Dow Theory followers such as Mr Russell believe, on a technical basis, the bear market actually took hold months before the Dow reached its all-time high of 11,722.98 in January 2000. The Nasdaq Composite marked its highest close a few months later at 5,048.62, while the S&P 500 reached 1,527.46. During the intervening years all three indices have moved in a declining pattern punctuated by severe bouts of selling, most notably after September 11, and then in a second wave that culminated in the lows of October 2002.

Since that time, the stock markets have been fighting back, with the Dow up 40 per cent and the S&P 500 up 42 per cent. The Nasdaq has soared 75 per cent.

The market recovery has been accompanied by strong global GDP growth, eliciting calls from economists of a synchronised global recovery. Mr Russell believes the pattern fits the classic head-fake of a bear market attempting to lure investors back into the maw.

'We never had the end of the bear market,' he says.

'We reached the greatest US bull market in history [in 2000] - it went to the most extreme over-valuation in history. The odds are the following bear market will give you a mirror effect - in other words, the odds are the following bear market will go down to extreme under-valuation.'

One reason to be doubtful of any recovery is that US stocks never became cheap. At previous market bottoms the S&P 500 sold at five to seven times price/earnings, with dividend yields in the range of 5 to 10 per cent. Today the S&P 500 is priced at roughly 23 times earnings with an average yield of 1.7 to 1.8 per cent.

Those sky-high yield numbers violate a core principle of the Dow Theory, which emphasises the importance of stock values above technical indicators, Mr Russell says, adding that the stock market has yet to reach meaningful lows. Markets tend to shift from manic highs to depression lows in a cycle that ultimately exhausts the prevailing sentiment, a pattern reflected throughout human history ranging from war cycles to seven-year agricultural cycles mentioned in the Bible.

'Warren Buffett understands values, and he's out of the market,' Mr Russell says. 'These people haven't done their homework - they are letting their hopes and wishes over-ride common sense.'

Another reason to be sceptical of a new growth era ahead: the US bull market began in 1982, or by some estimates as early as 1974, making this the longest winning streak in history. In view of the long-in-the-tooth bull, it seems silly that so many market watchers are calling for a turnaround after only three down years for markets. 'Usually a bear market will last from a third to as long as a half of the preceding bull market,' Mr Russell says.

While Dow theorists generally agree on the broad strokes, there is subtle disagreement over the finer points of the theory, first published in a series of articles by the Wall Street Journal more than 100 years ago. Like most market prediction tools, this can lead to controversy over technical interpretation. Several prominent Dow followers disagree with Mr Russell's views of a looming decline, believing the current rally could continue.

Mr Russell dismisses his critics, saying they have not understood the writings of the original authors, but concedes the theory is an indicator rather than a crystal ball. 'The market can do anything - you are always dealing with probabilities.'

That length of service earns him the kind of wise-owl experience unique in a financial industry dominated by a younger generation that has never known hard times.

Now Mr Russell sees ingrained optimism. Investors, he says, have too much faith in paper money, the power of governments to engineer an economic recovery, and a misplaced bias that hard assets can continue in an upwards price spiral.

The California real-estate market is a perfect example of a bust waiting to happen, he says, with the current mania a replay of the 1980s bubble. By the end of the coming washout, he expects housing prices in major American cities to decline by one half to two thirds, but a crash of 90 per cent is possible.

The coming bear market will also revive investors' affection for gold, the only true form of money and now 'cheaper than dirt'.

He attributes the lack of awareness of the risks in the American economy to the folly of human nature. 'Dow wrote that the hardest thing for people to grasp was change,' he says. 'The last few generations have never seen anything but reasonably good times to very good times. The history of financial markets is about change from extreme optimism to extreme pessimism.'

He criticises Federal Reserve chairman Alan Greenspan for providing the wrong economic medicine. By lowering interest rates to 45-year lows, the Fed is essentially fighting the bear market 'tooth and nail' - a strategy likely to prolong the misery ahead.

Low mortgage rates may have temporarily halted the bear in its tracks, but it has also led to a 'debt bubble'. The easy-money environment fuelled an explosive US$1.73 billion a day federal deficit. Nationwide US$32 trillion of debt is built into the economy.

'It is wrong because he has built bubbles in the whole financial system - he has built bubbles in real estate and the stock market,' Mr Russell says.

While debt creation is inflationary, Mr Russell says the tide may be about to change. Soaring property and commodity prices are signs that money is still chasing hard assets, but wages and consumer prices also appear to be accelerating on the downside - a sign that dollars are becoming scarce.

Mr Russell's conclusion is that the debt-creation bubble is forming a top. The consequence is ensuing deflation that could spark a panic for dollars. The emerging picture makes him bullish on the greenback, but he also advises investors to accumulate gold and foreign currencies, and avoid common stocks.

'In a bear market, everyone loses and the winner is the one who loses least,' he says.

'Warren Buffett understands values, and he's out of the market. These people are letting hopes and wishes over-ride common sense'