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April 06, 2009

Pivotal Events
by Bob Hoye

The following is part of Pivotal Events that was published for our subscribers Thursday, April 2, 2009.

SIGNS OF THE TIMES:

Last Year:

"Copper price to soar as surpluses turn to deficits"

"Precarious Supply"

- Study by UBS Securities, Financial Post, March 28, 2008

"Grain is the New Copper"

"Thieves in pickups hit farms."

- Financial Post, March 28, 2009

"Commodity Bull Market in the Fourth Inning of a Nine-Inning Game"

- Jim Rogers, Barron's, March 31, 2008

That old supply-demand analysis will get you every time.

This was also the case at the top of the 1873 bubble when The Economist dryly reviewed the compulsions within that mania:

"By articles in newspapers, reviews and magazines all sorts and conditions of men were induced to interest themselves in copper. It was shown by figures and arguments, apparently conclusive, and presented with great ability . . . that the world's [supply] of copper would be so much reduced that famine prices must prevail. The confidence in the future was strong enough to cause a further advance of 25 per cent, which was more than lost in the sequel, furnishing a fresh illustration of the rapid action of high prices in these days in bringing forward supplies from every quarter of the globe."

The emphasis was The Economist's

The subsequent bear market ran for five years and the recession for a year longer. In 1884, senior economists described the general contraction as "The Great Depression". It lasted until 1895.

* * * * *

This Year:

"Inflation is the only way out of the crisis."

- Bill Gross, Bloomberg, March 18, 2009

Memo to Bill: Tsk-tsk, you can do better than that. After all, Lenin used inflation to help destroy the middle classes in Russia.

More On Politics:

"Chavez Calls on Obama to Follow the Path of Socialism"

- Drudge Report, March 6, 2009

"Fascism should more appropriately be called corporatism because it is a merger of state and corporate power."

- Mussolini

"The American people will never knowingly adopt socialism, but under the name of "liberalism", they will adopt every fragment of the socialist program until one day America will be a socialist nation without knowing it happened."

- Campaign speech in 1948 by Norman M. Thomas, U.S. Socialist Party Leader

"Every collectivist movement rides in on a Trojan Horse of 'emergency'. It was a tactic of Lenin, Hitler and Mussolini."

- Herbert Hoover, "Memoirs: The Great Depression", published in 1951

"The bailout regime is an affront to the market and an affront to democracy."

- William Pierce, former president of the St. Louis Fed,

Bloomberg, March 12, 2009

"The toxic assets are elected."

- George Will, March 24, 2009

Whether it is called liberalism, fascism, corporatism, international socialism or national socialism, the promotion can be best be imposed during times of crisis. While ostensibly attempting to "save" capitalism, today's rush is to burn up capital in order to control society. That has been the underlying compulsion in politics and while the current form has yet to earn its own label, there is an elegant description that can be used universally:

"That which isn't compulsory is prohibited."

* * * * *

STOCK MARKETS

On the bigger picture, the classic fall crash that ended on schedule in November was likely to reach an important high in the April-May time window. Obviously, in December the crowd had high hopes that the combination of Obama and a Democrat Congress would "fix" everything. This enormous wish machine drove the market too fast too soon.

Then, the critical side of the street discovered ambitious fascists and hit the stock markets. However, we noted this on February 2 with the caution that the first-quarter returns would not be as good as originally expected. We did, though, expect some form of seasonal highs for crude, base metals and stocks.

This was coming in until last week when the Chartworks called for a correction in crude and that has had its effect. The correction has completed, in which case the good stuff of rising stock and crude oil markets can give us the exit at the probable time.

This has been likely to be accompanied by establishment boasts that "stimulus" and "bailouts" are working. Last week the Minneapolis Fed said something about "aggregate demand" and looking for a "resumption of healthy growth" by mid 2010. Hopefully, there is enough left in the game to prompt something along the lines about the strength in the markets "auguring" for a pick up in the economy by late in this year.

Not that this is possible, but bullish talk can get better, providing the out for most sectors.

Base Metal Prices: What with weaker crude oil and a steady dollar, base metals have declined a little.

Our metals index had a low of 282 with the crash and by stages has worked itself up to 367 last Thursday. It slipped to 351 this week and as with other items seems poised to continue the rally expected to run to late spring.

We like to position on the seasonal low, often found late in the year, and exit in the late spring.

Mining stocks (SPTMN) took only a three-day set back and has reached 396 today. This is a new high for the move that started at 177 in November.

Our Approach to Supply-Demand Analysis

PEAK OIL

We got our start as advisors in the mid 1970s by marketing our research on metals and oil to some of the big mining companies.

What was important to them was they didn't have a forecast on significant changes in price trends, with enough time to adjust policy. Most of them are still addicted to fundamental analysis.

A brief review of traditional supply-demand analysis indicated that it was hopeless in anticipating such change.

This is why we have been unmoved by Peak Oil research, and have been content in basing our conclusions on price analysis of commodities, integrated with equally reliable work on credit markets.

It is worth adding that this supply-demand indifference applies to any commodity. Occasionally, Ross does some technical work on COT numbers, but, again, this is impartial.

As an example, in early June 2008 we advised that crude was starting a cyclical bear market and when more indicators came in, a few weeks later, it was that a secular bear had started.

Then, late in 2008 we got a strong Downside Capitulation reading and advised getting long for a bounce within the bear market.

Also, our historical research advised that after every bubble the senior currency becomes chronically strong relative to most commodities and currencies, for most of the time.

Works for us, and we hope it works for our readers as well.

Link to (DATE) 'Bob and Phil Show' on Howestreet.com: http://www.howestreet.com/index.php?pl=/goldradio/index.php/mediaplayer/1167

Bob Hoye
Institutional Advisors

The opinions in this report are solely those of the author. The information herein was obtained from various sources; however we do not guarantee its accuracy or completeness. This research report is prepared for general circulation and is circulated for general information only. It does not have regard to the specific investment objectives, financial situation and the particular needs of any specific person who may receive this report. Investors should seek financial advice regarding the appropriateness of investing in any securities or investment strategies discussed or recommended in this report and should understand that statements regarding future prospects may not be realized. Investors should note that income from such securities, if any, may fluctuate and that each securitys price or value may rise or fall. Accordingly, investors may receive back less than originally invested. Past performance is not necessarily a guide to future performance.

Neither the information nor any opinion expressed constitutes an offer to buy or sell any securities or options or futures contracts. Foreign currency rates of exchange may adversely affect the value, price or income of any security or related investment mentioned in this report. In addition, investors in securities such as ADRs, whose values are influenced by the currency of the underlying security, effectively assume currency risk.

Moreover, from time to time, members of the Institutional Advisors team may be long or short positions discussed in our publications.

Copyright © 2003-2010 Bob Hoye

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