The counter-trend reset of human spirits has dragged on longer than I thought likely. Much longer, actually. Perhaps I was a bit naive last winter projecting a rally that might retrace 38% of the crash and last a few short months.

But it is notable that I am now so bearish I can taste it and it should also be notable that I was so bullish I could taste it a year ago. The big question revolves not around some blogger/newsletter writer. The big question is what was the mainstream media doing when the turn toward bullishness came about?

We are watching a 'potential' bottom in the dollar, and we just got another nugget of confirmation. Now the USD looks pretty compelling, beyond some likelihood of short term correction.

Here is another view of the USD daily chart. What we have here is pretty good confirmation that USD has bottomed. In fact, Uncle Buck is now getting a bit frothy to the upside and could cool down short term, allowing for one final push higher in the Hope '09 festivities.

Pssst... come 'ere. Did you hear the one about the guy who's still bullish the US dollar? Yes, he actually exists. No no, I am not including the perpetually dollar bullish Prechter and Hochberg. They are a given.

But aside from them, I heard a rumor that this other guy actually exists. Fear not, however, Hope '09 participants; what are the odds that this lone guy would be right against an entire financial world on the other side of that trade?

From Bloomberg: Mishkin Calls Ron Paul Fed-Audit Bill 'Dangerous'

No, what is dangerous is trotting out former Fed governors to scare the Munchkins, keep people off the yellow brick road and attempt to quash all questioning of the all powerful wizards. We will just click our heels and it will all work out... 'there's no place like home'.

This is America Mr. Mishkin. It is not Oz and it is not a place where the people have no right to know. America's government - whose Congress works closely with your former institution in financing all manner of debt fueled enterprise - is of the people. And through Dr. Paul's bill, all the people would ask is to know, well after the fact, what the Fed is doing.

Excerpted from the November 29th edition of Notes From the Rabbit Hole.

The junk bond ETF HYG is a good indicator of the mood of speculators and their confidence in policy makers’ ability to keep the inflation going because the fundamentals of the companies represented here boils down to the fact that money is created out of thin air (inflationary debt creation) and targeted toward keeping enterprises destined to fail, that should fail, alive. This is part of the wasteland where money goes for very unproductive means, other than to enrich speculators taking in interest income while playing a game of musical chairs with the public trust.

Here is a most important long term sign post, the long bond and its EMA 100.

Against the backdrop of the long bond's uninterrupted rise from the 1980s, Alan Greenspan was able to portray himself as the great Maestro, always at the ready with inflationary policy when the market and economy needed it most. This is what I have viewed as a wellspring, compliments of Paul Volcker's tough inflation-fighting policy of the late 1970s and early 1980s. This policy sprung a new bull market in paper stock and bond certificates as confidence was restored in a secular way.

Here is an updated look at the VIX and its megaphone (a.k.a. reverse symmetrical triangle (reversal)) pattern.

"Now Hear This!" blares the VIX... "Greedy bulls have had their fun, held sway for a good long while, morphed Hope '09 into Full Tout '09, got Wall Street to bonus season and generally reenacted the wonderful 50% rally in hope off of the 1929 crash. You know the one, after which the real depression descended. Happy days are not here again and it is unfortunate that most casino patrons will come to that realization after I begin to rise in earnest. I have not decided yet whether to give the bulls one more run at the highs, but I will decide before too long. This megaphone through which I give you my warning is a reversal pattern after all." (click to enlarge)

Okay, that is what the VIX says. What I say is that it feels so much like a false dawn that it is alarming how people seem to have gone about their business as we head for the tepid recovery that policy makers, the media and Wall Street seem to be touting. At best we will suffer from the law of diminishing returns under a new and intense cycle of inflation. At worst, we go down again and induce yet more panicked inflationary policy.

Excerpted from the October 11th edition of Notes From the Rabbit Hole (NFTRH54)

In late 2008 and early 2009, there were very strong arguments being made by the ‘deflationists’ that, if taken seriously would have sent anyone thinking about a bullish stance on gold, silver and commodities to a therapist to have his or her head examined.

The ‘big picture’ monthly chart of the S&P 500 continues to grapple with the ‘bull trigger’ EMA 20. It could prove a costly mistake to jump the gun on this signal, despite the tune the boom bands will play once they pick up on it. As it stands, the monthly candle has recoiled after probing above. Upon a successful monthly close above the EMA 20, we will keep in mind the constructive work that would need to be done over two or three months, as in 2003 (blue box), to confirm. We will also keep in mind that the Crash of ’29 was followed by a retrace of 50% of the Dow’s decline in 1930, before all hope was eventually lost, again.

A short excerpt from the September 5th edition of Notes From the Rabbit Hole, which included extensive analysis of the precious metals breakout, commodities and their relation to gold, and the broad stock rally from technical and sentiment perspectives.

Make no mistake about it, the great stock rally remains nothing more than a dollar devaluation rally; a would-be dollar devaluation story at that.

Excerpted from the August 22nd edition (#47) of Notes From the Rabbit Hole

My bias is bearish. That is because I do not believe that an economy can be run effectively by using fiat money creation and taxation to produce funds for stimulus, which is then aimed at consumer spending, some very unproductive infrastructure boondoggles and other pet projects. I do not believe that pumping new life into the big banks and big Wall Street houses – the very institutions that led the US to ruin while chasing ever higher morally hazardous short term gains – can do anything other than misallocate capital once again, on a grand scale.

Well, I rest so easily about gold - over the span of years, never mind days, weeks or months - that I do not check on its nominal USD price very often. But I know that many market participants micromanage the hell out of it (really folks, is it worth the energy expenditure?), so this morning I thought I'd give it a review, by weekly chart.

All good... okay, analysis over. Next!

Excerpted from the August 15th edition (#46) of Notes From the Rabbit Hole

Think about it for a minute. A newsletter writer gets bullish in Q4 2008, sees the up move stall as a couple early warning moving averages are violated. The writer pulls back into caution mode. The ensuing global market decline finds new lows into March 2009 in some markets and higher lows in others – with bullish divergence aplenty and terribly morose sentiment supportive of a bullish case. The writer is again bullish.

It is RISING.

Seasoned market players know of the paradox contained within upside market blow offs. The paradox holds that as a given market rises, sucking in the holdouts one by one, ten by ten and 10,000 at a whack, the wall of worry loses supportive bricks, one by one, etc.

In fact he was never even invited to this party, just as his invitation to the last great bull party must have gotten lost in the mail. I mean, back then they at least pretended to want him around, with Mr. Snow trotting out the 'blah blah blah... we believe in a strong dollar... blah blah blah... a strong dollar is in the national interest... blah blah blah...' boiler plate. Whatever China wanted Snow to say, he said. It was simple.

Today there is a bit more of an 'every man (or levered up economy) for himself' feel to events. China attempts a massive inflation to bail out a national Ponzi scheme of its own while the US is left to attempt a devaluation in broad daylight. With the goal of raising asset prices measured in the inflated currency and diminishing balls to the wall levels of debt that were panicked into the system.

You know, I always seek to tune out the noise when 'Mr. Gold' is putting inflammatory battle cries in my inbox: the CoT speculators are rampaging, the irrepressible silver bugs are making their case about silver's value compared to gold, and a spammy email blurb shows up (courtesy of my friend Otto) with a picture of a noted commodity and resource guru sipping a cocktail, smoking a stogie and expounding upon the government's unbridled inflationary policies.

I especially find the need for calm in the face of the Seattle Times indicator while the dollar - being micromanaged lower by the entire world that would seek to feel good about its demise - remains above the support level I have seen as critical.