What Will It Take?

Thu, Jun 14, 2012 - 8:46am

The following is an excerpt from Richard Russell's Dow Theory Letters

"All facts are history." Unknown

Last week the Congressional Budget Office stated that the US faces a "fiscal crisis." The nation's publicly held debt will climb to more than 70% of GDP by September 30 -- the highest rate since WWII -- and up from 40% in 2008. If Bush era tax cuts and current spending cuts are left in place, the CBO said the debt load could rise to 200% of GDP by 2037, resulting in "higher interest rates, slower economic growth and far more painful choices for lawmakers than they face today." All this indicates the difficult choices lawmakers have to face before the end of this year.

The question I ask myself -- what will cause our lawmakers to face reality, and act? I think it will have to be some kind of crisis. The first thing that comes to mind is a stock market crash with the Dow sinking below 10,000. The next thought is a collapse of some major bank or a run on the banks in general. Next in line would be a collapse in the bond market with accompanying rising interest rates. Another thought is gold taking off above 2000. The public knows that something is wrong when gold heads for the sky.

Gold -- appears to have formed a double bottom in the 1540 level, and its next bullish move would be a rise to or above 1700. My secret suspicion is that the Chinese have been picking up gold on any weakness.

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