The following is part of Pivotal Events that was published for our subscribers April 28, 2010.

SIGNS OF THE TIMES:

Last Year:

"The toxic assets we elected."

- George Will, March 23, 2009

The crash had barely concluded by then and this week those "toxic assets" are grilling Goldman Sachs representatives over some trades that went bad. Some made money, others lost. It was a judgment call and the government hearings are another example of a fit of Post-Bubble Recriminatory Regulation. It happens every time.

"U.S. couldn't even join the EU due to debt levels."

- Senator Judd Gregg, The Hill, March 26, 2009

Concerning at the time, a growing number of EU countries are no longer eligible for EU membership.

Last October, the Senator, who had been invited by Obama to become Secretary of Commerce, observed: "The systemic risk today is the Congress of the United States".

"AP Poll: America High on Obama, Direction of US"

- Breitbart, April 24, 2009

Politically, much has changed since.

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This Year:

"Stock market optimism continues to surge."

- TPC, April 15, 2010

"We're on to this gangster government. I say it is time for these piggies to go home."

- Representative Michele Backmann, AP, April 16, 2010

"Poll: 4 out of 5 Americans don't trust Washington."

- AP, April 19, 2010

Despite consistently strong polls against the Administration, Obama presses on in what can be called a scorched earth policy. Bitter political conflict is not constructive to the productive side of society, or to the financial markets.

Following the Presidential election, exit polls revealed that many voters believed that their mortgages would be paid by the state. Now there is a new demand:

"Where do we get the free Obama care, and how do I sign up for it?"

- Washington Times, April 6, 2010

This was a frequent question "flooding doctor's offices, insurance companies, human resources departments and businesses."

* * * * *

STOCK MARKETS

"Sudden Deceleration Syndrome"

Can you imagine - policymakers with their collective foot on the accelerator, but the stock market is slowing down - almost as if there was a 150 mph headwind.

Well, the Fed has had the pedal to the metal since it opened its doors in early 1914 and sudden deceleration is nothing new and usually follows similar symptoms.

The last few editions have noted mounting strains in the money market with Libor increasing as the TED Spread widened - not due to business expansion, but to deteriorating sovereign debt markets.

The "helper" items such as base metal and crude oil prices reached momentum levels that usually limit rallies within the window for a possible seasonal high. The Nasdaq achieved the biggest RSI numbers since 2000.

A rapidly growing number of individual stocks registering Upside Exhaustions is symptomatic of an important top, as is the rather bullish sentiment as determined, for example, by Investors Intelligence.

The ChartWorks "Presidential Decline Model" notes that for this calendar year a typical second quarter high is followed by a slump into around October. This should be interesting. In Sunday's ChartWorks, Ross reviewed the rally since the crash ended last March as one of the best on record. It ranks with the rebound out of the 1929 Crash.

Last week's edition reviewed our list for an important top and concluded that the rally has been timely and in becoming exuberant was eligible for a hit.

Usually this is formalized by the senior indexes setting a lower low, or high, than the week before. On the Nasdaq last week's low was 2450.

We have advised lightening up on most equity sectors and noted that our Bank Trading Guide had had a good increase since early February and in becoming volatile was an alert to a pending reversal.

With a lower low or a lower high selling could become more aggressive, and the same holds for banks when the Guide registers a "sell' signal.

Also as noted last week, it was time for traders to begin playing the short side.

INTEREST RATES

After finding support at the 115 level, the long bond was likely to rebound to around 118. Yesterday's high was 118.56 and considering the hit to the stock market it could run further. But, the daily RSI is at the level that ended the last two rallies. The next few days will tell us a lot about long-dated treasuries.

The disturbing news was the downgrade of Greece's credit rating to junk. This has been inevitable, as are the official attempts to fix another phase of the credit contraction by throwing credit at it. As with previous examples, it won't be "isolated" or "contained".

At the shorter maturities, spreads have been widening. The Ted-Spread narrowed with the good times to 10.8 bps on March 10. Last week the Ted-Spread broke above the previous week's high at 16.7 bps and signaled trouble. Now at 18.8 bps, it could be indicating more trouble.

Three weeks ago we ran charts showing how the increase in Libor rates preceded or were associated - not with growth - but with credit concerns in 2007 and 2008. The key move was rising from the floor at 25.2 bps to 25.8 bps in the middle of March. It has continued to 32.8 bps.¹

Another reliable indicator is the gold/silver ratio. This was expected to decrease with the financial rebound out of January. The high was 70.7 on February 8th and the low closes have been at 62.6 on the 14th and 62.9 on Monday. With this the RSI got low enough to end the decline and as we have noted, turning up would be an alert to trouble and rising through 65 would indicate it has arrived.

This week's discovery that the Greek problem can't be fixed, isolated, or postponed is a valuable lesson--not from theoretical textbooks - but from Mother Nature. Open minds may soon want to write a new set of economics textbooks.

Although amazed, we have been mentioning that the carry-trade would continue to drive corporate yields down and to narrow spreads. Well, at least into May when seasonal forces can reverse from narrowing to widening. May will begin to happen next week and forces are developing that can reverse spreads to widening.

Indicators that worked well in May 2007 were the gold/silver ratio and our Gold/Commodities Index (GCI) turning up. The latter ended a cyclical decline at 143 on May 21, 2007 and turning up confirmed our target that the credit markets would reverse from benign to malignant by June 2007.

The gold/silver ratio declined to 49 on June 4 and turned up as that crisis began with the discovery that Bear Stearns had a problem.

Recently, the GCI was expected to decline with the stock rally that began in early February. The high was 376 on February 1 and the decline led the start of the rally on February 9.

The low with the good times was 313 on April 16 and the turn up anticipated this week's hit to global stock markets by a week.

These not-closely-watched indicators are signaling that the next phase of the credit contraction is beginning.

For corporate bonds the trend of declining yields and narrowing spreads has continued. Although we have no technical research for this sector, it is worth emphasizing that this trend often reverses in May.

It is time to lighten up in long-dated corporate bonds.

CURRENCIES

The Dollar Index was expected to decline with the financial rally out of late January. The high was 80.4 on February 8 and the low was 79.5. However the slide was interrupted by choppy action due to alternating reports about Greek debt.

As the air goes out of the speculation in stocks and commodities the DX has been expected to resume its post-bubble uptrend.

The ratcheting up of radical experiments by the administration could be taken as a negative for the US dollar, but the consequent threat to general financial markets could accelerate the next disappearance of liquidity. This would firm the dollar.

The Canadian dollar was likely to rally out to spring and reached 100.5 last week. Also last week Ross had a chart that outlined the possibility of the rally finishing with a spike to 105. There was a sharp drop to 98.5 last week from which it jumped 2 cents to the 100.5 - close enough.

The C$ can now decline and taking out 98 would suggest that 93 is possible.

Link to April 30th 'Bob and Phil Show' on Howestreet.com: http://www.howestreet.com/index.php?pl=/goldradio/index.php/mediaplayer/1630

¹ Note: We have had a problem with the decimal point. Actually we should have invented the term, "decibeep".