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Bob Hoye
Institutional Advisors
Apr 25, 2009


Energy: Last week's advice was straightforward. "Best to get out of gas stocks", and on crude oil it was that the "best is likely in"

The wrap was "Traders and investors should get positioned for an intermediate decline in oil and gas stocks."

Base Metal Prices: Last week, we noted that the best on the seasonal trend we had been riding was likely in. The conclusion was "Aggressive selling of base metal mining stocks by both traders and investors is recommended."

We like the seasonality of this sector and look forward to re-positioning in the fall. Traders may wish to take advantage of some swings on the way.

The advice on metals was to sell.

Gold Sector: A few weeks ago, in covering the dismal conditions in small-cap gold stocks, we passed on the old story about a successful broker. Before accumulating a number of 15-cent stocks in a devastated market his research amounted to phoning each company and if someone answered, he would hang up and buy the stock.

Perhaps this may have been disconcerting to some of our readers, but it is not too far off what stood for research by rating agencies in assigning AAA ratings to bundles of junk mortgages.

We consider gold's nominal price as a means of trading currencies in gold terms, but for investors we emphasize the real price. This is represented by our Gold/Commodities Index, which soared to over 500 in the crisis to February. The cyclical low was 143 in May 2007, and it turned up as the credit markets turned down.

As stocks and commodities rallied to around April, gold's real price was expected to decline. So far, the low has been 363 on Friday and yesterday's number was 388. With the next crisis pending, the uptrend should soon resume on our target of a 3 to 4-year bull market. With cyclical corrections favourable conditions for gold mining could run for a couple of decades.

The increase in the real price also marks up valuations of gold deposits.

With the recovery in orthodox investments to around now, the gold/silver ratio was expected to decline. The high with the crash was 84 and the recent low was 69. Rising above 75 would suggest the beginning of the next liquidity crisis.

Senior gold shares will likely continue to trade up and down with the NYSE, but over the next few years there could be big net gains for golds and serious net losses for global stock markets.



An important high has been possible in the April-May time window, and this seems to be working out.

Last week, we ran our "Checklist For A Top" list, and the essential items evident at previous such highs for any price-series have been accomplished. We now watch for the roll over and the crack on Monday was a vivid alert. Banks took a 15 percent hit on Monday, which was distinctive. This was accompanied by 4 to 5 percent declines in most exchanges around the world.

Another sector we advised selling, base metal mining (SPTMN), took a 12% close-to- close hit on Monday as well.

As striking as this is, it has not impaired the sudden return of complacency. Any important top is a process, and the way we go about it is to identify the probable time for the high. Then, the next step is to determine if the dynamics are sufficient to complete the move. Last week, this was registered by our proprietary technical research.

There could be a number of attempts to drive stock markets higher, but after mid year the major downtrend should resume. Credit spreads have been narrowing, which has been a plus, but typically they reverse to widening in May.

Clearly, the best is in for this move, and investors should sell the rallies. As with last fall, there will be opportunities to get long again. It is not as though there is a shortage of equities. Severe credit pressures are converting a lot of corporate debt into a lot of corporate equities.

The rally seems to be looking more like a post-fall-crash rebound than some other models we have been reviewing. In which case, it has been a rally within a lengthy bear market.



The Long Bond's response to the hit to stock and commodity markets was feeble and it is back at the 125 level. Taking out 124 will likely begin an important downtrend.

On the bigger picture, the ChartWorks registered weekly Upside Exhaustion as the bond soared to 142.6 in December. With that spike accomplished, the market would decline and then consolidate around a level. After some 18 weeks the major downtrend would resume, and the count is now at 18 weeks.

Similar patterns occurred in 1999 and 1994.

Although the action is neutral, often significant failures follow such conditions. Traders could begin to play the short side and the advice to investors has been to get defensive in the five-year maturities.

Credit Spreads: Out of the fall crash, most corporate spreads were expected to narrow into April-May. The disaster for most spreads completed in mid December when the BBB was yielding 10.25%, 715 bps over treasuries.

