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Profound Change?

Bob Hoye
November 19, 2003

Friday's edition of Pivotal Events started with "Change" as a title and, at 6 pages, was lengthy. Once the change is in, we hope to return to the 4-page format. Over the weekend and the past two days, significant change seems to have started.

Because it includes a good weighting in banks, we have followed the Topix as a proxy on the Tokyo stock market.

The high for the Topix was 1106 on October 20 and, at 972, it's down 12% from a tested high. In so many words, it is in a modest "Stair-Step" downtrend. However, within this, Topix banks have set a big head and shoulders top, from which it is breaking down. The Topix construction index has suffered a
rapid plunge.

As we have been noting, there has been a significant change in Thai bonds relative to U.S. treasuries. Since October 7, this spread has widened from 49 bp under to 87 bp over treasuries and that is a fast move.

Since August, net money flows into the U.S. have decreased from $49.9 billion to only $4.19 billion for the latest report (September). Within this, there was $38 billion in as the Bank of Japan was supporting the U.S. dollar. You don't need a CFA to calculate that, without that feckless operation, it would have been a net outflow.

The dollar index has slipped below "support" at 91.

The Baltic continues its plunge and, at 4046, is down 11% from the high on October 30.

Meaning: The widening of representative Asian spreads and the breakdown of the Tokyo bank index suggests that another financial crisis is brewing up. Sharply diminished flows into the U.S. equivalently diminished liquidity.

Given the remarkable speculation over the past 13 months, another global financial crisis is developing.

Bob Hoye
Institutional Advisors

321gold Inc