10 years, your stocks will be down one-third on average from where they are today.

Question -- So what do we, as investors, do with our money?

Answer -- Aside from gold, my answer is that we buy only stocks that pay 5% or more in dividends, and we compound the money as it comes in.

Until stocks decline to"value" levels, we've got to be in the compounding business.

I've written many times that I wouldn't buy a stocks that didn't pay a dividend. That thesis becomes even more important today. Basically, this comes down to buying preferreds stocks and utility stocks

The Future -- We're in a primary bear market. This bear market will either ultimately lapse into a major decline such as 1973-74, and in that way produce"great values" in stocks.

Of this bear market will just drag along, slowly eroding, never providing satisfactory long-term profits -- because the current high valuations will prevent satisfactory long-term profits, only trading profits. And over time investors will become increasingly discouraged with stocks.

So my conclusion is that the bear market has put all seasoned knowledgeable, long-term investors into the compounding game. To compound you must buy stocks that pay safe, attractive dividends. This boils down to the utility stocks that I have been recommending all along, stocks such as -- SO, EDE, DTE, PEG, TE, KSE, ED.

TODAY'S MARKET ACTION -- Not bad and on low volume. My PTI was up 6 to a new high of 5281. Moving average is at 5249 so the PTI remains bullish.

The Dow was up 7.36 ti 8601.38, again lagging the breadth. What's bugging the Dow? Something is.

June crude was up.31 to 29.16.

Transports were up 16.58 to 2383.36.

Utilities were the heroes of the day, up 8.42 to 244.90. And why not, they pay real dividends and in many cases fat ones.

There were 2145 advances and 1110 declines. Up volume was 64% up + down volume.

There were 368 new highs and 11 new lows. My High-Low Index was up 357 to minus 3224.

Total NYSE volume was 1.19 billion shares pre-holiday shares.

S&P was up 1.35 to 933.22.

Nasdaq was up 2.54 to 1510.09.

My Big Money Breadth Index was down 4 to 676, and I find the steady lag in this index somewhat bearish. What's wrong with this Index? It's got to be the same thing that's wrong with the Dow.

June Dollar Index down.58 to a low of 93.13. June euro at a new high, up 1.05 to 117.93 (don't take a vacation to Europe, it'll be expensive). June yen up.18 to 85.55. Japan has always been ridiculous expensive. Aw, just stay in the US where the bargains are.

Bonds were a bit higher. June 30 year T-bond was up 4 ticks to 121.09 to yield 4.25%. June 10 year T-note was up 5 ticks to 118.26 where it yields 3.83%.

June gold was up.70 to 368.80. July silver was up a fraction to 4.65. July platinum was up.60 to 664.00. June palladium was up 10.00 to 183.00 (and I think we've seen the low for palladium).

Gold/Dollar Index ratio was up 3.20 to 396.00.

Gold advance-decline line was up 6 to 1158.

XAU was up.23 to 74.06. HUI was up 1.48 to 141.52.

ABX down.10, AEM up.25, DROOY down.05, GG up.30, GLG up.09, HMY up.11, NEM unch., PDG up.08, RGLD up.09.

Gold consolidating and acting OK.

STOCKS -- My Most Active Stock Index was up 5 to 213.

The 15 most active stocks on the NYSE were -- LU down.15, AOL up.37, MO up 1.30, PFE down.26, PCS down.15, AWE up.10, NT up.03, AGRa up.01, GE down.07, CD up.58, CPN up.27, DUK up.77, MOT up.06, GPS down.75, SBC up.91.

VIX was down.24 to 21.38 and the complacency still reigns.

McClellan Oscillator was up 30 today to plus 49. Market continues to strain higher with very little correction so far.

CONCLUSION -- Market looks OK, but the lagging Dow and that lagging Big Money Breadth Index bother me. The place to be in the way of common stocks is utilities. I've said that before many times, and I'll say it again.

You remember"The Crying Game"? That's where most long-term holders of stocks will be if they hang on to their no-dividend or low-dividend stocks. I strongly suggest that my subscribers play"The Compounding Game." It's based on mathematics and the compounding tables. And to do it, you need interest and dividends. You need money coming in.

It's really fascinating. I just went through the whole economic and business section at our local book store. A large selection of"how to" books, but not a single book on the compounding tables. I've always held that the single most important book in investing, actually the"bible" for investors, is any book of compounding tables. Dow Jones used to put one out, but they dropped it."The magic of compounding" has made more people rich in investing than probably all other techniques combined.

To make a fortune in investing, you don't have to be another Warren Buffett, you just have to use the power of compounding (which becomes more important than ever in a bear market).

Guess that should do it for Friday.

I'll post a short piece tomorrow (I always think short and end up writing long).

