Political and financial interactions.

1. What is driving up the US Dollar?
The US Dollar Index follows a pattern like a choreographed ballet. During the night here (which is the trading day for Europe), the US Dollar Index increases and during the day here (after markets close in Europe), the Index falls. We had seen this ballet play at 76. then at 77. and now at 78. The Index rises in Europe and falls here, but the rises are larger then the falls. How far will it rise? Hard to tell. When the forces that propel the Dollar weaken, the rise will stop. So, what is driving the US Dollar?

a) Japanese desire to reduce the value of the Yen so they can increase export to the US.
b) This is duplicated by the Chinese. They, too, are interested in keeping up the value of the Dollar. While, the Japanese are telling us that they are buying Dollars, the Chinese are close mouthed. As the value of the Dollar rises, gold is going down. This, too plays into Chinese and Indian hands to facilitate their buying of gold.
c) As the sovereign debt crisis unfolds in Europe, Europeans are piling into US Dollars, which is still the reserve currency of the world.

2. The "deficit reduction Committee."
During the last Summer, the Democrats and the Media staged a phony theatrics when the country was reaching the debt limit of $14T. If the ceiling is not lifted, they shrieked, the Country will default. That, of course was a lie. But Boehner caved and agreed to raise the debt limit by 2.T, enough to get Obama through the election. To give Boehner a face-saving fig leaf to hide behind, the Dems agreed to a "Deficit Reduction Committee" (which is to negotiate how to cut $1.2T in 10 years). Failing to agree on a plan to cut, automatic cuts would ensue beginning in 2013.

When Reagan ran against Mondale, Mondale said he had a plan to reduce the deficit by raising taxes. Reagan replied "you don't have a plan to reduce deficit, you have a plan to increase taxes." The Democrats are replaying that scenario. Dems offer "cuts" that come from getting US troops out of Afghanistan and Iraq in exchange for raising taxes. Sure, it would start by increased taxes on the upper earners, but that is peanuts and more tax raises would be in store. If Republicans agreed, they would suffer the fate of the first Bush.

In fact, the Dems do not want an agreement. They want an issue to run on. A lot of people think that taxing the rich is a splendid idea, even though it would not fix the deficit problem. The Media will blame Republicans as expected. So, the Committee is drafting a statement that they failed. And they will fail unless Republicans will cave today or tomorrow (they already offered a $300B tax increase).

3. The sovereign debt crisis of Europe. It continues. There are no credible plans to pay off the debt, there are only plans to fool the investment public. Investors, meanwhile, have already served notice that they want higher returns on Italian, French and even German bonds and the time is clicking on the ability of these countries to roll over bonds that are expiring. A downgrade for French and Italian bonds is in the works and I do not believe that a change in government in Spain will stave off their downgrade. Further political repercussions are coming. Larry and many others believe that the EU will dissolve and the Euro will be abandoned.

4. Larry's latest forecast. It reiterates what he said previously: the DOW at 9,000, gold back to much lower levels, a temporary high for the US Dollar, etc. Larry believes that only QE3 will stop this process. I still maintain that the FED continues to ease and does not need to declare QE3. But we will see. So far, it goes according to Larry.