GATA chairman quoted in CBS.MW story about Morgan Chase weakness

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By Thom Calandra, Editor
CBS.MarketWatch.com
Thursday, November 7, 2002

http://cbs.marketwatch.com/news/story.asp?
column=Thom+Calandra's+StockWatch&dist=nwtwatch&siteid=mktw

NEW ORLEANS -- The skeptics just don't buy it.

Contrarians -- the folks who refuse to believe the American
economy can stage a lasting rebound this year or next --
are positively irreverent about the Federal Reserve's easing
of U.S. interest rates.

"This cut means the credit quality of America is going to
the birds," said Mark Wellesley-Wood, chief executive of
South African gold miner Durban Roodepoort Deep. "It will
make junk borrowing a common practice for the American
public."

Wellesley-Wood, attending a New Orleans investment
conference for wealthy individuals, was commenting on the
Fed's unanimous decision Wednesday to reduce its target
rate on overnight loans among banks to 1.25 percent, the
lowest borrowing rate since July 1961. In addition, the
Federal Reserve policy makers reduced their rate on Fed
loans to banks to 0.75 percent from 1.25 percent.

Many of the strategists attending the 29-year-old New
Orleans conference cater to skeptical investors -- the so-called
perma-bear crowd that would just as soon own gold, silver, or
water rights before they buy a blue-chip stock.

An icon for America's Fed-bashers, Dow Theory Letters editor
Richard Russell, laid it on thick. "The Fed will fight this bear
(market) tooth and nail, so this will be a long, tortuous bear
market," Russell told about 800 paying attendees at the
conference.

At the age of 75, Russell counts himself among a handful
of financial newsletter editors, including James Dines and
Joseph Granville, who have been tracing markets on behalf
of individual investors for more than 40 years. Russell is
credited with calling the top of the bull market in stocks
that ran from 1949 to 1966. About 7,000 people subscribe
to Russell's newsletter.

At the New Orleans gathering, investors were hanging on
Russell's every word.

"When you follow the market, you are following the money,"
Russell said. "You find out where the money is. It sounds
easy. It's not."

Russell says the stock market is overpriced even by the
lowest estimates for company profits. If America's largest
companies, as measured by the Standard & Poor's 500
Index, were to earn just $18.48 a share in core profits next
year, the stock market would still be terribly expensive, the
newsletter editor said. (Core profits exclude income from
pension funds, with the cost of stock options deducted as
an expense.)

In long-lasting bear markets, stocks have gotten far cheaper
than they are now, Russell said. In 1946, stocks traded at
about 6 times S&P 500 profits. In 1973, it cost 7 times a
company's average per-share yearly profit to buy one of the
S&P 500 stocks. In 1981, it was 7.5 times earnings.

"Now it's 48 to 50 times earnings and 45 times dividends,"
Russell said. "How is this market going to get to
under-valuation? No one knows. But it will. And we'll see
a Dow yield of 6, 7, 8 percent. It will be a very long trip
down." The Dow Jones Industrial Average of 30 large
companies currently yields less than 3 percent.

Russell said the losing stock market that began, by his
estimates, in 1999, could last "anywhere from eight to
15 years ... maybe two decades." Most ordinary investors
are best advised to keep their funds in cash, allowing it
to compound slowly in ultra-safe money-market accounts
or triple-A-rated municipal bonds, he said.

"This is going to be a very difficult period. It is going to be
very deceptive," he said. "The ultimate concept to remember
is that stocks won't be great buys until they are undervalued."

As for gold, Russell said his data showed a 20-month moving
average of gold's price moving above a 40-month moving
average in July, "signaling a major bull market" for the
depressed metal. Technicians use moving averages to uncover
what they hope will be lasting price trends for stocks, bonds,
commodities and other investments.

Russell expects the price of gold, now at $320 an ounce, to
equal or exceed the nominal level of the Dow average, now
at 8,770, at some point. "Gold will cross at $3,000 an
ounce, with the Dow at 3,000 or lower," said Russell

Russell invoked the names of stock market researchers
and strategists he regards as the country's best, including
Elliott Wave International's Robert Prechter, in presenting
his view of a sharply lower stock market. Prechter,
economist Stephen Roach and a handful of others see the
possibility of a horrible financial depression in coming years.

"Unemployment will be a vicious problem," Russell said. "Before
next year is out, we'll see another 20 percent drop in the
dollar. China is at economic war with the West. I wouldn't be
surprised if it backs (its currency) with gold."

As for specific recommendations, he pointed to Newmont
Mining, the world's largest gold producer, as the "bellwether"
investment in troubled fiscal times. Russell said the 18 gold
mining stocks he follows demonstrated strong accumulation
this week as measured by advancing prices on rising volume.

"There is going to be tremendous resistance to the idea of
gold from the people who produce the junk paper. I'm talking
about the Federal Reserve, of course," said Russell, to
much applause. "The central banks want you to believe gold
is junk and their paper is not. Gold has been in a bear
market for 20 years. To many, it is only something you fill
your teeth with."

What do the ordinary folks say about all this? "At some
point," said Paul Collins, a Monmouth Beach, N.J., investor,
"people are going to lose confidence in everything but gold."

Collins, attending the New Orleans show with his wife, said
he owns shares of Tocqueville Gold Fund (TGLDX) a $150
million mutual fund whose value has risen 58 percent since
the start of 2002.

"I don't know if gold's payday is going to be today, or three
years from today," said Collins. "But I'm comfortable with it."

John Hathaway, New York-based manager of the Tocqueville
Gold Fund, says gold's rising price in October and early
November, in the face of rallying U.S. stocks, is a sign
something has to give, and soon.

"In my opinion, gold is now beginning to discount at least a
temporary end to the current bear market rally in stocks,"
Hathaway told me from New York.

In New Orleans, where attendance is double last year's
showing, lots of folks welcome that scenario.