Adios, and have a marvelous weekend.

Here's an idea for tomorrow. The gal who introduced me to Faye has a brother -- Donald Deline. Donald is the producer of the new movie,"The Italian Job," which is being previewed tomorrow night in many theaters (see the ad in your local paper. The film is all about a bug robbery and features dozens of Mini Cooper cars.

We just bought a Mini and we love it. Prediction -- the Mini Cooper is going to be a very hot car (BMW can't keep up with the sales). The Mini is the ultimate anti-SUV. I hate SUVs, which are top-heavy and dangerous and gas-eaters and are a pain in the butt on the road.

Signing off,

Russell
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Items -- Intercepted at the border of Iraq today -- 2,000 gold bricks worth half a billion dollars. Whose gold was it? I have to think Saddam's.

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With gold now glittering, giant AngloGold, South Africa's largest mine, is talking merger with Ashanti, the only mine led by a black CEO, Sam Jonah. The Anglo-Ashanti merger would give the new company mines in South Africa, Namibia, Zimbabwe, Tanzania, Mali, Ghana, and Guinea. But the industry thinks that Barrick and Placer-Dome, both of Canada, might also be interested in taking over Ashanti

Said Bobby Godsell, CEO of AngloGold,"Fundamental forces are at work which continue to promise price upside. Mine production is flat to declining, central bank selling is stable at low levels and investor interest is back. The negative sentiment has gone away." Oh yes, he's talking about gold.

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The incredible egotism of the current White House was discussed in a Financial Times article today. Excerpts --

Among the most important geopolitical shifts of the past two years has been the US administration's judgment that its interests now lies in dividing rather than uniting Europe... Washington's segregation of erstwhile allies into friends and enemies is intended as a blunt assertion of American primacy. In the long term, this strategy will prove to be corrosive to US power. In the short term it has worked. Europe is in disarray.

We can now see the US strategy in action in the punishment meted out to those who opposed the Iraq war. Friends are feted in the White House. Enemies -- and startlingly, these include Mexico and Chile as well as Germany and France -- are frozen out. Each is ranked and the punitive response precisely calculated.

Condoleezza Rice, the President's National Security Advisor, keeps score. France is to be punished. Germany shunned and Russia brought back into the fold. When a middle-ranking US official recently travelled to Europe to press for the lifting of UN sanctions on Iraq he stopped off at Moscow and Berlin. But his instructions barred a visit to Paris... It gets worse. Colin Powell can visit Berlin but Mr. Bush still refuses to take a telephone call from Gerhard Schroeder. Think about that last one. Iraq is in chaos, al Qaeda has launched new attacks and the US president has not spoken to the leader of Europe's largest nation since November.

Optimists say the mood will pass. Mr. Bush will shed his extraordinary talent for turning friends into enemies. The US will rediscover 'soft' alongside of military power. Europe will see that the alliance can still be bound together by mutual interests.

Russell Comment -- I can't figure where the White House crowd think they are going with all this. Two aphorisms come to mind."Pride goeth before a fall." And"Whom the Gods would destroy, they first make mad."
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Russell:
It appears that your subscriber adjusted the GDP numbers into constant 1996 dollars but left the national debt and money supply numbers in current, inflating dollars. If you readjust the GDP figures to current, inflated dollars then the growth rate is 6.6%, which is much closer to the 7.9% growth rate for debt.

Noel
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Hi Richard,

Really enjoyed Brian Bloom's comparison figures......thanks......I like to do some comparing of the present to the past regarding the price of Gold to our treasury debt....the comparison numbers indicate that Gold is amazingly under priced......

in 1973 our National debt was approx $470 billion......Gold hit $127

in 2003 our National debt is.....approx $6.4 trillion......Gold hit $390

so our national debt increased 13,6 times

Gold has increased 3.07 times

in 1973 our national debt had approx 7 % Gold backing

in 2003 our national debt has approx 1 1/2 % Gold backing

if we were to equal 1973 percentage Gold backing we would need a price of Gold right now at $1,716

seems we have a ways to go just to play catch up with yesteryears figures

every time I wonder just how high Gold is going I review theses figures

oh,yes...as Brian Bloom says, it would appear our National debt is accelerating its rate of increase...catch up time for Gold???


Ron R.

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Good advice -- Russell


From our accountant, Joe Lim

Maybe we should all take some of his advice! A corporate attorney sent the following out to the employees in his company:

* The next time you order checks have only your initials (instead of first name) and last name put on them. If someone takes your check book they will not know if you sign your checks with just your initials or your first name but your bank will know how you sign your checks. But you should know that your bank never looks at the signature line.

* When you are writing checks to pay on your credit card accounts, DO NOT put the complete account number on the"For" line. Instead, just put the last four numbers. The credit card company knows the rest of the number and anyone who might be handling your check as it passes through all the check processing channels won't have access to it.

