>>Chiefy if Id listened to you Id be broke<<
"June 13, 2002 -- You read me every day or so, and for that reason you should know what makes Richard Russell tick. Here goes --
One of the first things to know about me is that I have a real dread of taking large losses. Yeah, I can stomach small losses, and over the years I've taken dozens of small losses. But I've never taken a large loss. I have a fear, an almost psychopathic dread of taking a large, really damaging loss.
I'll tell you why, and it's a long and sad history. My grandfather on my father's side owned the largest jewelry store in Washington DC. And he was a stock market player. Along came the crash of 1903 (known as "the rich man's panic") and grandpa lost everything. Overnight he was broke. A few days later at 5AM in the morning my father (he was eight years old at the time) heard a shot. Dad ran into the living room, and there was his father lying on the floor in a pool of blood with a bullet in his head. He had shot and killed himself.
Grandpa's suicide left my father and his mother penniless. Overnight they were broke. My father used to go out shooting for meat -- rabbits, squirrels, anything. I still have his old .22 Winchester rifle. My father worked hard and got into Clemson College. Later he moved to New York, borrowed money, and graduated from Columbia as a civil engineer. But my dad was scarred for life by his own father's suicide.
My father never got over that tragedy. Every morning for the rest of his life my father would sit up, wide awake at exactly 5AM. I used to hear dad waking up, and I'd get up and go out to the living room to be with him. I loved my dad. We used to draw pictures together. My dad was a pretty good artist (as is my own son, Ryan).
My dad's 5AM rising got me in the habit of waking up early. Today I invariably wake up around 4AM, weekends included. I can't remember that last time I slept past 5AM.
My father's half-brother, Irv, was a sort of playboy. He had inherited stock from his side of the family. Irv had never worked in his life. When the stock market crashed in 1929, Irv's income went down by 50%. That scared hell out of Irv. Three months after the crash, Irving jumped out of his hotel window in mid-town Manhattan. That was the second suicide in my family -- both triggered by stock market crashes.
I grew up during the Great Depression. I grew up seeing long lines of men standing outside employment agencies. These were desperate men looking for jobs, any kind of jobs. Everywhere the smell of loss was in the air. Those were the hard times.
I grew up listening to stories my parents told of friends who had lost their jobs, friends who were broke, friends who needed loans. The Great Depression scarred almost all of that generation -- and their kids. I was one of those kids.
Then came World War 11, and the Great Depression came to an end. Everybody who wasn't in the armed services could get a job in defense. But other difficult times took the place of the Depression.
My youth was spent in the US Army. I enlisted at the age of 18, I went overseas in Europe, and into combat. V-E day, V-J day, the war was over, and I was released from the Army Air Force at the age of 22.
When I got out of the Army in 1945 I was a different person. I had survived, but I had seen hard times. I had seen things I never want my own kids to see. And thank God, so far, they have never seen them.
So what's the above all about? I guess, in a strange way, it was set off by my reading of the latest Merrill Lynch statistics in today's New York Times.
Here's the record of the stocks held by the largest number of accounts at Merrill Lynch. And remember, this is the record covering only this year.
AOL Time down 50.6% so far this year.
AT&T down 45.0%
ATT Wrls down 54.4%.
Avaya down 57.6%.
Cisco down 15.6%
Citigroup down 18.4%.
EMC down 48.7%.
ExxonMob. up 1.0%
Gen. Elect. Dow 24.3%.
Home Dep. down 25.4%.
Intel down 31.4%
IBM down 38.3%.
John&John Dow 3.1%
Lucent down 42.6%.
Merck down 11.6%.
Microsoft down 16.2%.
Oracle down 40.2%.
Pfizer down 12.1%.
Verizon down 12.1%
Wal-mart up 1.3%.
Remember, the above are just percentages from this year -- not from the highs!
And I ask myself -- HOW CAN INVESTORS STILL BE BULLISH?
It's incredible, but from all the polls and from everything I hear and read, investors remain bullish. It's mind-blowing. I've never seen anything like it.
What this stubborn bullishness tell me is that it's still early in this bear market. We're still in the early part of the second psychological phase.
Somewhere ahead, as night follows day, the public will turn bearish. I don't know what will turn them bearish. Crushing losses have not turned stockholders bearish. Terrorism has not turned them bearish. Talk of a bear market (which few people seem to believe) have not turned them bearish.
I guess it's the other side of the 1940s and early 1950s when nothing, it seemed, could turn the public bullish. I saw that phase, the phase of perma-bearishness. I saw if first hand -- and now we're in the opposite phase. The crowd remains stubbornly bullish. It really is incredible.
Getting back to my dread of loss, I guess that has rendered me extra-sensitive to the bear. I seem to sense danger and potential loss even before it happens. On the other side, I've had to train myself to be sensitive to bullish events as well. I have no trouble "smelling" forthcoming trouble in the stock market, and I really do think that I've become pretty good and sensing the bullish side of the market as well.
However, in investing you must take account of your psyche and your capabilities. My strength is my faith in compounding. I like mathematics to work for me, and for wealth building there's nothing like the power of compounding. I've talked about and written about compounding ever since I started writing Dow Theory Letters.
Enough, enough -- so where are we now? The D-J Total Market Index is down 11.09% so far this year. The Wilshire 5000 is down 9.78%. The S&P is down 11.13%, and the Nasdaq is down 22.11%.
And yet people remain optimistic if not downright bullish. In the investment advisory field, 42.9% are bullish while only 34.7% are bearish (Investor's Intelligence statistics). Just as surprising, we haven't had a single 90% downside day this year or since April 3 2001.
Yesterday, Lowry's Selling Pressure rose to a new high for the year while Buying Power continued to sink.
Yesterday the Dow rallied over 100 points, but on the NYSE downside volume was ahead of upside volume. This suggests that Big Money was selling into the rally. Of the 15 most active stocks yesterday, only 4 were up.
I started this site by talking about my dread of loss. The losses in this bear market so far have been huge. Yet bullishness is still the sentiment of the day.
This market's action has set off my inner "dread-of-loss alarm." This is not my kind of market. I've taken a conservative position, and I've urged my subscribers to do the same.
A few years ago I loaded up on top-grade muni bonds on the thesis that times are going to get tough, and that the bond market would rise as it discounted a steep recession. Recession ordinarily means lower interest rates. But what if the dollar collapses, and rates surge? In that case I'll just hold the bonds to maturity, but all the while the bonds will be throwing off tax-free interest.
And if the dollar collapses, gold will surge, and for that reason I'm holding gold shares as an insurance policy and as real money. In the end, and I don't know where the "end" is, paper money will fall. It always has, and it always will.
You remember that I said that I can't prove it, but I believe the great American consumer is starting to cut back on his buying? Today we got the first actual proof. US retail sales dropped 0.9% on the latest figures. Or as Bloomberg put it this morning --
"US retail sales declined more in May than at any time in the last six months, as consumers scaled back purchases at auto dealers, department stores, government figures showed."
And as for deflation in prices, this too is from this morning's Bloomberg -- "Producer Price Index in the US fell 0.4% in May; Core Rate was unchanged. Prices paid to US factories, farmers and other producers unexpectedly fell in May for the second straight month, a sign that companies are having to charge less as they try to attract customers during the economy's slow rebound from recession." |
