During the fourth quarter, Soros increased his SPDR Gold Trust share holdings by 0.5% and Paulson made no change to his holdings of the precious metal.

SEC Form 13F shows the Soros Fund Management LLC holding 4,721,808 SPDR Gold Trust shares as of December 31, up 24,800 shares from the close of the third quarter. Soros, who previously held call options on 75,000 shares of SPDR Gold Trust in the third quarter, disclosed no options in the gold Exchange Traded Fund during the fourth quarter.

Paulson & Co. holds the largest stake in the SPDR fund at 31.5 million shares, valued at more than $4.1 billion at the close of trading on Monday.

Since 2000, the bull market in gold has outperformed all major asset classes, beating equities in five of the past six years. Gold’s allure as an asset of safety from debt defaults and currency debasements has gained significant traction with hedge funds and mainstream investors alike following Greece’s sovereign debt woes plunged the euro currency during the April-May period of 2009.

“Investment demand remains the most important driver for the gold market,” said Daniel Brebner, an analyst at Deutsche Bank AG (NYSE: DB). “The entrance or exit of large funds in and out of exchange-traded products can give an idea of the conviction by these investors as to the prospects for gold.”

Soros, who said in January of last year at the World Economic Forum in Davos, Switzerland that gold is the “ultimate bubble,” holds $655 million worth of the yellow metal in his fund.

A year later, in Davos, the 80-year-old Soros expressed his concern of the possibility of a collapse in the world’s second largest reserve currency.

“The euro was supposed to bring about convergence, and effectively it created divergence and that is now being perpetuated,” said Soros. “So you are going forward with this new structure. You’re going to have a two-speed Europe, and that is going to be politically very disruptive.”

“Europe potentially could fall apart because of this two-speed Europe, so it needs a solution,” he said.

The less-quotable, 55-year-old, Paulson, who reaped an unprecedented $5 billion performance payout, expects the U.S. economy to recover from the shadows of near collapse in 2009.

Accounting for Paulson’s large bet on gold, it’s been suggested that Paulson is betting that either a currency crisis or inflationary pressures somewhere in the world will move more investors seeking refuge into gold.

Other than its largest holding in the SPDR Gold Trust, the next three top holdings of Paulson & Co.’s $29.3 billion hedge fund include AngloGold Ashanti (AU), Citigroup (C) and Bank of America (BAC).

The debate whether the U.S. will experience deflation, inflation or hyperinflation rages on more than ever since the government/media-hyped recovery has turned out to be just that, hype, confirmed in spades with last week’s Fed announcement of further money printing on top of a failed QE1 mission.

For now, inflationists appear to be winning the debate as Peter Schiff of Euro Pacific Capital points out in his article entitled, “There was a Fed Chairman who Swallowed a fly.”

“In the 16 months since Bernanke assured us that QE1 would not jeopardize price stability, oats prices are up 40%, concentrated orange juice up 45%, gold and rice up 50%, corn up 55%, coffee up 60%, copper up 70%, sugar up 90%, and cotton and silver up 100%!”

It appears inflation is locked, loaded and ready for rising consumer goods prices in the coming months and quarters. But the debate if the U.S. will experience hyperinflation is another matter, with most credible parties to the debate agreeing that hyperinflation is a political event, not an economic event.

Hyperinflation in Argentina, German and Zimbabwe were preceded by political events before the money printing collapsed their respective currencies.

Could the U.S. be sliding into a similar slippery slope?

Political events in Washington with the rise of the Tea Party could be a mere tip of the iceberg in coming years as monetary policy makers raise the debate to a increasing contentious one, not just within the U.S. borders in Congress and at the Fed, itself, but outside the borders between important allies in Europe and the U.S.’s most important banker, China.

Since the official announcement of the Fed’s strategy to pump $600 billion into the U.S. economy as a down payment for a full-blown QE2 strategy to revive U.S. employment, criticism from U.S. allies and “competitors” has been raised to a noticeable level—of loud.

Finance Minister of Germany Wolfgang Schauble said the Fed’s QE1 plan was a total flop, and embarking on QE2 will not achieve its objective, presumably raising employment levels meaningfully.

“With all due respect, U.S. policy is clueless,” said Schauble at a conference on Nov.5.

“They [Federal Reserve] have already pumped an endless amount of money into the economy via taking on extremely high public debt and through a Fed policy that has already pumped a lot of money into the economy,” added Schauble. “The results are horrendous. For them now to pump even more is not going to solve their problems.”

Less than flattering comments uttered by German Chancellor Angela Merkel and Bundesbank head Axel Weber (expected to replace Jean Claude Trichet at the ECB) regarding U.S. fiscal and monetary policy suggest a formidable alliance of agreement within the EU’s most influential member state.

As the G20 meeting begins this week in Seoul, tensions going into the meeting have already flared concerning the dollars remarkably weakness leading up to the Fed’s QE2 announcement and its further precipitous plunge in terms of commodities prices since.

