Signs of the Time:

"Bad loans at Italian banks rose to the highest levels in more than 11 years as the nation's economy suffers its fourth recession since 2001."

~ Bloomberg, April 18

"Surging unemployment rates from Spain to Italy and Greece are threatening efforts to quell the region's debt crisis and keeping bond yields close to record premiums."

~ Bloomberg, April 19

Why Isn't The "STIMULUS" Creating Employment?

"The global hedge fund industry has seen its assets swell to a new high...estimated at $2.13tn."

~ Financial Times, April 19

The article included that the hedge funds were acting on behalf of pension funds, governments and high net worth individuals.

"Illinois Treads Water as Unpaid Bills Top $9 Billion"

~ Bloomberg, April 23

The state is applying a remedy known not to work - it is raising the personal tax rate by 67% as it raises the corporate rate by 46%. Confiscatory taxation in a period of financial distress is political warfare somewhere between Ayn Rand and George Orwell.

Perspective

There seems to be two themes for this week's edition. Choppy action and opposing action.

Out of last September's financial distress, choppy action led to an outstanding rally accompanied by euphoria and complacency. We have listed anecdotal evidence under the "Boom Sayers" heading. Also, we noted measures of momentum and sentiment seen only at important tops.

The possibility of a rolling top has been working out. With Tuesday's news on Apple and Wednesday's "excitement" about the FOMC, the action has turned choppy - perhaps as a step towards an intermediate decline.

Can Apple save the stock markets?

No more than, say, Cisco could in 2000, or RCA in 1929, or Western Union in 1873.

Can the Fed save the financial world?

No more than it could in 2007, or 1929. In the 1873 Bubble, America was between experiments in central banking in 1873 but the establishment boasted that the Treasury System would prevent bad things from happening.

Now for the opposite action story.

The last panic (about European debt) culminated in September as gold reached 1900. Gold stocks soared as well, with Royal Gold (RGLD), for example, accomplishing an Upside Exhaustion. Now there is wide-spread dismay.

The plunge from 84 to 58 has forced an oversold condition, accompanied by grave concerns. Perhaps enough to prompt an intermediate rally.

We would never demand symmetry, but it would be interesting if this week's choppiness in the NYSE and in the gold sector is setting up a significant reversal?

Credit Markets

It has been a quiet week in the orthodox spread markets we follow. Little change with no news of fresh disasters in Europe has been boring. The FOMC meeting provided comic relief.

However, unorthodox spreads, as represented by the gold/silver ratio has become interesting. Actually, when the GSR acts like a credit spread it is the spread with the longest history. We have been noting that when the ratio rose through resistance at 53 it would anticipate the resumption of financial troubles.

Tuesday's close was 53.2 and yesterday's high was 54, which confirms the uptrend since the low of 48 in late February. The high with the concerns of September was 59, with an RSI of 82. Recently, the RSI has increased from 28 in March to 64 so the action is not "overbought".

In so many words, the signal for a turn to another phase of liquidity is "on" but not at a limiting RSI.

The bond future enjoyed a sharp rally and at five points up we thought it was becoming overbought. So, it added on an extra point. It now looks like an impressive test of the 146, which Ross thought was part of a big rolling top.

Technically, the long bond has been an asset to be bid up when stocks and commodities get whacked. The so-called "flight to quality". Traditionally in financial distress the flight is to the most liquid items - T-bills in the senior currency and gold. At some point this generation of traders will learn this and this trader is uncertain as to when that harsh lesson will be taught.

Fundamentally, there is little return and plenty of risk at the long end. The administration remains determined to destroy the middle classes through taxation and depreciation. In the 1930s such intrusive policies were naively thought to be helpful. The White House is far from naïve in its dangerous ambition.

And then there is the most ambitious and reckless central banking since the South Sea Bubble of 1720. Now, we quite admire speculative markets and even manias because they make up the more interesting parts of financial history. What we can't admire is the relentless application of highly speculative economic theories. The establishment does not have the ability to criticize itself and in continuing to impose the same old remedies is becoming fanatical.

Precious Metals Sector

We all know how bad it has been for the exploration stocks, but it is worth repeating the "Doom Sayer" in the Financial Post of April 21st:

"Junior Miners Lose Lustre"

"The majors aren't going to buy these assets and Juniors aren't going to be able to fund these assets to production."

A couple of generations ago there was a Vancouver Stock Exchange promoter who observed "Stocks don't go up, they are put up!". That they have declined so severely indicates that this does not work all of the time. Either that or there are no old-time promoters in the street anymore.

Actually, the competence and professionalism of today's explorationists is without precedent. The market could take a few more weeks to set the trough and the subsequent bull market for the whole gold sector will generate a lot wealth - more than enough to finance a massive increase in production.

Eventually, the sector could really party and there will be some shady dealings. Small, relative to those practiced in the name of policymaking, but they will be there.

A promoter from ages ago, Al Moss, observed "You can't promote stock with a Bible under your arm."

Continue to accumulate gold stocks.

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.

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