The paragraphs below are excerpts from Richard Russell’s latest Dow Theory Letters, arguing the case for gold bullion.

“Today I ask myself, where would I rather have my subscribers be - loaded up in the Dow Jones Industrial Average or loaded up with gold?. And in all honesty, I believe they are better off in gold than in the stock market with DIA.

“There are a number of items favoring higher gold now.

(1) Interest rates are at zero, which means the ‘opportunity cost’ of owning gold now is highly favorable. You sacrifice no yield in owning gold vs. Treasury bills. T-bills pay you nothing, so you might as well have your money in gold.

(2) The Bernanke Fed will evidently stop at nothing in its all-out attempt to ‘jump start’ the wobbly US economy. This means spending and building debt at a never-seen-before rate. This will

I concluded a post on stock markets over the weekend saying: “After equities’ seven-month climb, stock markets certainly look vulnerable for a decline. Two downside reversal days - on Wednesday and Friday - would seem to indicate that stocks could commence a pullback to work off the overbought condition, allowing fundamentals to reassert themselves.”

Global stock markets, as well as other risky assets, closed sharply lower over the past few days as concerns mounted over the sustainability of the global economic recovery and the outlook for central bank policy.

The performance of the major asset classes is summarized by the charts below, with the top one showing the period from the March 9 stock market lows until October 19 peak and the second one the subsequent period. The numbers indicate an all-change pattern in the performances as risk aversion re-entered financial markets and government bonds and the US

“The end game for this bullish phase [on stock markets] needs to be considered well before the event. While the timing is largely guesswork at this stage, the usual causes are not. Bull markets are usually assassinated by tighter monetary policy,” said David Fuller (Fullermoney) from across the pond.

Exiting an accommodative policy setting prematurely can have dire consequences. A change in stance derailed the recovery in the late 1930s and led to another leg of the depression, as highlighted yesterday in a short report by BCA Reseach.

“By mid-1936, the Federal Reserve lifted bank reserve requirements in an attempt to soak up liquidity and prevent speculation from returning to Wall Street. However, the banking system was still too fragile and in need of capital. Consequently, both narrow and broad money growth plunged from a healthy clip back into negative territory. To make conditions

After almost doubling since the beginning of the year and notching up seven straight weeks of gains, the Chinese Shanghai Composite Index (3,046) has now declined by 12.2% since its peak of August 4. This morning the Index dropped to below its 50-day moving average (3,097), but is still comfortably trading above its 200-day line (2,413). The Rate-of-Change Indicator (black line in the bottom section of the chart) is also about to break below the zero line, thereby flashing a sell signal.

Source: StockCharts.com

David Fuller (Fullermoney) said: “Some commentators think China has already entered a climactic third upward stage characterised by mania. Yes, last month’s gains were a bit frothy, causing the uptrend to steepen. However, this has boiled over … Some of the speculative froth is now being blown away,

“Words from the Wise” this week comes to you in a shortened format as I do not have access to my normal research resources while on the road in Europe (also see my post “Gone A.W.O.L. - to Slovenia and Switzerland“). Although very little commentary is provided, a full dose of excerpts from interesting news items and quotes from market commentators is included.

While investors’ hopes of an economic recovery might have got ahead of reality, the cartoonists continually reminded us of worrisome issues …

Source: Signe Wilkinson, Washington Post,  June 18, 2009.

The past week’s performance of the major asset classes is summarized by the chart below - a mixed bag so to speak.

Source: StockCharts.com

A summary of

The predictions of the members of the Barron’s mid-year Roundtable discussion over the weekend were in agreement that the March lows of the stock markets would not be broken. This reminded me of one of the famous “Investment Rules” of Bob Farrell, legendary former chief stock market analyst at Merrill Lynch. Rule # 9 stated: “When all the experts and forecasts agree, something else is going to happen.”

Meanwhile, many stock markets yesterday registered their worst single-session percentage losses in a month. Commodities also faced heavy profit-taking, but government bonds rallied and the US dollar strengthened against a basket of currencies. “We could be seeing one of those occasional all-change signals in short-term trends,” said David Fuller (Fullermoney).

Richard Russell, veteran writer of the daily Dow Theory Letters, commented on Monday: “I’m of the opinion that this bear market rally is in the

“Goodbye safe havens, hello risky assets.” This was the refrain of investors’ theme song during the past week. Safe-haven assets were out of favor as better-than-feared corporate earnings and signs of a budding economic recovery emboldened investors’ appetite for reflation trades such as equities and commodities.

Investors’ sentiment improved notwithstanding a number of influences that could potentially disturb financial markets. These included a three-day delay in the release of the stress test results of the 19 biggest US banks until May 7, the plight of the beleaguered US automakers with General Motors (GM) proposing a sweeping debt-for-equity restructuring and Chrysler filing for Chapter 11 bankruptcy protection, and fears of an escalation in the number of swine flu (H1N1) cases.

Source: Vita

As to be expected given the countless catalysts, the past week’s trading was bumpy, but the major

Spring is in the air – at least in the Northern Hemisphere and on global bourses. Last week marked the sixth consecutive up-week for stock markets as investors’ risk appetite returned amid signs of global economies and the financial sector embarking on the road to recovery.

Source: Tom Toles, The Washington Post.

Speculation that the unprecedented stimulus measures are starting to take root saw the safety appeal of government bonds diminishing, despite the buying support from central banks’ buying programs. Similarly, gold bullion struggled to find traction as investors continued to unwind positions. Silver and oil also languished in the red, but copper, other industrial metals and soya beans surged ahead.

The performance of the major asset classes is summarized by the chart below, courtesy of StockCharts.com. A picture tells a thousand words …