Deputies to the principals of the two-day G20 summit met behind closed doors to draft a customary final statement to the close of the meeting, including language concerning currency exchange rates. Tempers were high, so high, in fact, G20 spokesman Kim Yoon Kyung said Wednesday, “We had to open the door because the debate was so animated and the room was getting hot.”

Ma Delun, a deputy governor of the People’s Bank of China, said he is not convinced the Fed’s move to monetize debt and devalue the dollar will balance global growth.

The Fed’s QE2 initiative “may add risks to the global economic imbalance, put pressure on emerging markets to adjust their international balance of payments and could also stir the formation of asset bubbles, all of which require our vigilance,” Ma said in Beijing.

Making matters more contentious between China and the U.S. comes from recently released trade statistics from China, showing its trade surplus widened to $27.1 billion for October.

But before the U.S. could make an official comment concerning the latest trade numbers out of China, a member of the Chinese central bank committee, Xia Bin, set the tone and subject of the debate and criticized the Fed’s QE2 plans as “irresponsible,” and will most likely result in a weaker dollar.

Beijing firmly contends that a stronger renminbi against the dollar won’t solve trade imbalances between the two nations, but debasing the most widely held reserve currency against all currencies will lead to increased instability, and undermines U.S. allegations against China of currency manipulation. Beijing also suggests that the U.S. has taken monetary policy actions unilaterally, in violation of agreements made in June at the Toronto meeting.

Keeping with the political pressure on the U.S., China protectorate, Taiwan, re-enacted capital controls involving direct capital investment into the country this week. The latest move by Taiwan to curb inflows of “hot money,” shelved in 1995, places a limit of no more than 30 percent of any one institution’s capital invested in local government bonds and money market accounts.

By insisting on melting away U.S. sovereign debt levels through currency debasement, while other debtor nations begin to tightening belts, U.S. policymakers could be setting up the dollar for a rapid fall, as cooperation between the world’s most important export nations and the vanguard of the world’s monetary system falters.

If the U.S. won’t provide a reserve currency suitable to two of the most productive nations in the world, what will the rest of the world think about the dollar as the primary vehicle for the settlement of trade?

While the U.S. has the most prolific and powerful military in the world to settle through force what it cannot settle through diplomacy, the bankers who fund this hegemony might not wish to continue the relationship if it means funding their own demise. If cooler heads do not prevail at the Fed, White House and Capitol Hill, this funding could end quite abruptly and preemptively.

As a major player in originating high-risk mortgages (also called sub-prime, liars loans or NINJA loans) Mozilo has been cast as one of the lead villains in the ongoing financial debacle that crashed the U.S. housing market and economy.

Mozilo presided over the largest conduit of toxic mortgage deals (one in every six mortgages originated, totaling $490 billion, according to court records), which were then bundled by Wall Street, stamped investment grade by incompetent rating agencies, and then sold to pension funds, endowments, sovereign entities and other financial institutions by the likes of Goldman Sachs (NYSE: GS) and other broker/dealers.

But incredibly, the SEC didn’t allege anything of Mozilo’s role in the largest contributing factor to the financial collapse—which now threatens capitalism as we have known it. Instead, Mozilo was alleged to have sold Countrywide stock with the knowledge that the company was on the verge of imploding—referred to as insider trading.

The ill-gotten gain alleged by the SEC includes a $139 million profit made by Mozilo from the sale of Countrywide stock he held between November 2006 and October 2007. Mozilo still made a handsome profit for his misdeeds. The message is: It pays to commit fraud on Wall Street.

Of course, the result of the Mozilo case involves a much more critical issue: The Rule of Law, or as the media likes to refer to it, “moral hazard.” Mozilo is merely the latest in the ongoing demonstration of the U.S. demise as the beacon of fair play and justice for all.

The world is replete with countries struggling economically due to lack of investment, entrepreneurship and capital flows. Many of these countries have all the necessary ingredients for prosperity and wealth, but they lack the critical foundation of the “Rule of Law” for unleashing Adam Smith’s “invisible hand.” The countries of Brazil and Argentina (among many others) are prime examples of countries with rich natural resources, an educated workforce, and knowledge of how economies prosper. But a corrupt political class has held these countries down for many decades.

In a short essay published in 2004 by the St. Louis Fed entitled, “Rule of Law and Economic Growth,” its authors, Jason Higbee and Frank Schmid, set out to demonstrate that countries with a well-maintained legal system—instituted to protect individual rights of property and freedom—is vital to achieving high levels of per capita purchasing power parity when measured against other nations with ineffective and/or corrupt systems of justice.

Higbee and Schmid showed a strong correlation between per capita purchasing power parity (PPP) and the level of justice and enforcement of the rule of law in those countries. It should be of no surprise, really. Why would anyone invest in a country that doesn’t respect your rights as an investor?

