Dow Jones Industrial Average

While the only fun-durr-mentals that matter appear to be global central bank liquidity injections (and thus the level of leverage entrusted to the JPY carry trade), the crowd is swayed by truthisms and "common knowledge" memes that recovery is here, that things are improving, that earnings are 'solid', that markets are still cheap, and that historical analogs are different this time. However, with monetary policy at a turning point, we also appear (fundamentally and technically) to be at "the inflection point from self-reinforcing speculation to fragile instability."

Gold has rallied another 1.2% today and touched resistance at $1,294/oz during Yellen's first testimony to Congress. Gold is testing resistance between $1,294/oz and $1,300/oz. A close above $1,300 should see gold quickly rally to test the next level of resistance at $1,360/oz.

With silver's best week in over six months and gold testing3-month highs, Citi's FX Technicals group believes gold continues to look constructive overall with a test of $1,361 and eventually $1,433 expected. Rather ominously, from a broad perspective, they would not be surprised to see an inverse correlation between gold and equities just as was exhibited throughout the last bullion bull market in the 1970's.

The 10Y yield closed below its 200-day moving average and should test down to 2.47% in the short-term; and Citi's FX Technicals believes the Dow will test its 55-week moving average at 15,214, S&P 500 at 1,707; and Gold's consolidation/correction is over - the uptrend has resumed.

A classicial economist... and Harvard professor... preaching to the world that one's money is not safe in the US banking system due to Ben Bernanke's actions? And putting his withdrawal slip where his mouth is and pulling $1 million out of Bank America? Say it isn't so...

It’s fairly clear if you look at the data objectively that Mr. Bernanke’s policies have left the Fed (and consequently the global financial system) in far more precarious condition than when he started, yet disproportionately benefited the US government and small percentage of society at the expense of everyone else. This is not to say that Mr. Bernanke is some evil mastermind bent on nefarious ends. Unfortunately the road to ruin is almost always paved with good intentions.

President Obama has recently promoted inequality as a fundamental threat to our way of life, saying, “The combined trends of increased inequality and decreasing mobility pose a fundamental threat to the American Dream, our way of life, and what we stand for around the globe.”  You can read the rhetoric here.  Let’s look at the reality.

With the market more bullishly positioned, more euphoric, and more levered than almost any time in history, it is perhaps worth "pondering" what some of the risks to this optimism could be...

With the Q4 earnings season beginning, ConvergEx's Nick Colas reminds that the top of the income statement matters more than the bottom line if we expect further upside to domestic equities in 2014.  Revenue growth has been in short supply over the last four quarters, with the companies of the Dow only able to average a 0.6% top line growth rate over the last year.  If 2013 was all about multiple expansion in equity markets, then, Colas warns this will be the year when revenue growth must fulfill the promise of a U.S. stock market so near all-time highs. Analysts have been perennial over-optimists on revenues every month since early 2012. Maybe they finally have it right, but that is purely a matter of faith at this point; their track record on this count is not good.

2013 was the year that the mainstream financial media went aggressively anti-gold. So, why do we continue to keep the faith with gold (and silver)? We can encapsulate the argument in one statistic.

The rise in equities does not mean stocks "buy" more commodities in the real world - they buy less.

Forget the last two day's decline.  The consensus opinion for 2014 is pretty uniform: stocks will go up modestly, bond will decline in similar fashion.  Job growth will grind higher, as will inflation.  The Fed will taper its bond-buying program, slowly.  And so it may all come to pass...  But ConvergEx's Nick Colas ponders what could go wrong, or at least different.  Top of his list: fixed income volatility, in conjunction with stock market valuations that are, at best, average. Colas reflects ominously on 1914, where if you read the papers of the day you would have seen much of the same "Yeah, we got this" tone that prevails today.  As the great market sage Yogi Berra once opined, “It’s tough to make predictions, especially about the future.” Either way, a cautious outlook is the better part of valor so early in the year.

We leave it to everyone's supreme amusement to enjoy the Maestro's full non-mea culpa essay, but we will highlight Greenspan's two most amusing incosistencies contained in the span of a few hundred words. On one hand the former Chairman admits that "The financial crisis [...] represented an existential crisis for economic forecasting. The conventional method of predicting macroeconomic developments -- econometric modeling, the roots of which lie in the work of John Maynard Keynes -- had failed when it was needed most, much to the chagrin of economists." On the other, his solution is to do... more of the same: "if economists better integrate animal spirits into our models, we can improve our forecasting accuracy. Economic models should, when possible, measure and forecast systematic human behavior and the tendencies of corporate culture.... Forecasters may never approach the fantasy success of the Oracle of Delphi or Nostradamus, but we can surely improve on the discouraging performance of the past." So, Greenspan's solution to the failure of linear models is to... model animal spirits, or said otherwise human irrationality. Brilliant.

It seems not only is the "market" adhering to the lower-left-to-upper-right mentality of newsletter-writers a little too literally but it it would appear we have found the limit of Birinyi's ruler... Behold the Dow Jones Industrial Average on the straight-and-narrow. Because, when there's no dip to buy, you BTFATH...

Before you buy the dip "because this Bull market will run until 2016," please ponder this chart... Empirically, the stock market advances when credit is expanding and declines when credit growth slows. If credit expansion leads the stock market, the market is in trouble...