The following is part of Pivotal Events that was published for our subscribers May 1, 2014.

Signs Of The Times

"86M Full-Time Private-Sector Workers Sustain 148M Benefit-Takers"

"How Much Can The 86M Endure?"

- CNS News, April 16

Those wary of the allure of big government have been concerned about such predation for decades. We can't help but wonder on which side of the ledger central bankers and their economists are ranked. For decades these pages have considered that even those with ambition to manage the biggest economy in the world have been just another set of rent-seekers.

"Our way of life is at stake, our grandchildren are at stake, the future of civilization is at stake."

- Al Gore, Hawaii, April 15

"Rent-seeking" would also include those with the audacity to believe that they can manage the "health" of the planet.

In the politically agitated times of the 1860s, Stanley Jevons was a leading economist and he had a personal revelation that coal consumption was too high.

Coal would run out and civilization would collapse back to a "subsistence" level.

What's more his pitch included:

"This is a question of almost religious importance which needs the separate study and determination of every intelligent person."

- The Coal Question, 1865

"A French telecommunications company just pulled off the biggest sale of junk bonds in history. It's the latest indication of how strong the appetite for high-yield really is."

- CNN Money, April 24

The article included a comment from a fund manager "Clearly, the appetite for high-yield is far from over."

"Roubini: War in Ukraine Could Tip Europe Back Into Recession"

- Bloomberg, April 24

Credit Markets

We will review our theme that powerful bull markets don't usually end with war or urban catastrophe. Even the Franco-Prussian War of 1870 to 1871 did not alter the timing of the completion of the 1873 Bubble.

Instead they end with speculative exhaustion, by both private and government participants. When it is time for heavy liquidation it will happen.

The advantage of the U S Treasury System was touted as proof against bust and in England Walter Bagehot boasted that throwing credit at a credit contraction would make it go away. Both claims were made at the height of the 1873 Bubble. The contraction that ran from 1873 to 1895 was called the "Great Depression".

Sometimes this history seems repetitive, but so is the stuff about what the establishment earnestly believes that the Fed can do.

We will continue to outline policymakers' great boasts as well as an equal number of failures.

April was likely to be a good month for lower-grade bonds and spreads and it has been.

JNK ran to a momentum high at 77 on the Weekly RSI in March, which compares to 79 last April. That price high was 41.16 and it corrected to 40.77 from which it made it to 41.35 yesterday.

With upside momentum and seasonality "in the bag", this sector of lower-grade bonds is now vulnerable.

The high price last year was set in the first week in May and was followed by what we called a mini-panic. This afflicted all classes of bonds, so there was little change in spreads.

North American bond markets are poised for reversal.

European bonds continue to rally. This has driven the Spanish Ten-Year down to 3.01%. The action has been impetuous enough to register a Downside Exhaustion. As noted last week, all that is needed now is a setback in yield. A higher-high than the week before would mark the change.

The high with the 2012 panic was 7.5%.

The high for the Greek bond was 40 percent and the low was 5.86 percent on April 9. We have been thinking that the lowest rated bond would lead the action on the reversal. The rebound high was 6.49% reached on the 14th.

Yesterday's low was 5.90% and now it is at 6.27%.

Rising through 6.40% would accomplish the reversal.

With this, most European issues would follow.

As we have complained (lightly), the yield curve has not been doing anything interesting. That is until recently. Without the drama, it is trading in a pattern similar to that of the first half of 2007. The chart with notes is included.

Spreads, the curve and bond prices seem eligible for a cyclical change.

The last one started in May-June 2007, seven years ago.

NYSE credit balances have reversed and on previous examples the bond future has rallied.

Commodities

Our "Rotation" out of the dismal lows for most commodities has worked out. The CRB set a double bottom at 272 in November and December. The high has been 312 set last week.

Within this, crude rallied from a double bottom at 91 set in November and January. We have had a target of 105 around May, with 112 possible. Last week we thought that there could be another week or so for the positive season. Two weeks ago the rally reached 104.99, which matched the high of 105.22 set at the end of February. Yesterday's low of 99.35 took out the 200-Day ma and is concerning. There is support at 98.

Canadian Oil Patch stocks have been very good, with the "Seniors" (XEG) and the "Juniors" (ZJO) accomplishing gains of more than 40 percent and 80 percent, respectively. These are Toronto indexes.

XEG rallied from 16.33 in December to 20.15 this week. The action accomplished 85 on the Weekly RSI, which is much greater than reached at the peaks in 2011 and 2008.

The "Juniors" big move started at 15.27 in mid-2012 and the high has been 29.48 on Friday.

The sector, in Canada, is overdone and eligible for a tradable correction.

The next strategic "Rotation" could be from the Oil Patch into the Gold Patch.