Ironically, the “maestro” Alan Greenspan, who arguably was a primary kingpin in affecting the current financial crisis, was referenced in the 2004 essay in support of Higbee and Schmid. They wrote:

“In a recent speech about corporate governance and financial market malfeasance, Federal Reserve Chairman Alan Greenspan argued that trust and reputation were so valuable to 19th century bankers and companies that the penalties for breaking this trust were severe enough to make economic commerce, to a large extent, self-regulating.”

As we know, the banking system, Wall Street and mortgage market are anything but self-regulating. That’s left up to the SEC and other regulators, which through complicity, incompetence, fear of reprisal, or all three, have destroyed the faith of the American people and the peoples of the world. Note that Greenspan qualified his statement regarding the penalties for breaking the trust as “severe enough” to enforce the trust.

Back to Mozilo: In his piece entitled, “Turn Adversity into Opportunities: This is the Angelo Mozilo’s Story of his Overcoming Adversities,” Dr. Howard Haller writes that Mozilo said to him for his article, “I am very conscious of the example I set for my children and grandchildren. I have always tried to conduct myself properly and preserve the integrity of my name and my company. I am concerned about my legacy and want my grandchildren to be proud of our name.”

Dr. Haller didn’t note the date of Mozilo’s statement to him, but it sure must hurt him to know that his grandchildren won’t be proud of him after they find out what he did. In fact, it’s not only his grandchildren who will know of his participation in this massive fraud (that may still take down the financial system), millions of the nation’s grandchildren will know about it too.

Why haven’t Americans taken to the streets?

In the early years of the 18th century, in France, reckless money printers such as Alan Greenspan and conspirator snake oil salesmen like Angelo Mozilo would already be headed for the border to escape revenge of a mob. John Law and his collapsed Mississippi scheme ended this way in France following very similar circumstances we find ourselves in today.

After the elections, the tone in America could change quickly. That will be the time when the first installment of this monstrous bill will be presented.

And the Mozilo gift of corruption and financial losses just keeps on giving too.

In 2008, Mozilo’s Countrywide was sold to Bank of America (NYSE: BAC) for $4.1 billion in stock. Recent revelations of improprieties in the massive foreclosure process at Bank of America’s Countrywide deals have prompted CEO Brian Moynihan to halt all foreclosures in all 50 states until the bank is compliant with the varying laws of each state. Talk about unforeseen events to aggravate an already dire situation for Bank of America.

Shares of Bank of America closed at $11.98, down $1.20, or 9.1% for the week ending October 15. Bank of America is rumored to be the odds-on-favorite for a Lehman-like collapse.

And when the final bill becomes due, it won’t be pretty in the U.S.

The demonstrations, riots and civil disobedience in Greece, France, and Iceland are indeed coming to a neighborhood near you. The progenitors of this worldwide financial crisis reside in the U.S. and don’t intend to leave in disgrace, but intend, instead, to deal with disgruntled citizens with a dose of armed military personnel stationed on the streets of America—in direct violation of the Posse Comitatus Act of 1878.

It all comes back to the Rule of Law. Without it, the U.S. could degrade rapidly into a post-Peron Argentina.

Investment guru and author of the Gloom, Boom and Doom report, Marc Faber, says go away in October and November, and come back after the selling reaches “oversold” levels in the coming weeks. Stocks, Faber says, should be bought after the sell off, as he expects a rally from there and through the remainder of the year.

Faber’s reasoning centers on negative sentiment regarding the growing reality of the need for QEII, which should precipitate the sell off in October as the coming economic data will confirm a weak economy in the U.S.

How low could stocks go? Faber doesn’t offer any precision, but will only say that he doesn’t see a threat to the March lows. On previous occasions Faber suggested that massive Fed stimulus has put a floor in for stocks and doesn’t see any changes in Fed policy regarding money printing if stocks tumble too far.

How much faith should we place on Faber’s views? It’s probably wise to keep anything Faber says in your mind. His record for market calls is considerably better than most market observers, and his reputation for being truthful with investors has made him an icon among skeptics of government and central bankers.

Faber was correct when he called the market low in March of 2009, pointing to record negative sentiment in stocks as the basis for his call. He also called the massive rally from the March low, which materialized splendidly for him. And his call in early September of this year, predicting that stocks should do well also came in for him.

No one is correct too often, but Faber is among the very best at calling bottoms and tops. His reliance on sentiment indictors has served him and investors well throughout his more than 30 years in this business, but he often warns that a black swan out there could always make him wrong at any time.

One black swan could come out of China or India, as tensions between the two countries mount over industrial materials and oil reserves, as well as geopolitical risks out of Pakistan, Iran, and Afghanistan, or further terrorism attacks could derail any Faber stock rally forecast, he warns.

In the longer-term, Faber is not sanguine on the outlook for real returns in stocks, saying that money creation by the Fed will “end badly” as further erosion of the confidence in the U.S. dollar trumps any positive outlook, however slight, the U.S. economy may have for earnings growth.

