Russell on the Economy
Richard Russell -- Dow Theory Letters -- 7 December, 2002
[watchwords: rising unemployment, falling income, USDollar decline, China birth]
Snippet extracted from the 6 December, 2002 issue of Richard Russell's Dow Theory Remarks
December 6, 2002 -- For a change, let's start with some news --
The US economy "surprised" economists when it was announced this morning that 40,000 jobs were lost in the latest period and that the jobless rate rose to 6%.
A leading German banker stated that Germany today is where Japan was ten years ago. The WSJ, in a front page article, included an article that states that Germany is stultified, caught in the grip of crippling old laws and customs. Remember, Germany is the world's third largest economy. Germany and Japan in recession, and that leaves only the US in "good shape." But is it in good shape?
A page 2 article in today's WSJ states that US consumers' wealth is declining and is back to the levels of 1995. The reason, too much spending, rising taxes, losses in the bear market and declining savings.
US Treasury Secretary O'Neill has resigned (kicked out?). He's had very little credibility. My choice -- Volcker. But it won't happen, Volcker is too honest, too independent.
Lawrence Lindsey, the President's chief economic advisor, has resigned. Any connection in the two resignations? Sure, they were both ineffective in pushing the President's new economic policies.
So much for today's news. Every bull market and every bear market has certain "themes." It's often difficult to fathom just what the themes are. At any rate, here are my choices for the themes (so far) in this primary bear market.
The rise of China. China has literally declared "economic war" on the world. I think it's obvious that China means to become a super-power in competition with the US and on a par with the US. In the meantime, China is exporting deflation to the world.
Unemployment -- This, I believe, is the phenomenon that will in due time turn consumer both frightened and bearish. As the US's manufacturing and even its service capacity is exported overseas to nations that will do the work at half or less of the cost here in the US, more and more Americans will be laid off. We wanted a world integrated economy, now we have it. And to the most efficient producer goes the money, the jobs and the growth.
Income -- I've been saying this from the beginning of this bear market. The operative word will be INCOME. As the bear market goes about wiping out wealth, everyone is going to need income.
The fall of the dollar. It's happening now, and it will continue. The Fed has almost guaranteed it. We've got "a printing machine" said a Fed governor last week. And we'll print our way out of deflation. Kiss the dollar "good bye." But it will take time. M-3, the broad money supply was up $95 billion two weeks ago, up $20 billion last week. Fed in panic mode and intent on thwarting deflation.
The rise of tangibles of all kinds, but the leading tangible will be tangible (intrinsic value) money...
It's called gold. |
