I have quoted Richard Russell of Dow Theory Letters fame many times over the past 3 years. The Seeking Alpha post below pulls a list of bullet points from Richard Russel’s paid subscription letter that I think are right on the mark:
To expand on a few of these points:
- I am currently in cash and gold. I lightened up a bit on gold over the past 6 months as a result of Prechter’s warnings that it could go down but I still hold a lot of it.
- I do not think housing prices have seen bottom and I do think a lot of people have jumped in prematurely thinking the bottom is in. But how can this be a bottom if the government has been giving away thousands to people to buy houses and when it has been buying up more than 80% of the FHA loans over the past 12 months to the tune of 1.2 trillion? You can’t have a real bottom until the government gives up trying to stimulate the markets IMO. I do think there are areas where the bottom has hit like Detroit where you can buy some very nice properties for $5 a square foot. I do not expect the whole country to be Detroit but when I look at shoebox properties in CA going for 300-500k I still think there is a 50% haircut waiting for markets like that. Something we Americans just have to get through our heads is that the property is not worth what we paid, it’s worth what the next guy can pay and the next guy relies on credit to pay anything more that about 100k.
- Regarding credit, Obama is doing some of the right things given that he is working within a corrupt system of fiat currency and fractional reserve lending, but his actions will be painful nonetheless. He is pushing for bank reform which is really to say he is looking to reduce the amount of fractional reserve lending that occurs. After throwing all the rules out the window he is trying to use the strength of a marginally improving economy to cut some of the cancer from the system. There is even recent and serious talk of breaking up many of the big insolvent banks like Citi, Bank of America, and JP Morgan Chase. But these offenders have big leverage out there so if they are broken up the leverage will have to be unwound and that means a big reduction in available credit: http://www.philly.com/inquirer/business/20100430_PhillyDeals__Should_Congress_break_up_Citi__Goldman__Morgan_.html
- The commercial real estate market bust that everyone knows is coming hasn’t even hit yet. It’s a very likely tsunami yet we never hear about it in the main stream media.
- The whole stock market rally since March of 2009 has been the Obama Hope rally. Nothing has really been fixed and a lot of things have been papered over in order to make things look better. Those problems are not going away. Government is just trying to buy time in the hope that things will magically work out. But people’s spending habits have not returned to the pre 2007 days and it will be many years before we see that again as boomers begin to hunker down for retirement.