Faber warns, though, stocks could move nominally higher in the long term against a backdrop of poor economics in the U.S., not because of investor confidence for real earnings growth from equities, but because fund managers (limited to purchasing stocks and bonds and/or holding cash) will ultimately choose to protect purchasing power through stocks with tangible assets if forced to choose between equities and the debt market.

And cash? Cash will be dead, says Faber, as its purchasing power will only go down in an environment of currency debasement.

But for now, Faber says stocks could experience some “downside turbulence” in October and November, with a downside target of no more than 950 on the S&P on the pullback. Any break below 1,000 will rattle the Fed, he says, and rather doubts Federal Reserve Chairman Ben Bernanke will allow further market declines once 1,000 is reached.

At the 1,000 level, “QEII will come in earnest and in big amounts,” says Faber, intimating the Fed’s prerogative of supporting equities (directly, if necessary), through the President’s Working Group on financial markets, more commonly known as the Plunge Protection Team (PPT) if a full-blown rout on the Street ensues.

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In Bryan Appleyard’s article in The Sunday Times in June 2008, he quotes the famed author of the best-selling book The Black Swan, Nassim Taleb, “It’s not a good idea to take a forecast from someone wearing a tie. If possible, tease people who take themselves and their knowledge too seriously.”

Taleb’s disdain for “authorities” who claim to know what they are doing while managing complex systems is clearly evident in his best-selling book and subsequent interviews where he elaborates his observations discussed in his book—and for good reason, too.

Taleb’s uses the example of two Noble Prize winning “quants” who attempted to master the markets with mathematics theory nearly brought down the entire financial system with the blow up of their firm, Long Term Capital Management.  It appears these quants didn’t factor in the decision by the Thai government to float the baht, or include a million different other possibilities that would derail their model.

In the case of central banks, Taleb surmises that man’s “expert” input to stabilize complex systems gives humans a false sense of security against unwanted unpredictable events.  Sometimes this input leads to catastrophe—the Black Swan event in the eyes of the uninitiated—dare I say, Keynesian central bankers.

Taleb argues, however, that the Long Term Capital Management event is a predictable catastrophic event given the risks LTCM were allowed to take, didn’t acknowledge, therefore—didn’t quantify, and attempt to hedge against.  Taleb calls these predictable man-made catastrophes as, not Black Swans, but White Swans instead.

Well here we are in the dreaded month known for producing the beginnings of an event—the dreaded month of September that famed trader and market theorist W.D. Gann (June 6, 1878 – June 14, 1955) warned is the most financially deadly month of them all, as history would have it.

And the Autumnal Equinox in September adds a bit of a climax to the season of disconnect, Gant said, as this is the precise period of disproportionate numbers of turning points in markets—currencies, stock, bond and commodities.

Stock market crashes in 1929, 1987 and 2008 all began in September, to list a mere few notable examples.  The Asian currency crisis and collapse of Long Term Capital Management began in September 1997.  A slew of serious market turning points in bonds, currencies, stocks and commodities were all evident in retrospect in the month of September—throughout more than a century— and, by far, more than any other month.

This September could be another set up for a nasty White Swan event in our immediate future, as the Washington men in ties at the Fed, Treasury and the Congress ply their expert fixes to a financial system, which, from the beginning, was destined to fail, according to Taleb.

A noticeable troubling event has just occurred in a span of only a day, which arguably could precipitate another crisis—this time bigger than the Lehman crisis of September of 2008.

The Fed’s FMOC decision (a day before the Autumnal Equinox) to release a statement that is tantamount to admitting the dollar is as good as toilet paper is troubling to traders, to say the least.

In essence, the FMOC heavily implied in its statement on Tuesday that QEII is most definitely on the stove.  Further rounds of Fed balance sheet expansion through the monetization of agency and sovereign debt have been agreed upon.  Upward pressure on commodities and a threat of a dollar collapse have now been elevated to “red” alert among central bankers and experienced traders.

Anticipating this day would come, the Chinese have been dumping dollars recently through strengthening of the yen.  It’s a clever ploy to avoid obvious dollar dumping without putting upward pressure on the Renminbi.  And the Japanese are furious about this, as their economy relies so heavily on export trade.  Now we have the biggest supplier to China, Japan, mad at its major trading partner.

The invasion of Manchuria by the Japanese wasn’t long enough ago to have been all but forgotten.  The date of the invasion: September 19, 1931—another September event.

Incidentally, China has recently “cease high-level exchanges” over the detention of a fishing boat captain for his role in straying into “Japanese waters.”  On Sunday, China’s Foreign Ministry said in a statement that Japan had “seriously damaged Sino-Japan bilateral relations.”  This is over a fishing boat captain?

It appears relations between the two countries could deteriorate further, leading to more serious outcomes—all of this over a fishing boat captain?  No.  All thanks to U.S. fiscal and monetary policy gone haywire.

What brought us to this inflexion point of possible war and currency crises is no surprise to Taleb:

“It [collapse of Bear Stearns and, especially, Lehman] was my greatest vindication. But to me that wasn’t a Black Swan; it was a White Swan. I knew it would happen and I said so. It was a Black Swan to Ben Bernanke [the chairman of the Federal Reserve]. I wouldn’t use him to drive my car. These guys are dangerous. They’re not qualified in their own field.”

