 PIVOTAL EVENTS - SEP 2, 2008
Signs Of The Times
Bob Hoye
Institutional Advisors
Posted Sep 4, 2008
The following is part of Pivotal
Events that was published for our subscribers August 28,
2008.
Last Year:
"We are experiencing
a global bull market of Titanic proportions. The central banks
of the world now have the ability and the power to create fiat
money at will." -Richard
Russell, August 30, 2007
"Art Loans Get Hung
Up By Default Concerns" -Wall
Street Journal, September 1, 2007
And not a moment too soon we
would think.
* * * * *
This Year:
For some each day seems to
be arriving at a moment too soon.
"Where Did Wall Street
Go Wrong"
This headlined the New York
Times August 7, 2008 story on a 172 page report on the credit
contraction. We haven't had time to review the study, but it
would be a safe bet that it didn't mention the change in the
yield curve in May 2007.
"Virtually everybody
was slow in recognizing that we were on the cusp of a really
draconian crisis."
-Gerald Corrigan,
a former president of the N.Y. Fed, who chaired the study.
"Apartment Buildings
Lose Their Immunity to Housing's Chill"
"Rent Rates Decline"
-Wall Street Journal.
August 20, 2008
* * * * *
Stock Markets: Last week we reviewed the "Roadmap"
that brought us into probable choppy action through August. This
we have and our ideal would be a rally going into early September.
The latter seems to be prompted
by an absence of banking disasters, the rebound in some commodities
and a pause in the dollar's advance. Clearly, these are relief
responses to intense pressures and if the past continues to guide
the sunshine could prevail into next week, at least.
As we noted last week, changes
in the curve and spreads have extended their trends towards dislocating
conditions likely to be "discovered" in October. In
so many words, credit conditions are such that the equity markets
will be vulnerable to the next "discovery" of a banking
disaster, or to the next decline in industrial commodities and
rally in the dollar index.
The "models" we have
been using called for the sharp break in the third week of May
that would lead to an initial decline of around 25% from the
October high. This worked out, as did the sharp rebound and the
choppy August. Ultimately, the loss could amount to around 48%
and it is uncertain if this could be accomplished in the pending
melancholy season or later.
Later seems likely, as most
bears worthy of the name run for around 18 months. This October
marks 12 months since the high and too many strategists still
claim that each calamity is a buying opportunity. At the end
of a massive bear market there are no bulls - not even theoretical
ones.
The upshot is more down and
when the time arrives the ChartWorks Downside Capitulation model
will likely register the condition of opportunity. If memory
serves (Ross is on vacation), the post-1929 and post-2000 bears
required 3 such washouts before markets were finally cleared
of unsupportable baggage.
However this may be, our favourite
model has been the 1873 Bubble that included the Treasury System
that with a brilliant secretary and fiat currency was proof against
any sort of contraction. Now central banks with fiat currencies
are still considered as a preventative of a severe contraction.
As the saying goes - so far so bad.
The next decline could take
down most, if not all, equity sectors.
Gold Sector:
News Item:
"Pawnbrokers Grab The
Gold Ring"
"Business is booming
at pawnbrokers as the effect of the credit crunch forces a small
but growing number of consumers to sell their gold."
This is a Wall Street Journal
(UK) story dated today and seems to be in line with gold's experience
in September of 1929 and 1873.
Senior golds fell with the
hit to industrial commodities. For numbers, the HUI slumped from
479 on July 14 to the 310 level in mid August. The rebound has
carried to 355 today and the sector is vulnerable to the pending
liquidity crisis.
We have been looking to reposition
later in October.
Other than something to trade,
the gold/silver ratio is an indicator of boom or bust. For us,
rising through 54 would suggest market forces were turning again
to credit contraction and price deflation of most of the hot
games.
This occurred with the hit
to metal and energy prices and the ratio made it to 62. This
has set the up trend and in previous phases of financial distress
silver has done some serious declines relative to gold. This
could happen by late September.
Once again it is time
to use any strength in the silver stocks to get short.
-Bob Hoye
Institutional Advisors
email: bobhoye@institutionaladvisors.com
website: www.institutionaladvisors.com
PIVOTAL EVENTS - SEP 2, 2008
Hoye Archives
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