Richard Russell – A New Monetary System & End Of The Fed
June 25, 2013
One the heels of last week’s propaganda by the Fed, the Godfather of newsletter writers, Richard Russell, writes about the end of the current monetary system, the bond market collapse, volatility in stocks and the end of the Federal Reserve. This is a fantastic piece where Russell includes two key charts.
Richard Russell: “The great bull market that started in 1982 with the Dow at 776 possessed one great advantage — It had a bull market in Treasury bonds behind it. At the time (in 1982) the yield on long T bonds was around 15%. The bond market and the stock market rose together until the 2000s. The stock market hit its bull market high on October 7, 2007 at 14,164.53 on the Dow. The bond market hit its bull market peak in May of 2013.
Now the great bond bull market has topped out, and a new bear market in bonds is underway. This will mean rising interest rates for as far as the eye can see, with accompanying interest rate pressure on stocks.
Question — Russell, you stuck your neck out last week and stated that the stock market may be in major trouble. How come?
Answer — First, I believe the bull market in bonds is over. That means that we may face many years of irregularly rising interest rates. Remember, the Bernanke Fed artificially depressed interest rates with its huge QE program, during which it bought massive quantities of bonds. The Fed’s program cannot continue forever — in fact, Bernanke has recently conceded that the Fed is making plans to “taper” (down) its bond buying program. When the Fed tapers, bond prices will decline towards their normal, free-market levels, and interest rates will rise (bonds and their yields move in opposite directions).
Next, one crucial characteristic of a bear market bottom is the appearance of great values in blue-chip stocks. At the lows of 2009 we never saw blue chip stocks selling at classic great values. At the bear market lows of 1932, 1942, 1949, 1974 and 1982, the Dow sold at less than 10 times earnings with dividend yields in the 5-7% range.