The Chinese attack on the yen (and subsequent Japanese reaction to China) mere days prior to the FOMC meeting and the reaction of traders to dump U.S. dollars below the all-critical 80 level on the charts following the meeting could be the events of September analysts will point to as the catalyst for a rough October.

If the U.S. dollar cannot bounce back above 80, a fall to the 75 level is most likely.  Commodities will jettison.  The Fed’s fear of inflation expectations could be realized, and it’s game over.  Rapidly increasing inflation at a time when the Fed cannot drain liquidity (for at least two years, according to the yield curve) could embark the country into a currency crisis not seen since the Civil War.  And it could mean another threat of Civil War II to match Quantitative Easing II.

A seemingly exogenous event could appear as a Black Swan in coming weeks, taking some market or two into the abyss in October.  Most assuredly, the Fed or White House will claim a Black Swan event has happened, but to the initiated that Black Swan is really a Nassim Taleb White Swan disguised in a Tuxedo.

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Going into the week ending Friday September 24, traders brace for two significant events: one real and the other steeped in Wall Street folklore.

The Federal Open Market Committee (FOMC) meets today, which could end with a “real” and market-moving policy shift at the Fed.  And on Thursday September 23 at 03:09 UTC, the East coast passes through the Autumnal Equinox, a time of “change,” not only the precise time when one season moves on to the next, but in the fabled sense marking a change in season of market sentiment, political tides and social moods.

To be sure, any surprise from the Federal Open Market Committee could surely move markets violently one way or the other.  Greenspan was known for popping a few surprises on the markets in his day, but thus far, Bernanke has shown no proclivity to emulate the former chairman of the Fed.

Investors give little chance of a Fed announcement, especially regarding plans to initiate another round of quantitative easing (QEII)—though, early last week Morgan Stanley suggested it would not be surprised if the Fed did make such an announcement.  Soon after, however, Morgan retracted its stance, but opened the door for some to this possibility.

Barring any bizarre policy mistake at the FOMC—especially during the weeks leading up to Congressional elections—the Fed is unlikely to deviate from its pattern of first bracing the Street through a series of Fed governor jawboning speeches and interviews before announcing policy changes.  Since no Fed governor has been making the rounds on Bloomberg and CNBC lately, no change is expected out of the FOMC on Monday.

A more eclectic event, however, could play a much bigger factor in the markets this week.  It’s the Autumnal Equinox “factor.”

Regarded by some as voodoo and superstition nonsense, other traders know better to ignore the most vital market-moving factor: human behavior.  And the human behavior typically exhibited in the markets in September is fear.

Not unlike the fear of the Hindenburg Omen (recently turning negative for a elevated risk of a market crash following a couple of positive confirmations), the “Autumnal Equinox is associated with several historical [stock market] topping venues,” said veteran trader and director of floor operations for UBS Financial Services, Art Cashin.

In an interview with King World News on Saturday, September 18, Cashin made reference to the legendary trader and chartist W.D. Gann (1878-1955) and his work on the subject of technical analysis of the markets.  Gann—a trader himself—made the observation that major market moves appear to cluster around the time of the Autumnal Equinox.

“If there was ever a day which the market looked vulnerable—throughout the course of history—it was the Autumnal Equinox,” explained Cashin in his reference to Gann’s published work involving geometry, astrology, and ancient mathematics in the prediction of major turning points in financial and commodities markets.

The FOMC meeting and the looming fear surrounding the Autumnal Equinox top Cashin’s focus for the week.

But, on the positive side, Cashin said traders are eyeing the reverse-head-and-shoulder pattern at the 1150-60 level on the S&P for a possible breakout to the upside.  The long-awaited breakout remains only 25-30 points away from Friday’s close of 1125.59.

First, the S&P must clear technical resistance at 1130, added Cashin.  A break above 1130 is expected to trigger a series of short-covering trades—maybe a lot of short covering, according to Cashin, as traders have become accustomed to shorting the S&P at that level for the past three months.

“If the bulls manage to break out of the range [above 1130], I think you can inspire a massive short-covering attempt,” Cashin speculates.  After that, traders could easily take out 1160 during the scramble to cover their shorts, thereby making way to 1200 on the S&P as the next battleground for the bull and bears to fight, he said.

When asked what he thinks about the direction of stocks this week, Cashin remains cautious.   Until the bulls can trigger a breakout above the all-important reverse-head-and-shoulders neckline at 1150-60, he isn’t optimistic.  Above the neckline, bulls will force shorts to cover and bears to finally capitulate.  “But so far they have been unable to do so,” concludes Cashin.

Other important data scheduled to be released in the week ending September 24, including:

September 21 – CPI and Housing Starts

September 23 – Existing Home Sales

September 24 – Durable Goods Orders and New Home Sales

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“China has bought USD6bn of JGB’s between January and April, double the previous record for the whole of 2005,” says Lees.

