Thomas Henning: The Musing of a Stock Market Curmudgeon
Into The No World Order, Part VI:
The Dollar...Who Cares?
Much has been written about the divorce of the inverse relationship of the Dollar versus Gold. (Gold goes up; the Dollar goes down and vise versa.) I suspect that this inverse relationship was relevant when the Dollar was the world's key reserve currency. However, that Dollar standard is in serious question and the inverse relationship may be becoming irrelevant.
Gold has broken out upward against all key currencies, which suggests that the gold complex universally distains all currencies on a world-wide basis, the Dollar included. In addition, the gold breakout rejects the economic and financial structure that backs up these fiat paper currencies. This universal currency rejection suggests that the Dollar has been relegated to the cesspool along with the Lower Slobovian Rasbucknic.
Meanwhile, there is a tug of war going on between the bilder banker boys, who love inflation to keep the vigorish-paying debt bubble hustle alive along with the fiat currencies that are used as mythical poker chips, verses the markets that are suggesting that the debt will indeed implode, triggering deflation and causing the New World Order to move into the chaos of the No World Order. Since Adam and Eve, the markets have always won this battle. The markets are winning this battle too.
Let's review the markets starting with gold.
 Looking at the Monthly XAU chart as a gold proxy, note that gold has broken out upward most probably starting the juicy #3 primary wave. The extreme upside momentum suggests that an upside panic could be evolving. If a panic is indeed evolving, from a pragmatic point of view, which is to buy low, sell high, and to survive, it's prudent to not overanalyze or overtrade the move, but to stay with the main cyclic uptrend. To accomplish this tactic, it is important to sit back and to comprehend and appreciate the broad perspective.
In 1913, the Fed act was passed to complement other foreign central banks. The act legalized thievery on the part of the bilder banker boys through fractional banking blowing up the money supply trigging a secular rate of inflation that lowered the buying power of the 1913 Dollar down to roughly five cents. The bilder banker boys were on the other side of the trade as their banking activity adjusted upward compensating for inflation by adding zeroes to the equation in their loan portfolios.
Obviously, inflation debased currencies. In addition, a raid on the world's treasuries was engineered to sell off gold, thus debasing currencies even more. These boys hate gold. Gold keeps them honest.
As this hustle has evolved, a cadre of Fed babblers has mouthed a theology developed by intellectual incest justifying and legitimizing this hustle.
In addition to selling off the gold, gold was leased by key New York banks, which is to say that these boys sold paper promising gold delivery beyond their capability of delivery, if the gold was called. The concept of hedging their leases is beyond their market comprehension. They don't like markets because markets keep them honest; so an element of market obfuscation evolved, which is a form of denial. This is part of the incestuous deterioration.
As all of this gold was being sold, a bullish condition has developed because the amount of gold that could be sold is finite. Of course, the obvious question arises as to who was doing the buying because in the late 1990s gold was being severely accumulated in anticipation of a squeeze that would develop as the babblers ran out of gold. I have a fair hunch who was doing the buying, but that's beyond our immediate purview. Let it suffice to say that gold has been accumulated by very strong hands and has started up and consolidated between 2003 and 2005. The gold then confirmed upward, catching the babbling sellers with their pants down wanting to buy back their previous blunders. Sorry guys, there ain't no gold available in the quantity that will bail you out. Besides, what are you going to use for money, the mythical poker chip currencies? Get it?
 The key to understanding this situation is that the gold buyers comprehend that the old epoch, which started in 1913, built upon inflation and debt is ending and that the world is entering into the new epoch. The concepts that applied in the old, ending epoch are irrelevant in the new epoch which is beginning. That's why Fed babble is noise, as the debt monstrosity and the institutions that support it implode, which leads us back to the overbought gold market.
At any given time frame, there is a finite amount of money available to sustain an advance. When the buying power runs out, the market is said to be "overbought" and due for a pause, which results in market reliquification through profit taking and time passage, allowing new potential money to enter the market. Understand that a market can be overbought on a one minute basis, one day basis, 10-day basis or 10-week basis, ad infinitum.
The level of the overbought condition can be measured using a number of tools such as price oscillators, volume/price oscillators, or moving average variances, etc. The levels of extremes are established through market history correlated with time. These extremes act as a stricture to hinder further advance within the given time frame.
The present gold market is obviously "overbought." However, the degree of the overbought condition is being measured by the strictures and parameters developed during the old, dying epoch. The question arises as to the validity of these old-epoch overbought strictures, when applied to a gold market that is accelerating upward in the new epoch. To be brutally honest, I don't have the answer to this question. We've moved into a new epoch. However, that's okay because there can be little doubt that this is indeed a run-away market and the object of the game is to buy low, sell high, and survive. Therefore, given the condition that the old, 90-year epoch is imploding and we don't quite know how the new epoch will develop, the only prudent thing to do is to not get cute and let this baby run and simply keep an eye on very long-term momentum studies to act as a guide for action. Admittedly, these long-term studies have been developed using the old epoch strictures and are certainly imperfect, but it's the best we have. Remember, if we get 2/3 of the move, that would be okay.
The Bond market has waved a bull cycle as counted out on the Weekly Bond chart. A downleg from 119 to 110 has evolved and, since early November, an upside correction has developed. A close below 110 would suggest the start of the next downleg to roughly the par level.
 Breakdown would accelerate the upside move in rates, along with the debt default domino.
The stock market is at the tail end of an upcycle that started in 1982. After the blah blah bubble bust that bottomed in 2002, the final upleg evolved with 5 waves internal to it, as counted out on the Weekly Value Line. This completes the 24-year upcycle. A bear market of about a decade is in the cards.
Near term, major Dow's Theory divergences too numerous to illustrate, have developed, and the most recent upleg off of the January low has all of the stink of a tag-on rally, as the putrid internals have moved into divergence.
From a pragmatic point of view, I've been bird-dogging the move as higher breakdown levels have evolved.
Near term, closes below Dow 10,650, Transports 4050, would suggest the start of the bear market.
In sum, the gold has broken out starting a probable upside panic, bonds have busted downward, and the stock market upleg is terminal, needing a minor crack downward to trigger sell signals, suggesting the start of a cyclic bear market. The stock and bond market downmoves are cyclic in magnitude harmonizing with the cyclic uptrend in gold. This can only imply an implosion of the biggest Ponzi scheme in history.
Moving back to the Gold/Dollar relationship, given that gold has broken out against all currencies, the Dollar strength or weakness is only relative to other currencies. In absolute terms, the universal gold breakout suggests that all currencies stink. In relative terms, it becomes a question of which currency stinks the least, as the whole shebang implodes and we enter the new epoch.
This suggests that the Gold/Dollar inverse relationship may be irrelevant.
Editor's Note: Thomas Henning is a regular contributor to The Bull & Bear Financial Report.
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