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[ThatHawaiiGuy]

The Doubting Generation
Richard Russell
Dow Theory Letters
Jul 24, 2003

Extracted from the July 23, 2003 issue of Richard's Remarks

-- So the big battle on the part of almost every nation is -- "How do we keep our currencies weak against the dollar and against every other currency? The answer, and I've been predicting this for quite some time is -- COMPETITIVE CURRENCY DEVALUATIONS. "Begger thy neighbor" is the new trend in currencies.

This presents an ideal background for real money -- gold. And for gold's "little sister" -- silver. The precious metals are in a most interesting position. Think about it -- here's the Fed, printing $150 billion of BS paper in six weeks. That's enough junk paper to buy the entire gold industry and have roughly $50 billion left over. What that means to me is that gold shares are "dirt cheap," and so is their product -- the yellow metal, gold.

There's also an amazing irony in the money-gold situation. Because of a two-decade bear market which followed the bursting of the precious metal bubble in 1980, a new "doubting generation" of Americans has grown up. It's a generation which has watched gold and silver go nowhere for almost two decades. On top of that, the new generation has swallowed the great lie promulgated by the central banks -- the lie that paper currency is wealth -- and real money, gold, is just a relic of the past.

Now we see an extraordinary process. We see the central banks of the world creating tens of billions in their own fiat paper as they move to buy dollars while selling their own currencies. As a result of the creation of all this new currency, these nations have built up huge productive capacities, and thus too many goods and too much merchandise is being thrust upon the world, and particularly upon the US. The result of this mass of new production is a rise in deflationary forces -- and an end of pricing power as we know it.

But the forces of deflation are a death-threat to the debt-logged US economy. The Fed knows this, and it has an answer. The Fed's answer -- inflate, inflate, drop interest rates again and again and inflate some more. Again, the ideal background for real money -- gold.

In investing, occasionally, great value-opportunities present themselves. In 1942 the Dow sold as low as 92, at a time when it looked as though the Allies could lose the war to Nazi Germany. I saw another such great opportunity in 1949 when the Dow sold as low as 161, during a time when everyone thought we were on the edge of a second Great Depression. In 1974 the Dow sunk to 577, presenting a third historic buy opportunity for investors and readers of Dow Theory Letters.

And I wonder here in 2003, whether gold (and possibly silver and even platinum) aren't presenting us with another great buying opportunity in an item that is totally out of favor with investors?

But this time the item in question is even more fundamental than are stocks. This time the out-of-favor item is far more emotionally charged than stocks. Veteran readers of these reports remember the late 1970's when I would write repeatedly that "There's no fever like gold fever."

I believe we'll live to hear that same phrase again -- but probably not until gold has moved into its third psychological phase. The third phase of a bull market is the phase that sees the public rush into the market as they finally buy with total abandon.

By my reckoning, we are still in the first psychological phase of the gold bull market. This is the phase where informed investors quietly accumulate the desired item. These investors are in no hurry, and they are not interested in "bulling" their acquisitions. These early investors want time to accumulate, and they want as little public recognition and competition as possible.

In the second phase of a bull market, the item rises as smart fund managers and professionals begin to see the picture, and they too join in the buying. In the second phase the best-informed members of the public may also join in the bull market, and here the item begins to accelerate to the upside.

...Well, enough about gold.

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