China bought $6.9 billion worth of Japanese treasuries in July, up from $5.4 billion in June.

China’s reserves are something of a state secret, but reports from a number of sources suggests the People’s Bank of China has stepped up purchases of the Yen in the last couple of months as well—in line with China’s ongoing policy of diversification away from the U.S. dollar.

None of this should be a surprise to anyone.

Hu Xiaolian, vice governor with the People’s Bank of China, has repeatedly warned of Beijing’s disdain for currency risk associated with the U.S. dollar, though never actually pointing to the dollar directly, instead, referring to it collectively as “reserve currencies,” of which, the dollar is by far its largest holding.

“Once a reserve currency’s value becomes unstable, there will be quite large depreciation risks for assets,” Xiaolian wrote in an article for China Finance, a Chinese-language magazine.

“A diversified international currency system will be more conducive to international economic and financial stability,” she added.

In the meantime, the renminbi against the dollar has virtually gone nowhere since its peg to the dollar was removed on June 19.

Now U.S. Treasury Secretary Timothy Geithner is expected to “argue that a combination of direct and multilateral measures could be used to encourage the Chinese authorities to allow a swifter rise,” writes Alan Beattie of the Financial Times.

Irrespective as to what that might entail, in the meantime, Japan cannot tolerate a strong currency, as its economy relies too much on export trade (at the expense of overall purchasing power of its citizens). And as a member of the G-20, Japan will most likely coordinate the weakening of yen by selling yen and buying dollars.

Effectively, the Chinese have, in a circuitous way, transferred unwanted dollars to the Japanese. The tradeoff for this maneuver, however, is increased risk of inflation in China, as Japan is China’s largest import supplier at $130.9 billion (2009 statistic). China imports $77.4 billion of U.S. exports, by comparison. Apparently, it’s worth the tradeoff, or is an inevitable damn-if-you-do-damn-if-don’t pickle.

It’s an offensive move on the part of Beijing as far as Washington is concerned. The Chinese don’t see it that way at all, however. They just want their money before they’re caught holding the bag of worthless dollars at endgame time when the U.S. must atone for its debauched currency.

And the euro crisis didn’t help relations between the two nations either.

Evidence of an attack on the euro by the U.S., via Greek sovereign debt, surely didn’t go unnoticed by China. If the U.S. is willing to attack allies, it will attempt to attack the Chinese if it can—somehow—but not in the currencies market.

And Washington may (gasp) accuse China as a currency manipulator.

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It’s not like the company is a micro cap with one supplier that’s about to jump ship, or anything as dire as that. Unless the planet goes into the next Dark Age, why HP languishes on the tape is puzzling.

It could be that the abrupt “departure” of CEO Mark Hurd on Aug. 6 could be the best thing that ever happened to investors wanting a piece of this blue-chip tech name.

As of Monday, HP trades close to its 52-week low, implying the company is in the midst of a crisis.

“When written in Chinese, the word ‘crisis’ is composed of two characters-one represents danger, and the other represents opportunity.”

–John F. Kennedy

Though John Kennedy was never a stock operator (his father, Joe, was), the point is: bargains come at a time of investor disgust, fear, or whatever drives investors for cover.

Buying amid the fear and anxiety is what contrary investing is all about. HP could be one of those bargains created by investors fleeing the unknown inside HP.

Well, how much of a bargain is HP?

Looking at the tale of the tape, HP trades at a book value of 2.07 compared with competitors IBM’s (NYSE: IBM) 7.76, EMC’s (NYSE: EMC) 2.58, and Dell’s (Nasdaq: DELL) 3.89. When compared with its competitors, HP trades at a discount—and at quite a discount, in the case of IBM.

In earnings ratios, HP has a forward P/E of 7.67 and a PEG ratio of 0.88. IBM trades at a forward P/E 10.49 and a PEG of 1.01. EMC trades at a lofty forward P/E of 14.68, but trades at a PEG of an attractive1.07. DELL’s forward P/E is 15.56, with a PEG of 1.54. Again, HP is cheap when compared with its competitors.

HP hasn’t missed a beat since the Hurd departure

Recent acquisitions of 3Par (NYSE: PAR), now Arc Sight (Nasdaq: ARST), demonstrate a company that hasn’t lost a beat, even seizing opportunities to acquire companies for the future growth and direction of HP.

Granted, analysts have squawked about the prices paid for 3Par and Arc Sight, saying the return on investment my not look attractive down the road, especially without the blessings of the maestro, Mark Hurd, himself.

“Even if the deal were priced better, company watchers might still be anxious about it,” states Erika Morphy of E-Commerce Times. “Making a major acquisition — much less two — without a chief executive at the helm can be a recipe for disaster.”

Maybe. Others, however, disagree.

“This [Arc Sight] is not a stupid acquisition — even without a CEO,” Laura DiDio, principal of ITIC, said to the E-Commerce Times. “Undoubtedly, they have a five-year plan for what they want to do, and this is part of it.”

