The UUP cascade and the Markets.

The Market is being manipulated and I will explain the evidence, which IMHO is irrefutible. Let us start with the UUP and the US dollar index. UUP is a "bullish fund" for the US dollar. What exactly is it? It's no secret, Invesco tells us: "The Power Shares DB US Dollar Bullish Fund(Symbol:UUP) is based on the Deutsche Bank Long US Dollar Index(DB Long USD Futures Index) composed solely of long USDX futures contracts. The USDX futures contract is designed to replicate the performance of being long on the US Dollar against the following currencies :Euro, Japanese Yen, British Pound, Canadian Dollar, Swedish Krona and Swiss Franc.

So, what is UUP? UUP appears to be a bet on future contracts on the US Dollar. What are the futures contracts? These are options to buy US dollars at a specified time and price. Note that the US Dollar index and UUP are virtually identical. The standard explanation is that it is the US Dollar index that sets the value of UUP.

There is a problem with that explanation. Do you see it? OK, here is the problem. If UUP were merely the status of a bet one made on contracts to buy US dollars, the volume of UUP should not track the price of shares of UUP. If these shares are bought by some of the savviest investors, why should they buy shares when the price is up, rather than buy shares when the price drops? After all, buying shares at high price and selling when prices are dropping is reserved for the ordinary investor. That would stand investment logic on its head. It is far more logical to regard UUP as an option on a bunch of options: so, when there is more money coming in to buy UUP, the price of shares goes up, like they do with stocks.

OK, we know that buying US Dollar futures determines the value of the US Dollar, but does buying shares of UUP determine the value of the US Dollar futures? If so, that would mean that US Dollar values could be manipulated relatively easily, at least for a time, by buying UUP at a cost of $400M/day, which is chump change for central banks.

Note that since December the price of gold has been dropping and gold has bounced off its support level at 1030/oz. The long-term trend for gold remains intact, so gold and gold miners are a screaming buy.

 

<DIV>In the next graphic down, we note the correlation between UUP and the DJI. Not surprising, is it? The Stock Market increase has been fueled by the drop in the value of the US Dollar as previously demonstrated. And the last graphic shows the drop in the S&P 500. Note that just as gold bounced off its support (1030), the S&P 500 bounced off its support (1049). Will the Market retest these support levels? Possibly. However, with both the UUP and the US Dollar way overbought, a rally in gold and stocks is more likely. These are very volatile times untill the corrections are either over or the bear market is re-established.

This will leave us to speculate as to the identity of who is manipulating the currence and gold market. We can be sure of one thing: MSNBS is wrong. Their contention that gold is no longer a safe Haven is full of ...well BS. A good rule to apply is the old Roman qustion in translation: "who benefits?"

The Chinese benefit, because they can convert their dollars into gold at a cheaper gold price. The Europeans benefit, because they can sell their exports better if the US Dollar becomes more ecpensive. The US is not a beneficiery, unless the FED decided that this was a good time to halt the slide of the dollar at least for a while.

WE can expect the slide in the value of the dollar to continue. Why? Because more is being printed. Were it not so then a nation could build prosperity by printing more currency. No matter what is said in the Media, THAT doesn't happen. So, the fundamentals for the dollar are still weak and the technicals point to a rally.