By mid February, this position had a ten-point gain and the advice was to take the money off the table. On junk, the disaster did not complete until the yield reached 41.7%, with the spread at 3800 bps on March 10. In early March, we noted that these were the bond that acted like a stock and could rally out to around now.

The junk yield turned down as the dollar began a correction. The yield has declined to around 32 percent as the spread came in to 2900 bps. This amounts to over 9 points of price gain from 28 to 37 that should be taken off the table. Like right now.

After mid year, spreads have been expected to head towards another disaster.



Over the past four months the swings in the DX have been remarkable.

It is time to review the fundamentals. The dollar was likely to decline during the boom, with the mechanism being exceptional credit creation during the financial mania. As the long bear market and bear raid drove the DX down to 70.7 in March 2008, it registered a Downside Capitulation as it concluded Sequential Buy pattern. This determination worked for us at the previous big low at the end of 1994.

The low was tested in July, 2008 as credit markets really started to come apart. Our position has been that as the contraction curbed credit growth the dollar would strengthen until the initial crisis culminated. By that fateful summer, we concluded that a 1929 or 1873 collapse was possible and that the DX would rally as this occurred.

That took it up to 88.5 in November when we thought it would weaken as stock and commodities recovered out to around April. And as we have written, the initial rebound was too much and it trashed the dollar too fast down to around 80. Then came the slump through February that drove the DX to 89, from which the rebound in stocks weakened it to 82.6.

Although it has been wild, the DX is somewhat lower than it was with the crash, and it is time to look ahead.

The DX can trade in a range over the next few weeks and as distress returns to the financial markets it will likely trend up.

With joy in the usual investments, such as commodities, out to around April the Canadian unit was likely to rally. From the low of 77 on March 10 the C$ made it to 83 on Friday, and has taken a hit this week. The action could be choppy over the next few weeks. There is modest support at 79, and much more support at the last low at 76.



"We are already experiencing dangerous human disruption of the global climate. To continue to ignore the problem would be flirting with catastrophe."
-Sunday Times, September 3, 2006.

This alarm was uttered by John Holdren, who is now Director of the White House Office of Science and Technology. Holdren completed a Ph.D in physics in 1970 and has been a political activist since.

He got in to the prestigious National Academy of Science through a "temporary nominating group" designed to gain entry for climate alarmists. Holdren has been mainly employed by the Woods Hole Research Center, which should not be confused with the apolitical Woods Hole Oceanographic Institution.

In earlier times, he was a fellow traveler with Paul Ehrlich, and in the mid-1980s predicted that climate catastrophes could kill around 1 billion people by 2020.

"Climate change will bring a screeching halt to human civilization and threaten the fabric of life everywhere on Earth."
-Al Gore, Washington Post, January 29, 2009.

Some Science: A couple of our special essays addressed the mania about what was called "Global Warming" and is now called "Climate Change". Our January 2008 piece, "Intellectual Hysteria", noted that such manias typically erupted towards the culmination of a great boom in asset prices. In the 1860s a leading economist, Jevons, had a personal revelation that severe shortages of coal would end civilization. His book "The Coal Question" can be read on the internet.

Our July 2008 study, "Global Warming", included a cartoon with the caption that "The karma of geophysics would soon overwhelm the dogma of global warming religions". Changes in solar and volcanic activity were indicating the probability of some global cooling. These influences have continued, as the decline in solar output for all of 2008 is now the most distinctive since 1913. This is updated as follows:

"My running mean of the International Sunspot Number for 2009, just dipped below 1.00. For anything comparable you have to go back before 1913 (scored a 1.43) which could mean we're now competing with the Dalton Minimum."
-Paul Stanko, National Oceanic and Atmospheric Administration (NOAA), April 21, 2009.

Another way of looking at the numbers for 2009 to April 23:

The solar minimum is defined as starting with the first blank day.

::: Typical Solar Min: 485 days.

::: Since 2004: 609 days.

There is no way that the mania for political science can spin the numbers or the effect.

The deep minimum called the Dalton Minimum ran from 1790 to 1830.

There is no certain forecast on the duration of this deep minimum.


Apr 23, 2009
Institutional Advisors

Hoye Archives

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.

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