DiDio could be correct. We don’t know the “five-year” plan of HP. No one has published the numbers, and won’t, of course.

Irrespective of whether HP paid too much for its latest acquisitions, or not, the news is out and the stock reflects not only the news but surely reflects the possibility of another “white elephant” purchase, too.

Lots of events have happened at HP in the past two months. Expectations are low, and anxiety is high. It could just be the perfect time to buy.

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From the get-go, the month of September has been kind to stocks, which have climbed 54.85 points (5.23%) during the first seven days of trading in the month–fully recouping August’s dismal performance.

Volume this summer was weak, much weaker than normal after taking into account the added dimension of trades made by the “quants’ high-frequency black boxes,” which some estimate as contributing as much as 60% of all volume on the NYSE.

Volume in September hasn’t been any better, either, which, seasonal, is a notoriously weak period of money flows from mutual funds and other sources into equities.

“Larger-than-normal volume is viewed as a sign that traders are confident in the market trend at hand,” states Money Morning contributing editor Shah Gilani. “Movement on low volume is seen as an indicator of a trend that’s unlikely to continue.”

Veteran traders follow volume as closely as they do price, and remain cautious until the market shows them it’s attracting serious money willing to put a bid under the market.

As of Thursday, the S&P still needs to clear some landmines of awaiting sellers first before a cautious sentiment on the Street can have a chance of turning higher.

“Right now, we’re sitting between the 100-day and 200-day moving average,” said CNBC’s Steve Grasso on Thursday. “Personally, I’ve got to see the market close above 1131 before I can feel excited.”

Grasso’s reference to the 1131 level has triggered selling in the S&P twice this summer, once in mid-June and, again, in early August.

On top of mixed-to-bad economic data out of the United States, investors are nagged by renewed concerns of the banking system’s solvency in Europe and growing fears of another sovereign debt crisis, as well.

Spreads in sovereign debt against the Bunds, in Greek, Irish and Portuguese debt, have approached meltdown levels of May, when the euro terrifyingly plunged below 1.20 to the dollar, while gold began its march to eventually reach an all-time intraday high of 1266.50 in June.

Equity investors were equally alarmed during the late-spring saga, selling off the S&P sharply into late June to an intraday low below 1020. Some analysts have speculated that the crisis in Europe and the “flash” crash on May 6 sealed the fate of Wall Street ever attracting investors’ cash back into equities for years to come, and remains a fundamental problem holding back a sustained rally.

If less-than-inspiring U.S. economic data (especially the jobs data), worries over Europe, and flash crashes haven’t spooked investors enough, the recent and dramatic rise in the Japanese yen isn’t helping investor sentiment either. The tealeaves in the currency market suggest a flight away from the U.S. dollar is underway, with reports from trading desks pointing to the Chinese as the big buyer of the yen as a means of further diversifying away from the dollar.

Lower Treasury yields (although steepening lately) also suggest smart money positioning for a decline in the dollar, but the weakness won’t be reflected in plain view, as in the euro/dollar cross or the U.S. Dollar Index (USDX), but will be reflected, instead, in higher commodities, precious metals and crude prices—and in the case of crude, continued firming prices amid reports of plentiful supplies.

With all of raucous manifesting in all markets, can the S&P overcome resistance levels on this move?

Dave Rovelli of Canaccord Adams, said market technicals have dominated traders’ attention now.

“To get through resistance, you need volume, you need buyers,” Rovelli said. “What’s happening is people aren’t seeing there’s buyers out there.”

Until the global financial system settles into any kind of normalcy, buyers of equities will be hard to find. That could be a while.

Ever since CNBC decided to include the price of gold among the “bug” of major market indexes shown during the programming, it should have been clear, then, the metals were destined to outshine their paper rivals in the years to come.

With the price of gold, again, approaching all-time nominal highs measured in U.S. dollars, should investors back up the family pickup truck and get some gold mining shares?

In short, keep the pickup truck in the driveway and rent a tractor trailer to do the job right!

Here’s why.

The stubbornly high price of gold indicates a problem with fiat currencies, especially the two major competing currencies, the Dollar and Euro. Talk of further monetary stimulus, fiscal stimulus, or both, has scared the smart money camp into parking substantial portions of wealth in gold.

John Paulson, George Soros, and the old steady hand, Richard Russell (Dow Theory Letters), are heavy investors of gold/gold stocks long before the realization that QEI wouldn’t work out too well.

Famed economist Ed Yardeni said, “Investors are fed up with stocks. But they are still diversified: Half their portfolio is in gold and half in bonds.”

The question whether the U.S. economy will regain a “normal” footing is moot at this point, suggested by Yardeni. The headwinds confronting the U.S. are too great to achieve anything remotely close to a normal resumption of post WWII economic activity.

