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May 29, 2007

Signs Of The Times
by Bob Hoye

Signs Of The Times:

"Who Cares if the US gets a cold? America sneezed and the rest of the world went shopping."

- Financial Post, May 7

"Merrill and Morgan Spent Big Money on Subprime Lenders Just Before Slowdown"

- Wall Street Journal, May 19

ON THE SHANGHAI STOCK EXCHANGE

"Almost 100 million accounts open now - including 310,000 opened just this past Friday.

So far sellers haven't reported any problems, and the only jostling this year has been for places in line to open brokerage account, but by April trading in Shanghai was nearly twice as high as in January, and for the first four months of this year was seven times the level in the same period in 2006."

- Wall Street Journal, May 22

ON COMMODITIES

"Donald Coxe Convinced Base Metals Rally Just Getting Started."

- Financial Post, May 23

"Get out of the dollar and buy as many commodities as you can."

- Jimmy Rogers, Financial News, May 23

The theory and practice of policymaking over the past 100 years has been corrupt and in ascendency only because it transfers inordinate power and wealth to the state. That this is done through relentless currency depreciation is well known.

Our view remains that despite the unrelenting corruption, commodities and the dollar are subject to seasonal as well as cyclical forces. These seem to be culminating now with the world, so to speak, short the dollar and long 'investment' stories.

As this culminating action is similar to previous examples of outstanding speculation, we've called it "Rational Exuberance" and are alert to a rational denouement.

One reliable guide has been that typically the bull market part of a boom runs for some 12 to 16 months against an inverted yield curve (May is Month 15). And then the wheels start to fall off. Typically this is associated with faltering commodity prices, and risk free attitudes in credit-spread markets.

Adding to the rational side is that often base metals set an important seasonal high in late spring and some of the biggest stock bubbles in history have exhausted themselves at around this time as well.

Last week our proprietary model registered a rare "Upside Exhaustion" reading on the Shanghai stock market.

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 © 2003-2008 Bob Hoye

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