Agriculturals (GKX) have rallied from 341 in January to 425 yesterday. The surge has driven the Weekly RSI to 76, which is the highest since the cyclical peak in 2011. The swing from oversold in January to overbought now is impressive.

Base metals (GYX) participation in the general commodities rally has been impaired by Chinese "investment" positions. The other problem is longer term and that is that copper, for example, made unprecedented gains in the real price and held them for a long time.

The latest rally made it to 350 last week, when we noted that there was resistance at 360.

Yesterday's decline took out the 200-Day ma at 342 and there is minor support at 337.

Often base metal mining stocks have a story.

From a low of 704 in December, the SPTMN jumped to 868 in January and declined to 787 in February. The next rally took the miners to 864, from where it declined to 757.

Taking out the earlier low was a concern, however, the latest rally made it to 870 today, but the sector and most commodities are vulnerable to another bout of financial distress.

Precious Metals

On seasonal work, around April and possibly into May could be positive for orthodox investments (equities, lower-grade bonds and commodities). It would be a weakening time for precious metals. On the bigger picture, this could end the cyclical bull market for orthodoxy and set things up for cyclical bull market for the precious metals sector. The latter have always done well during a post-bubble contraction, but within the forces of the business cycle. At five years, this and its attendant bull market has become mature with reckless behaviour by private participants and policymakers. By later in the year the cyclical bull market for precious metals should be evident.

However, as these pages have been outlining the transition has never been easy.

First of all, for the old "inflation" story a new bull market will require silver to be rising faster than gold. This is not happening. The gold/silver ratio (GSR) has been increasing, which suggests the ratio is beginning to act like a credit spread.

In February the GSR volatility increased which we took as an "alert" to possible change in trend. The swing was from 59 to 66 and back to 59. That 66 then became the line in the sand whereby surpassing that would set the uptrend.

For the past month we have been noting that when the ratio traded through 66 it would signal that bliss in the credit markets was turning to concerns. To be more certain it needed to trade in the 67s for a while.

It jumped from 66.5 to 67.5 at yesterday's open. This was prompted by silver dropping faster than gold, as occurred with this morning's open. The high has been 67.9 with most of the trade at 67.6. We take this as the signal that credit markets are about to deteriorate.

Precious metals responded well on the "Rotation" possible out of the miseries of December. The rally was so good that our advice in March was to take some money of the table.

We know that policymakers have indoctrinated the world with the notion the economies are national and the "best" action through anything is currency depreciation. Gold bugs know that this is a chronic evil and have long argued that the disaster will be a massive and rapid collapse in the dollar. They are positioned and preach their book.

It has become dogma that will not recognize that great financial collapses have occurred with a strengthening senior currency.

In the collapse that began in 1981 the DX went from 98 to 165. On the bust that began in March 2000 the DX went from 92 to 121 and on the 2008 example it went from 71 to 88.

The following chart shows that NYSE Credit Balances have reversed. By this measure the credit expansion behind stock speculation has reached a maximum.

Over the next few weeks, silver could suffer a significant fall relative to gold. The past day and a half have hinted at this.

It is too early to begin to accumulate the sector.

Ampersand

Southern Russian into the Crimea is of interest. There are some novels by Michail Sholokhov that cover the history of the region. And Quiet Flows the Dawn is worth reading.

Credit Imbalances

Larger Image

Professor James Tobin was a leading interventionist economist until he passed away in 2002 at the age of 84. In the early 1980s he defined a bubble as:

"Speculations on the speculations of other speculators who are doing the same."

• Technical measures on momentum and sentiment have reached levels only seen at cyclical peaks in the stock market.

• The focus of this chart is the debit number, purposefully in red.

• It compares the credit excesses accomplished in the 2000 Tech Bubble, the 2007 Classic Bubble and the 2014 Rebound Bubble.

• The Tech Bubble was mainly in "paper" with minor speculation in tangible assets such as commodities and real estate. The concluding stock market leverage impulse ran for four consecutive months.

• The 2007 extravaganza included outstanding action in tangible assets.

Speculation in housing and housing finance essentially occurred outside of the NYSE. The stock market leverage impulse ran for three months.

• On the current experiment in leverage the impulse has run for eight months without a setback.

• The key to the end of each buying frenzy was the first "setback" in the chart.

• With today's posting this has been accomplished.

The Yield Curve: Twos to Tens

2014 Boom

2007 Boom

• The pattern seems to be lining up.

• 2007 was a Classic Bubble, with an inverted curve.

• That boom was likely to run some 12 to 16 months against an inverted curve.

• June 2007 was the "Month Sixteen".

• This is a weak business cycle and the curve did not invert.

• Recently the pattern in the curve is looking a little like 2007.

• The rise with speculative financial markets reached a high at the end of March.

• The "test" was not quite as high.

• At .0165 now, taking out .016 would be the alert. Taking out .0150 would say "Party Over!".