Consumers face lower relative wages, lower levels of wealth, higher taxes, higher debt levels, stiff overseas competition from Asia, relative political instability in Washington, and a shrinking workforce of high to moderate-income earners who are now retiring by the millions each year and will become the group poised to explode government spending.

“A tsunami is building and ready to hit future generations, but this one won’t be set off by earthquakes or other natural disasters. Instead, it will be a fiscal calamity created by the failure of government and business leaders to deal with the financial drain of millions of retiring baby boomers.”

—David Walker, U.S. Comptroller General

This far in “the cycle” –following mindboggling stimulus—should show steady improvement in employment, housing, autos and other durable goods as well as retail sales by now.

None is showing substantial improvement. It appears after trillions of dollars pumped into the economy haven’t yielded any meaningful “demand-pull” results. This is alarming.

In essence, the Fed’s is now “pushing on a string,” a phrase originally coined by Congressman T. Alan Goldsborough during a hearing regarding the state of the U.S. economy. The year was 1935.

The questions now debated are: Will the Fed continue pushing on that string with a QEII plan? Is the big helicopter money really coming this time? How much more can the Fed expand its balance sheet without foreign participation (annual trade surpluses not enough to fund U.S. fiscal and trade deficits)?

Bernanke has been touting that “unconventional” policies may be necessary to boost the economy under the dire circumstances the United States finds itself following Herculean efforts to reinflate a bursting of 40 years of debt accumulation. Surely this will include continued monetizing of Treasury debt along with more government-subsidized consumer purchases of whatever the Fed feels will stimulate spending.

Whatever these unconventional policies turn out to be, Paulson, Soros, Russell, and a score more masters of money know the endgame won’t be pretty. Either the U.S. economy implodes into continued asset price deflation, which will create a fast-track flight out of the U.S. dollar, or the U.S. economy embarks on a slow-growth, high inflation future—presumably much worse than the U.S. experienced during the 1970s, which will, again, put tremendous pressure on the U.S. dollar while the Fed maintains its negative interest rate policy.

The latter is the best-case scenario the Fed can hope for, and worked well following WWI. Record debt was inflated away—then. But today, the Fed cannot perform the same pony trick. The world isn’t recovering from bombed-out cities and a near-zero capacity to produce. The reverse is, in fact, true today. The U.S. no longer enjoys complete hegemony over weak sister nations.

Either way, gold will shine as a vehicle for the storage of wealth, and, in the worst-case outcome, will serve as currency during hyperinflation.

Bretton Woods was seriously wounded in 1971, the year the U.S. no longer backed the dollar with Fort Knox gold. The wound took 40 years to turn fatal, as politicians and the Fed worked hand-in-hand to provide bread and circuses to a public unaware of, or indifferent to, the consequences of a reserve currency unencumbered by a mechanism installed to preserve it.

“The masses do not think. This is precisely the reason why they follow those who do think. The intellectual leadership of mankind is a position held by the very few who are able to think.”

–Ludwig Von Mises

Gold is money, and competes with fiat currencies as a useful and trusted medium of exchange—a backstop to a financial system gone haywire through central bank profligate credit expansion and concurrent spending in both public and private sectors.

This serial problem was well understood at Bretton Woods following the umpteenth number of failed currencies throughout history. At that time, the problem was with Sterling. The gold standard was suspended in Great Britain at the outbreak of the war in 1914, with Bank of England and Treasury notes becoming legal tender.

Fast forward to today: The fiscal and monetary policies which brought us to $1,250 gold haven’t changed. Present policies most likely won’t change either until the dollar experiences the “Crack up Boom,” an event observation forwarded by Austrian economist, Ludwig Von Mises (September 29, 1881 – October 10, 1973), or the dollar again is backed by gold, or backed by anything people will accept as a store of value.

Von Mises writes:

“This first stage of the inflationary process may last for many years. While it lasts, the prices of many goods and services are not yet adjusted to the altered money relation. There are still people in the country who have not yet become aware of the fact that they are confronted with a price revolution which will finally result in a considerable rise of all prices, although the extent of this rise will not be the same in the various commodities and services. These people still believe that prices one day will drop. Waiting for this day, they restrict their purchases and concomitantly increase their cash holdings. As long as such ideas are still held by public opinion, it is not yet too late for the government to abandon its inflationary policy.

“But then, finally, the masses wake up. They become suddenly aware of the fact that inflation is a deliberate policy and will go on endlessly. A breakdown occurs. The crack-up boom appears. Everybody is anxious to swap his money against ‘real’ goods, no matter whether he needs them or not, no matter how much money he has to pay for them. Within a very short time, within a few weeks or even days, the things which were used as money are no longer used as media of exchange. They become scrap paper. Nobody wants to give away anything against them.

“It was this that happened with the Continental currency in America in 1781, with the French mandats territoriaux in 1796, and with the German mark in 1923. It will happen again whenever the same conditions appear. If a thing has to be used as a medium of exchange, public opinion must not believe that the quantity of this thing will increase beyond all bounds. Inflation is a policy that cannot last.”

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