RICHARD RUSSELL ON GOLD
gold-eagle.com
Why gold at all? Gold is real intrinsic money. I consider gold a great value in a world where paper money is being "manufactured" by almost every nation in alarming amounts. Eventually, gold, like all great values, will fully express itself against paper. It may take a few months, a year, five years, 10 years, but the primary trend of gold is bullish, and ultimately the bull will have his way.
At this point, amateurs are saying that gold is just a mirror of the dollar. "When the dollar rallies, gold declines and vice versa." Forget it. I'm talking about the big picture, and the coming discouragement with all paper currencies. That's why we hold gold, not because gold is rallying or declining today or tomorrow in opposition to the dollar.
There are times in market history when you might have to "just sit there." There's nothing wrong with sitting. I've been investing since 1947, and I've been through these periods before. Sure, I've got a position in gold, and I own some bonds and I own some German short notes and a few utilities and some DIAs and a house and two poodles. But I don't have a big position (more than 20%) in anything in particular, and that suits me just fine in today's atmosphere.
For my kids, it's a rather different story. I don't buy them anything unless it has a relatively safe yield, and the higher the safe yield the better. They can use the income, and there's decent income in some utility stocks, some closed-end foreign bond funds, some closed-end municipal bond funds and some preferreds. In other words, for my kids I strictly follow the compounding route. If it doesn't pay a dividend or have a good, safe interest stream, I don't buy it for them.
Now I want to turn to another subject. Being near 80 years of age has one little advantage. I know an awful lot of smart people in this business, and I read their views and output religiously. I follow Lowry's and the brilliant Joey Granville and the super-bright Justin Mamis and the great Jim Dines and the Adens and McMaster and Gann-expert Jerry Favors and Sir Harry Schultz and Ian McAvity, Peter Eliades, and well - many, many others. They're a collection of the brightest people in this business. And each has his or her own opinion of what lies ahead.
But in the end, the only time I'm willing to take a big position in anything is when I believe that area represents a great value. I don't mind waiting. Sometimes it takes a year or two or even five before great values express themselves.
The other side of that coin? Buying anything that is overvalued, just give it time, and it always ends in a loss. And that's the problem with the public being in the market. The public buys on emotions, and emotions are always at or near an optimistic peak when an item is overvalued and receiving universal acclaim and publicity.
So the public always ends up doing most of its buying in overvalued areas. The result - the public almost always ends up losing money. I really hate to say it, but this is the reason that I don't believe the average person should be in the stock market. If, over time, the public had done well in the markets, the majority of investors would be wealthy. I'll let you in on a secret - they're not.
LOOKING BACK AND THEN AHEAD - I started Dow Theory Letters in 1958 with $25 and an obsession. The obsession was about Dow Theory and the stock market. The $25 went into (would you believe?) a little gelatin printer. You type your piece, then you place the paper face down into this pan of a special gelatin. And then you can get about 15 copies off the gelatin.
But 15 copies was all I needed, since I started with 15 subscribers who paid me $15 each for a year's subscription. Of course, at the time, I wasn't thinking of Dow Theory Letters as a business. I was doing it because I was enthralled with the markets, and I wanted to tell my subscribers what I was thinking.
I don't have any idea what Dow Theory Letters is worth today. I've had attractive offers to sell the business. I wouldn't sell my business for $5 million or $10 million. The fact is that I wouldn't sell it at all. I like what I'm doing, and it keeps me interested. I like my life, and more money won't increase my happiness.
I moved from Manhattan to San Diego in 1961, and I moved to La Jolla in 1967. I liked La Jolla because it was beautiful and located right on the Pacific Ocean. There was a certain block in La Jolla that was my favorite. In 1974 I saw an ad in the San Diego Union for a house located on this particular block. The house was listed for $630,000.
I knew the house, because I knew every house on the block. Real estate in 1974 was not in great shape. I met the owner of the house, and I told him, "I know your price, and I can't afford it. But I'll tell you what. I'll write you out a check right now for $570,000 for the house (the house had no mortgage)." The owner said, "Well, let me talk to my wife, excuse me for a few minutes."
The owner went to another room, and returned about three minutes later. He said, "It's a deal." We shook hands, and I wrote out the check. My real estate agent almost passed out. She said, "I've never seen a deal concluded this fast. I can't believe it."
I don't know what my house is worth today. It's situated a few hundred yards from the Pacific Ocean, and I know it's worth several million dollars or more. But I won't sell it. I love this house, and I just want to continue living in it. I've seen better houses, I've seen much more expensive houses, but I like my house. Faye likes it too, and my two standard poodles love it.
I consider my business and my house part of my "situation." I don't owe anything on my business and my house is "free and clear." That's the way I want it.
I also have about 20% of my assets in gold and gold shares. I don't give a damn where they go. I own the gold because, like my business and my house, there's no debt against it. The gold stocks mine gold, and I'll keep them, because I believe gold is in a long-term or "generational" bull market, and I'll just sit it out rather than trying to out-trade it.
I know that bull markets eventually express themselves by exploding - and what happens if the gold bull market ends up that way? Would I sell gold for $500 or $800 or $1,000 or more? Sell it for what? More paper? Some other country's paper? Euros? Chinese renminbi? A new brand of central bank paper? I hardly think so. I'll just keep my gold position the same way that I'll keep Dow Theory Letters and my house in La Jolla.
Somewhere ahead, maybe in a few years, five years, 10 years, I believe the price of gold will cross the price of the Dow. That will be at a time when sentiment toward gold and the market will have done a complete switch. That will be at a time when instead of paying near 30 times earnings for the Dow, bearish and discouraged investors will pay five or seven or maybe 10 times earnings for the Dow.
That will be a time when gold will be "loved" and there will be probably a worldwide frenzy to own gold. The gold shares will rise in harmony with the metal. When, when, when will that happen? And my answer is that I don't know. But I do know this - investors are currently far too optimistic about the future. Why do I say that? Because stocks are selling at higher price/earning ratios than at any bull market peak in US history.
At the same time, gold is selling at less than half its peak 1980 price, this after 23 years of loss of purchasing power and after a 19-year bear market in gold. That's my position. I don't have any debt. I've been through it all - bull markets and bear markets, war and peace, depressions and booms, conservative markets and frenzied markets.
And that's my story. When the ancient Chinese wise-man was asked for one sentence that would fit all situations, he answered, "This too shall pass." He was a wise man.
A STORY - Here's a crazy thought that came to me. You're standing in front of your home. A guy drives up in a Mercedes, steps out, and asks you how much you want for your house. You don't want to sell your home, so you give him a phony price. You smile sheepishly, "I guess I'd take six million for the house."
"Sold," says the fellow. Without another word, the guy goes to his car and pulls out a portable table and a funny little machine. He plops the machine on top of the table. Why, it's a printer, and a high-speed printer at that. The guy presses a button, there's a whirring noise, and out comes a stream of hundred dollar bills, and I mean this machine is super high-speed. In 10 minutes there's a huge pile of hundred dollar bills sitting next to the machine. "Never mind counting them," says this fellow, "My printer is always right. There you are, my friend, six million in dollars, and I'd really like to move into your house within 30 days."
Question - Is this guy just a proxy for the Fed? And is this pretty much the situation that we have today? But wait - you tell this fellow, "Hey, I wasn't talking about paper dollars. I want six million dollars in gold for my house." With that the fellow picks up his printer and table and puts them back in his car. Then he turns around and snarls, "Next time say what you mean. Six million in gold - are you nuts? I don't have no stinking' machine to make gold!"
Russell Comment - Sorry, excuse me, I sometimes have these crazy fantasies. |
