Tuesday, April 3, 2012

Richard Russell - Hang on to Gold, Massive Collapse Coming

With gold holding near the $1,670 level, today the Godfather of newsletter writers, Richard Russell, starts off with a quote from legendary trader Jesse Livermore and goes on to discuss what is happening in gold and stock markets:  “A loss never bothers me after I take it.” Jesse Livermore.

Richard Russell continues:

“Wise words from Jesse Livermore except for one thing.  Losses to me are experiential lessons.  I always look at my losses and then ask, ‘What have I learned?’  If I've learned something valuable, I don't consider it a loss.  I take it as a lesson or an insight into my character -- laziness, greed, stupidity, impatience.  I've often said that the stock market is a great teacher, that is, if you are humble enough to learn from your mistakes or losses.

I was looking over the quarterly report of Tri-Continental Corp.  I think this was the first closed-end fund, founded in the 1920s prior to the '29 crash.  I don't know what TY sold for in July 1932, but in 1940 with the Dow at a price of 98 you could have bought TY at around 2. 

Buyers at that time merely had to load up on the fund and hold it, and they would be rich today.  The fund's assets are now near two billion.  I looked up their holdings of Apple; they hold 80,800 shares.  That shows you how huge some of these funds are, and the great buying power they possess.

What I want to illustrate is that great fortunes are made at super-bear market lows.  But you must have the money at the lows.  Which is why gold is so singular and valuable.  If you have gold at the bottom of the next bear market, you can exchange it for a collection of great common stocks or funds, and then sit back and relax.

You are then betting on the lasting power of the US.  If the US comes back, you will be rich beyond your wildest dreams.  But you have to have the guts to hang on to your gold.  And you need patience -- the patience of ten men.

And I wonder -- is there a super bear market waiting for us somewhere in the future?  The great ride from the end of WWII to today has never been fully corrected.  Some day it will be.  And impossible bargains in stocks will be lying around -- with very few willing or solvent buyers. 

Such is the fascination of the stock market.  In this business the ‘impossible’ never seems to be possible.  But the impossible definitely is possible in the strange and exotic world of Wall Street.  My opinion -- the retail public is buying the earnings while the big money is giving them all the stocks they want.  Gold gave a little (recently), but not enough to worry about.

As for gold, I have a long-term position in the yellow metal that I will probably never exit or sell.  My thinking is that sooner or later we will be subject to a major correction (bear market) that will wipe out or correct 60 years of inflation and leveraging.  When that happens, I want to own the only kind of money that the Fed can't destroy.

When the big deflation and deleveraging arrives, I see the Fed trying to halt it with QE3 and QE4 and QE5.  Why do I say that?  Because that's the way the Fed thinks, and that's what the Fed does.  They did it in 2007 and 2008, and we know that the current Fed head will not tolerate contraction, and has a record to prove it.”

No comments: