6 April 2006

Best of Richard Russell

Best of Richard Russell: "BEST OF RICHARD RUSSELL
March 30, 2006
I see two 'musts' in the picture ahead. The first is that dollar must continue to be accepted worldwide. The whole of US prosperity depends on the rest of the world accepting dollars for their goods and services. So far, I see no hints that the dollar is in trouble. The Dollar Index has been in a trading range. As a matter of fact, yesterday, following a period of minor weakness, the Dollar Index rose above its 50-day moving average.

The fact that the dollar continues to be accepted is remarkable when we examine the facts. Over the last year the US has 'created' roughly $850 billion additional dollars, an enormous amount. Yet the world continues to take these dollars in -- in return for the world's goods and services. It's a case of 'they sell us the goods, and we pretend to pay them.' How long can this go on? That's a question for history to answer -- I'm amazed that it's gone on this far.

The second 'must' in the picture is that US housing must hold together. The upside of housing, the rising prices, may now be hitting a wall, but housing must not be allowed to fall apart. Housing is where Americans have really been successful as far as gaining wealth is concerned. The average US family has not done well in the stock market as you can see from the article below. But Americans have done very well in housing, and their feeling of 'wealth and security' is closely tied to the rise in the price of their homes. If home and condo prices head down, it's going to be a different story. If that happens, consumers will cut back on their spending, and the US could quickly sink into recession.

To offset such an outcome, the Fed is creating massive liquidity. Fed chief Bernanke is an expert on the Great Depression of the '30s, and he b"

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