Lessons from History.

One of the lessons we have learned from history is that a seemingly strong regime - one built on a faulty idea - will look the strongest before its downfall. Such was the downfall of the Evil Empire of the Soviet Union, based on the idea of state ownership and central planning. Before the Soviet Union fell, it was proclaimed by the Mainstream Media and our intellectuals as the "Way of the Future." When the dust settled from the fall of the Berlin Wall, we found out that the seemingly invincible strength of Communism was a mirage, carefully crafted by Communist image makers and dutifully transmitted to us by the "mainstream" media.

What we see unfolding now is the economic unraveling of Social Democracy. To be sure, the idea of a government perpetuating itself via printing money and sustaining itself is not new. But the evidence of its unraveling becomes clearer every day. We did not see the coming of the demise of the Soviet Union, because the Communists maintained absolute secrecy, but Social Democrats are leaving footprints in the snow. The election of Barak Hussein to the US Presidency has opened the door to a terminal form of hubris. The throwing of the emergency break on the US economy in 2008 Sep 15 started a chain of events that will discredit not merely the Socialists Of America, but the Socialists of Europe. What is happening is the demise of the US dollar, which will bring down the currencies of Western Europe as well.

And this brings us to another lesson of history. You can delay the inevitable and make it appear that the laws of economics have been repealed (or at least suspended) by producing events that seem to buttress a regime built on thin air, but when economic realities assert themselves, the change is swift. Such is the case of the US dollar.

We have seen a steady increase in the value of gold vs the US dollar. The reason is the tremendous increase in the amount of US currency being generated. Now we see a TEMPORARY reversal and the value of the dollar going up. What gives? Can the Obama regime reduce gold prices by printing more paper money? NO, but they can create the impression. The question is HOW?

The lowest graph shows you the volume of options to purchase US dollars. Note the tremendous increase in volume in November and December. At the clip of 15-20M shares of UUP a day (at a cost of $350 - $450 million/day), the price of the dollar can be driven up. You see in the second graph from the bottom that this is indeed the case. Both, UUP and the USD have risen a fair bit. At the same time, the price of gold has fallen, because it is denominated in US dollars. This is a classic tail wags the dog scenario.

There is another factor to consider. The RSI (Relative Strength Index) tells us whether price changes are supported by money inflow or are simply transitory trends, soon to be reversed. The RSI is depicted in the top graph. Values are usually between 30 and 70. Values below 30 mean the stock is oversold (rally is expected) and values above 70 means the stock is overbought (a drop is expected). All three (UUP, USD and Gold) are out of their normal channels: UUP and the USD are overbought and Gold is oversold. We are having a second chance to get into gold cheap.

Who is responsible for the manipulation? We do not know.

Finally, look at the S&P 500 index (last graph). We see it is topping out.

So, the fundamentals remain the same. The Obama regime does not dare to increase interest rates, because it is afraid of a Stock Market Crash and a double dip recession in an election year. That will hasten the fall of the dollar. Printing more money and "monetizing" the debt will also hasten the dollar's demise. The Social Democrats of Europe are scrambling to keep up with the cheapening of the dollar. The whole structure of Socialism is crumbling before our eyes.