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Pivotal Events

The following is part of Pivotal Eventsthat was published for our subscribers April 28, 2011.



"BRICS Make Move to Shove Dollar Aside"
"China and four other leading high-growth economies have taken landmark steps towards lowering the importance of the dollar."

- Yahoo, April 18, 2011

"Flight From US Dollar"
"The U.S. Dollar careened lower."

- Financial Post, April 21, 2011

"Don't Like a Weak Dollar? Might As Well Get Used to It."

- CNBC, April 21, 2011

"We will never embrace a strategy to weaken the dollar."

- Treasury Secretary Geithner
to the Council of Foreign Relations, April 21, 2011

Apparently, Geithner was serious which suggests he is merely a pawn in the overall plan to "Debauch the Currency". An interesting paper on Lenin's view on the subject by Michael V. White and Kurt Schuler is attached.

It is fascinating how interventionist economists have been willing to earn only modest salaries in exchange for the prestige and power of being a central banker. This would not exist if the process did not transfer huge power to the governing classes. So for a few years of ephemeral fame interventionist economists have been carrying out Lenin's policies in the former leader of the free world.

Lenin theorized that massive inflation would destroy the middle classes who were opposed to the revolution. The US administration does not like anyone who is indifferent to the promised "change" and will use any tool to thwart any opposition.

Dramatic political history - all over again and it is making the "Progressives" of the early 1900s and the "New Dealers" of the 1930s look like polite debating societies. Actually both movements were led by political brutes, but at least FDR went through the motions of remaining within the constitution. This administration just ignores it.

The Big Top

No - we are not talking about a "Three-Ring-Circus", but the action is close to it. But then, the metaphor is appealing. The Administration requires unlimited funds, the Fed and the treasury have been trying to provide it.

Then in the big tent when the trapeze artist had an accident, the ringmaster would shout "Send in the clowns". This was to divert the crowd's attention from disaster.

In our metaphor the "clowns" are interventionist economists who have been building disaster and most of the financial media. Obama is the most ambitious ringmaster - ever.

In the real world when will today's "clowns" loose the support of their audience?


"Hyperinflation" was the concern as commodities soared to unsustainable levels in 1973 and in 1980.

Both were speculative enough to register on our proprietary Momentum Peak Forecaster and this time around it has been calling for a peak around March.

Generally, this seems to be working out with the understanding that crude oil was expected to rally through April to a seasonal high. This is still supporting the stock market.

Separately, precious metals were expected to run the longest.

Near Term Indicators

Right now, our most timely indicator is the gold/silver ratio and in declining it has been indicating "party". However, the party and decline have reached exceptional levels.

As noted last week, silver has reached an RSI of 90. This compares to 85 in November, which was enough to prompt silver's slide from 30.44 to 26.

This week, history has been made with the jump to 49.75. According to our memory this exceeds the 1980 high of 48.5. The squeeze and failure on that attempted corner was violent. Most of the big brokers had commodity trading units and the Fed had to inject some $8 billion into Wall Street to assist settlements. At the time that was considered as much more than "walking around" money.

The gold/silver ratio has reached an RSI of less than 10 and the last time at this level was in 2004 when silver completed a 12-month "double" from 4.34 to 8.50. The subsequent decline was to 5.46 in five (5) weeks.

Silver has zoomed from 26.38 in late January to 49.75 this week. That is a "double" in 13 weeks. The final "double" for silver in 1980 was accomplished in only 5 weeks. Now that was a party and, academically, there is some confusion about the final high. Futures were going up-limit and some sources say the high was 50.5. Then there was the spot price and this writer's recollection is the 48.5 number.

The other recollection was that precious metal stocks stalled out before the ultimate top for bullion prices.

This time around, precious metal stocks rose into early April and have been stalling out.

On metal prices, silver registered Upside Exhaustions on the Daily and Monthly numbers. It needed to be firm through to this Friday (tomorrow) to register the Weekly Upside Exhaustion, which will provide the "Momentum Trifecta". This is being accomplished on the silver/gold ratio as well.

This would be a strong "sell" signal into what could be the final rally for this outstanding surge in speculation.

Commodities General

Essentially, base metal and agricultural prices have been trading in a range since highs were set in early February.

Within this, corn and coffee are still rising. Perhaps the latter is due to the amount of coffee being consumed by already nervous policymakers who have discovered that they again exaggerated a natural rise in commodities.

In the "down but not out" condition are soybeans, live cattle and copper.Wheat has been going sideways. From January cocoa spiked straight up to a high at the end of February and has given it all up.

One of the leaders - cotton - soared to a Momentum Trifecta and has failed. Without recording similar drama, lumber, sugar and rice are in downtrends. Ross notes that the rollover in sugar looks like the Nasdaq in September 2000 (Triple Yikes!).

As mentioned, precious metals and crude have been likely to run the longest.


Distressed Sovereign Debt (PIIGS) has become more distressed as yields moved to new highs.

Going the other way, US corporate spreads, over treasuries, which had widened a little in March have resumed narrowing. In early January the High-Yield was trading at 7.51% at 418 bps over treasuries. Now the numbers are 6.75% and 339 bps.

All is sunshine in corporate bond-land, but the higher the overall speculative binge goes, the steeper the fall.

As most commodities stalled out the long bond has rallied from 118.5 to today's 122.25. Four points is good and traders should take some money off the table.


Historically, something interesting is happening. In the 1970s commodity booms the public could only inflate one asset class at a time. Financial assets would do well when tangible assets as represented by commodities were doing poorly.

It should be understood that the Fed's inclination has always been to inflate credit all of the time, and the markets choose or create the asset play.

This worked with the 1973 and 1980 manias in commodities. The deflated S&P fell some 68% from the late 1960s to the bear market low in 1982. Treasury bonds became the worst disaster in this history of senior funded debt.

By 1981 our historical work was substantial enough to point out that once that contraction was over then "No matter how much the Fed prints stocks will outperform commodities."

At the time the street did not understand inflation in financial assets and the concept was controversial. Now, except for central bankers, inflation in most financial assets has become understood and widely popular. So has inflation in tangible assets become widely popular again, with the exception of house prices.

Unfortunately, no matter how hard the Fed tries it just can't inflate house prices and sovereign-debt prices. The public is still deciding what can be inflated and what cannot be inflated. This is reinforced by yesterday's news flash: "Wal-Mart: 'Our shoppers are running out of money'".

Stocks and corporate bond prices are being inflated along with commodities and the latter is quickly becoming vulnerable. On this basis stocks are becoming vulnerable as well.

Ross will keep us posted on near-term opportunities.

Precious Metals Sector

This sector is becoming very overbought and vulnerable to an intermediate decline. For those who have been playing "juniors" the gains have been outstanding. A number have become overbought enough to have generated a lot of cash.

This is appropriate at an important top.


Link to April 29 'Bob and Phil Show' on Howestreet.com: http://talkdigitalnetwork.com/2011/04/silver-history/


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