The following is part of Pivotal Events that was published for our subscribers July 21, 2011.

Signs Of The Times

"Fed eyes new round of stimulus"

~ Globe & Mail, July 14, 2011

"The Federal Reserve remains prepared to respond should economic developments indicate an adjustment of monetary policy would be appropriate."

~ Ben Bernanke, July 14, 2011

Quite likely the Chairman of the Federal Reserve System has been saying something similar since it opened the doors in January 1914.

Even though the chairman was not saying it every day, the 96 percent drop in the purchasing power of the dollar suggests that "appropriate" policy has been imposed every day. That amounts to 35,606 days of inappropriate interference with the markets.

"72% favor a free market economy over one managed by the government."

~ Rasmussen, July 8, 2011

The report also noted that the number was 75% for those working in the private sector. Over in the government sector, only 53% understand the blessings of a free-market economy.

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Big Picture

The rebound for the stock market out of the slump to mid-June became too enthusiastic - too soon. Our technical research was looking for a rebound out to late July. The first bounce was set back by the discovery that the sovereign debt problem had infected Italy. This distress will continue.

In the meantime there is money to be made in trading.

It seems likely that the US debt ceiling crisis will be resolved by the end of the month. This could provide the surge needed to end the move. The ChartWorks will watch for the opportunity.

Generally, the action in credit spreads, base metal prices and agricultural commodities have been favourable. This was likely to run until the end of the month.

COMMODITIES

Copper has rallied from the low of 3.85 in May to 4.50 on Tuesday. A gain of 17 percent in two months is rather good, but it is worth noting that it jumped from 4.00 to the 4.50 in only 4 weeks. As mentioned, it is in a pattern that can lead to a substantial decline.

Ross is preparing the technical study and this page will look into some of the history. The following updates a piece done a few years ago.

Since the significant lows of 2002, base metal prices have recorded two outstanding rallies. Using the numbers for copper and in real terms the percent gain was the greatest on data back to 1900.

Recent Excesses In Copper

"Analysts have found it difficult to quantify effervescence."

The observation has been an old one, and with the amount of data available these days one can at least place effervescence in perspective. Using copper's price deflated by the Producer Price Index provides a methodical start to reviewing the crowd's age-old ability to boost prices to the moon.

[The rest of the study is not available for public distribution.]

CURRENCIES

At the end of June we thought the Canadian dollar could trend up to September. So far, the rise has been from 101.3 to today's 106. Last week we thought it could reach the old high of 105.9.

This was based upon the DX correcting into the summer. Due to sovereign debt turmoil the US dollar has been firmer than expected, but the consolidation could continue into August. That is with the understanding that the severe part of the sovereign debt crisis has yet to be seen.

CREDIT MARKETS

Credit spreads became rather narrow as the street forgot about risk. This flowered in April, just in time for the seasonal reversal to widening in May. If the party has been outstanding going into May, distress will be discovered in the fall.

Early in the year our Forecaster expected the party in hot games to culminate around April. It did.

It also expected the recession to start with the peak in commodities. This seems likely.

COMMODITIES (CRB)

The CRB plunged from 371 in late April to 333 in mid-May. The rebound made it to 352 in June and the next decline was to 326.

The next rally made it to 350 last week. This seems to be a test of the rebound and commodities are likely to decline in the fall. This would be part of a liquidity problem with a firming dollar.

PRECIOUS METALS SECTOR

Ross has been providing frequent and reliable comments on the sector.

The very long term has been covered above and it is worth adding that gold's real price had been expected to turn up in advance of the hot games blowing out in April.

This time around and using our Gold/Commodities Index, the low was 303 in February and the uptrend was set at 338 in mid-April.

This continued to 388 on June 22nd. The slight decline since has been associated with the rebound in the favourite games, which could run out of steam in a few weeks.

The next rise in gold's real price could take it well towards the 518 reached with the panic that ended in March 2009.

Link to July 22 'Bob and Phil Show' on Howestreet.com: http://talkdigitalnetwork.com/2011/07/copper-pressure