Signs of the Time:
"Bad loans at
Italian banks rose to the highest levels in more than 11 years as the
nation's economy suffers its fourth recession since 2001."
~ Bloomberg, April 18
"Surging
unemployment rates from Spain to Italy and Greece are threatening efforts to
quell the region's debt crisis and keeping bond yields close to record premiums."
~ Bloomberg, April 19
Why Isn't The "STIMULUS" Creating Employment?
"The global
hedge fund industry has seen its assets swell to a new high...estimated at
$2.13tn."
~ Financial Times, April 19
The article included that the hedge
funds were acting on behalf of pension funds, governments and high net worth
individuals.
"Illinois
Treads Water as Unpaid Bills Top $9 Billion"
~ Bloomberg, April 23
The state is applying a remedy known
not to work - it is raising the personal tax rate by 67% as it raises the
corporate rate by 46%. Confiscatory taxation in a period of financial
distress is political warfare somewhere between Ayn
Rand and George Orwell.
Perspective
There seems to be two themes for this
week's edition. Choppy action and opposing action.
Out of last September's financial
distress, choppy action led to an outstanding rally accompanied by euphoria
and complacency. We have listed anecdotal evidence under the "Boom
Sayers" heading. Also, we noted measures of momentum and sentiment
seen only at important tops.
The possibility of a rolling top has
been working out. With Tuesday's news on Apple and Wednesday's
"excitement" about the FOMC, the action has turned choppy - perhaps
as a step towards an intermediate decline.
Can Apple save the stock markets?
No more than, say, Cisco could in
2000, or RCA in 1929, or Western Union in 1873.
Can the Fed save the financial world?
No more than it could in 2007, or
1929. In the 1873 Bubble, America was between experiments in central banking
in 1873 but the establishment boasted that the Treasury System would prevent
bad things from happening.
Now for the opposite action story.
The last panic (about European debt)
culminated in September as gold reached 1900. Gold stocks soared as well,
with Royal Gold (RGLD), for example, accomplishing an Upside Exhaustion. Now
there is wide-spread dismay.
The plunge from 84 to 58 has forced
an oversold condition, accompanied by grave concerns. Perhaps enough to
prompt an intermediate rally.
We would never demand symmetry, but
it would be interesting if this week's choppiness in the NYSE and in the gold
sector is setting up a significant reversal?
Credit Markets
It has been a quiet week in the
orthodox spread markets we follow. Little change with no news of fresh
disasters in Europe has been boring. The FOMC meeting provided comic relief.
However, unorthodox spreads, as
represented by the gold/silver ratio has become interesting. Actually, when
the GSR acts like a credit spread it is the spread with the longest history.
We have been noting that when the ratio rose through resistance at 53 it
would anticipate the resumption of financial troubles.
Tuesday's close was 53.2 and
yesterday's high was 54, which confirms the uptrend since the low of 48 in
late February. The high with the concerns of September was 59, with an RSI of
82. Recently, the RSI has increased from 28 in March to 64 so the action is
not "overbought".
In so many words, the signal for a
turn to another phase of liquidity is "on" but not at a limiting
RSI.
The bond future enjoyed a sharp rally
and at five points up we thought it was becoming overbought. So, it added on
an extra point. It now looks like an impressive test of the 146, which Ross
thought was part of a big rolling top.
Technically, the long bond has been
an asset to be bid up when stocks and commodities get whacked. The so-called
"flight to quality". Traditionally in financial distress the flight
is to the most liquid items - T-bills in the senior currency and gold. At
some point this generation of traders will learn this and this trader is
uncertain as to when that harsh lesson will be taught.
Fundamentally, there is little return
and plenty of risk at the long end. The administration remains determined to
destroy the middle classes through taxation and depreciation. In the 1930s
such intrusive policies were naively thought to be helpful. The White House
is far from naïve in its dangerous ambition.
And then there is the most ambitious
and reckless central banking since the South Sea Bubble of 1720. Now, we
quite admire speculative markets and even manias because they make up the
more interesting parts of financial history. What we can't admire is the
relentless application of highly speculative economic theories. The
establishment does not have the ability to criticize itself and in continuing
to impose the same old remedies is becoming fanatical.
Precious Metals Sector
We all know how bad it has been for
the exploration stocks, but it is worth repeating the "Doom Sayer" in the Financial Post of April 21st:
"Junior
Miners Lose Lustre"
"The majors
aren't going to buy these assets and Juniors aren't going to be able to fund
these assets to production."
A couple of generations ago there was
a Vancouver Stock Exchange promoter who observed "Stocks don't go
up, they are put up!". That they have declined so
severely indicates that this does not work all of the time. Either that or
there are no old-time promoters in the street anymore.
Actually, the competence and
professionalism of today's explorationists is
without precedent. The market could take a few more weeks to set the trough
and the subsequent bull market for the whole gold sector will generate a lot
wealth - more than enough to finance a massive increase in production.
Eventually, the sector could really
party and there will be some shady dealings. Small, relative to those
practiced in the name of policymaking, but they will be there.
A promoter from ages ago, Al Moss,
observed "You can't promote stock with a Bible under your
arm."
Continue to accumulate gold stocks.
Bob Hoye
Institutional Advisors
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Copyright
© 2003-2008 Bob Hoye
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