* Put your work phone # on your checks instead of your home phone. If you have a PO Box use that instead of your home. Never have your SS# printed on your checks (DUH!) you can add it if it is necessary. But if you have it printed, anyone can get it.

* Place the contents of your wallet on a photocopy machine, do both sides of each license, credit card, etc. You will know what you had in your wallet and all of the account numbers and phone numbers to call and cancel.

* Keep the photocopy in a safe place. I also carry a photocopy of my passport when I travel either here or abroad.

* We've all heard horror stories about fraud that's committed on us in stealing a name, address, Social Security number, credit cards, etc. Unfortunately I, an attorney, have firsthand knowledge because my wallet was stolen last month. Within a week, the thieve(s) ordered an expensive monthly cell phone package, applied for a VISA credit card, had a credit
line approved to buy a Gateway computer, received a PIN number from DMV to change my driving record information online, and more.But here's some critical information to limit the damage in case this happens to you or someone you know:
We have been told we should cancel our credit cards immediately. But The key is having the toll free numbers and your card numbers handy so you know whom to call. Keep those where you can find them easily.

* File a police report immediately in the jurisdiction where it was stolen, this proves to credit providers you were diligent, and is a first step toward an investigation (if there ever is one).

But here's what is perhaps most important: (I never even thought to do this). Call the three national credit reporting organizations immediately to place a fraud alert on your name and Social Security number. I had never heard of doing that until advised by a bank that called to tell me an application for credit was made over the Internet in my name.The alert means any company that checks your credit knows your information was stolen and they have to contact you by phone to authorize new credit. By the time I was advised to do this, almost two weeks after the theft, all the damage had been done. There are records of all the credit checks initiated by the thieves' purchases, none of which I knew about before placing the alert.
Since then, no additional damage has been done, and the thieves threw my wallet away this weekend.(someone turned it in). It seems to have stopped them in their tracks.

The numbers are:
Equifax: 1-800-525-6285
Experian (formerly TRW): 1-888-397-3742
Trans Union: 1-800-680-7289
Social Security Administration (fraud line): 1-800-269-0271

We pass along jokes on the Internet; we pass along just about everything. Pass this information along. It could really help someone you care about.

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Below is from my old friend, Chris Wood, who writes the authoritative and always interesting Greed & fear.


· The bull market in US Treasury bonds has further to go as American banks have record low holdings of government bonds. If banks start to prefer to buy government bonds, rather than to lend money, it will be extremely deflationary, given the sheer level of the debt overhang, and it would grievously undermine present Wall Street valuations.

· Investors need to understand that the central risk of deflation globally does not arise from the cheap goods coming from China. Rather it derives from the monstrous credit build-up in America and other Anglo-Saxon appendages, which have been actively encouraged by the likes of Alan Greenspan.

· GREED & fear maintains the long-standing view that the 10-year US Treasury bond yield will eventually reach 3% though, if the JGB yield can go to 0.56%, the 10-year yield can clearly go well below 3% in a real panic flight to government paper. Still GREED & fear is now happy to have most of the government-bond position in the US-dollar-based global portfolio in bunds and gilts.

· There is no reason for anyone other than consensus-seeking Asian central bankers to buy US dollars and there is every reason for anyone who still own dollars to sell them. GREED & fear would favour almost every traded currency in the world over the US dollar, with the possible exception of the Philippine peso.

· GREED & fear views the decline in US corporate bond spreads as a symptom of investors' desperation for yield, which is also why they are piling into emerging-market bonds. Absolute-return investors are advised to go short US high yield corporate bonds now.

· The Resona precedent will be used by the Japanese authorities as a test case to prepare public opinion for the inevitable resort to move taxpayers' money. The authorities are considering tightening the rules on the contribution of deferred-tax assets to Japanese banks capital. This suggests that Financial Services Minister Heizo Takenaka might not be as powerless as previously thought.

· GREED & fear remains firmly of the view that if the Federal Reserve does go formally down the monetisation route later this year, the Bank of Japan remains the central bank most likely to follow.

· The effect of Sars should be to accelerate the deflationary adjustment process in Hong Kong that would have happened anyway. The overweight in Hong Kong in the relative return portfolio is maintained.

· Some adjustments are called for in the absolute-return portfolio. The allocation in Indian software is reduced to zero, with the money added equally to the existing weighting in Indian financials and in Indian PSUs and domestic cyclicals. Another small adjustment is to cut the weighting in Malaysian banks to zero and to use the money to add to the existing position in Thai financials.

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• ein langes Wochen-Ende steht vor uns, hier ein paar Facts from Richard Russel - Emerald, 24.05.2003, 08:10