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Ted Butler replies to Pan American Silver CEO Ross Beaty

Section: Daily Dispatches

9a ET Monday, May 10, 2004

Dear Friend of GATA and Gold:

Robert D. McHugh, president of Main Line Investors, writes
at Gold-Eagle that a stock market crash is nigh:

Richard Russell of Dow Theory Letters seems to feel the
same way, according to the appended commentary by
Peter Brimelow at CBSMarketWatch.

CHRIS POWELL, Secretary/Treasurer
Gold Anti-Trust Action Committee Inc.

* * *

Give Grumpy a Good Listen

By Peter Brimelow
Monday, May 10, 2004

Could a crash be coming?

After one of the worst weeks for stocks since 9/11, the
Great Grump is getting grumpier.

I watch none of the geezers (my term for the letters that
were around during the last bear-market low in 1974) that
I watch closer than Dow Theory Letters' Richard Russell.

Russell actually did call the market bottom in 1974, and
(arguably early) the top in 1999. More recently, he
remained bearish in early 2002, when virtually everyone
else assumed happy days were here again. Not for
nothing did I head my July 15, 2002, column on this
remarkable call, "The Triumph of Richard Russell."

Now, on the eve his 80th birthday, Russell is shaping
up for another dramatic test. A superbear who
nevertheless recognized the strength of the 2003 rally
he now thinks the primary bear market may be about
to reassert itself.

During Friday's down day, he wrote: "The 'internals' of
this market continue to be horrendous. As I write now,
three hours after the opening, there are 2,254 more
declines than advances on the NYSE and over 500
new lows with only 28 new highs. Yet the Dow as I
write is down only 32 points and Transports are down
26 points.

"This kind of action can't continue. It should be only
a matter of time before the stock averages catch up
with the internals of the market. On this basis,
nothing would surprise me during the days ahead.

"I hate to use that dreaded word, 'crash,' but it would
not surprise me if this market were to crash."

On Saturday (Russell writes six days a week) he
commented: "I just read Barron's and I went though
a batch of this morning's newspapers. And I must
say I was rather surprised. I saw hardly anything
about last week's rotten stock market performance.
If there's any anxiety or even uneasiness about the
market's swoon, I didn't see it. Confidence, it
seems, reigns supreme."

This makes Russell even more nervous. His
recommended investment posture: "The ideal
position at this time is cash often termed 'liquidity'
(T-bills, money market funds, CDs -- cash). Gold
is our insurance policy just in case "everything
goes wrong," and in a primary bear market yes --
everything CAN -- and often will -- go wrong."

Russell is a cunning old codger. Because he's
been officially in cash for a long time, but
occasionally hints at plays for speculators, I get
emails complaining the Hulbert Financial Digest
monitoring system is either (a) too soft or (b) too
hard on him.

But for some time now, Russell has been getting
more uneasy. This despite the fact that he says
a formal Dow Theory Sell signal can't occur unless
the market violates its March lows (i.e. about
10,000 on the Dow.)

And despite the fact that one indicator he flows
closely, Lowry's Selling Pressure Index, has still
to give a bear signal.

With Russell, what you get is not just his indicators,
but his instincts. Right now, they're really bothering

Because Russell's reactions are so instinctive, it's
never clear how much weight to place on the actual
reasons he gives for his opinions. Right now, he
complains that the Fed head "Greenspan has
created what I consider to be the greatest "debt
bubble" in recorded history ..."

Russell is negative on the U.S. dollar, but he writes:

"We could see a situation where there could be
panic in the U.S. to accumulate dollars, a "dash for
cash" with which to carry our enormous debt. ...This
could conceivably give us a counter-intuitive situation
where everybody in the U.S., would be frantic to
accumulate dollars, while simultaneously the dollar
would be sinking in terms of major foreign currencies."

I'm not sure the simple numbers actually justify
Russell's alarmism. But that doesn't matter. The bottom
line is whether he's right on the stock market. And, on
that, experience suggests he's worth listening to.


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