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“I met about twenty to thirty institutional investors in small meetings, and those
meetings were very instructive. There is a real mix out there it seems to me of tentative
optimism about Chinese prospects on the part of the majority of investors and deep
pessimism on the part of a minority, which included both Chinese nationals and

“Perhaps this is because of my own prejudices as a former bond‐markets trader, but the
pessimistic minority seemed much more experienced and literate to me. They were
also generally a lot more senior. That might not mean much but it does suggest to me
that there is a risk of bad news in the future causing a stampede of pessimism. Of
course the majority is not necessarily wrong (in spite of the claims of contrariarans, who
paradoxically enough include nearly everyone, it seems), but the volatility impact of
information that confounds their expectations is much greater than that of information
that reinforces their expectations.”

                             Michael Pettis

FX Trading – British pound in the cross hairs?
The old “risk aversion” is back so far this morning, as stocks get hit. And in lock‐step the
US dollar, US Treasuries, and Japanese yen are bidding higher. Other losers are gold, oil,
and the rest of the currency pack. Among the major dollar pairs, the Aussie‐US$ is down
most at 1.96%, followed by the British pound at 1.49%. It seems traders may start to
believe the pound’s recent rally was a bit of overshoot, at least based upon recent
market commentary, especially this from Bloomberg this morning:

“The pound’s biggest five‐month rally in 24 years is ending as the Bank of
England floods the shrinking U.K. economy with newly printed cash and slowing
inflation precludes higher interest rates to lure investors.

“…The U.K. economy shrank 5.6 percent in the second quarter from a year ago,
faring worse in the deepest global downturn since World War II than the U.S.
and the 16‐country euro zone, which declined 3.9 percent and 4.6 percent,

“I’m super‐bearish on the pound,” said Hans‐Guenter Redeker, the Londonbased
global head of foreign‐exchange strategy for BNP. “The Bank of England
has made it clear it can’t afford a stronger currency.”

The key question: Have the recent “better than expected” news releases already been
factored into the pound’s big rally against the dollar since bottoming in February? Will
the weight of UK funding sink the pound? Will the UK economy be the weakest of the
pack? Or will the additional stimulus in the UK help its economy gain traction relative to
the somewhat stingier European Central Bank–a thought by some traders who believe
there is more upside for sterling?

Today’s news that “UK home sellers lowered asking prices in August by the most in eight
months,” as reported by Bloomberg, sure didn’t help the pound…


Big break or head fake? Mr. Market is likely to share that very soon.


Watching for leading liquidity cycle precursors…..
Guest Column by Yves Lamoureux

Editor Note: Yves sent this piece to us last Friday morning.

We now have come to expect tighter correlations from synchronized global markets.
I usually try to find the cracks in the dam before it gives out. So it was with this intention
that I intended to call the top of the Chinese bubble back on August 27th 2007.
Would the market give in? No. It kept rising up from about 5,150 in August to about
6,000 in October making us feel incompetent in market forecasting as usual because we
missed the 16% bump up. Once the ink was dried the market had tumbled better than
70% from the top. We have watched recent development and would argue that the
secondary top is in.

We are watching tipping points that will redirect markets down. As we have argued
before China is but a reflection of the liquidity froth .It will also be more fragile to
changes faster than the more established markets.

The magnitude of the drop and spread versus the Dow became such that it did lead
speculators out of the US markets back in October 2008.The initial drop was only a
leading sign as it is probably today of liquidity changes to come.

It is in essence one more piece of the puzzle indicating the closing doors of the casino.
Lights out!

Yves Lamoureux, Investment Advisor , Blackmont Capital Inc.

The opinions contained in this report are those of the author and are not necessarily
those of Blackmont Capital Inc. Every effort has been made to ensure that the contents
of this document have been compiled or derived from sources believed to be reliable and
contains information and opinions which are accurate and complete. However, neither
the author nor BCI makes any representation or warranty, expressed or implied, in
respect thereof, or takes any responsibility for any errors or omissions which may be
contained herein or accepts any liability whatsoever for any loss arising from any use of or reliance on this report or its contents. BCI is an independently owned subsidiary of CI
Financial. CI Financial is a Canadian owned diversified wealth management firm, publicly
traded on the TSX under the symbol CIX. Blackmont Capital Inc. is a member of CIPF and