We are 200 points from breaking a new high in the Dow Industrials, which got me looking back at assets over the last 25 years in relation to the value of the U.S. dollar index and the overall money supply.

25 years in Markets

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Some of the best performing assets are the stock market and gasoline with bonds and housing putting in steady gains. Of course, with all assets you get a whole lot more bang for your buck if you happen to time the market correctly. And assets like stocks, housing and gasoline all have crash periods where Dow components go bankrupt and are replaced, homeowners lose their homes, and in the financial crash, any gasoline investor would have been forced out of the market.

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Need to be Invested

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But make no mistake, the long-term trend is that you want

Pullbacks … pullbacks ... are we talking about Pullbacks?

That's all I heard for two straight months, “Gee everyone is waiting for a pullback to get in on the rally”. Well you asked for it, now you got it! But you better not be too picky about waiting for some exact perfect 7% correction because that probably ain't happening.

We are in the midst of the strongest four months of the investing cycle for each of the last four years. Basically, everyone and their uncle go long assets until late April before the annual summer sell-off. Don't expect this year to be any different.

March 1st New Capital & Front Running

The way I look at it new money comes into the market March 1st which is next Friday, so any window for a pullback has 5 days to occur, and less than that because everybody front runs the monthly

You have come a long way baby

The lumber market has really come off the 2009 bottom of $140 per mbf and closed Friday at $399.80 per mbf on the back of good news out of the housing sector of the economy.

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The housing sector of the economy led the way in 2012 with record low interest rates, and investors and banks working through the foreclosed inventory, leading to a trending and steady rise in both average home prices and new constructions.

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Everything related to the housing sector performed well in 2012 from materials to the home improvement and remodeling big box retailers in Home Depot (HD) and Lowe's Companies Incorporated (LOW).

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Lumber prices getting slightly ahead of themselves?

But if we examine the history of lumber prices relative to the strength of the housing sector, lumber prices may be getting

When there is Corn planted behind gas stations in makeshift lots

After the last weather disturbance in 2008, I remember traveling for my company in the Northeast, and I visited several states that were not known for being corn belts, the biggest impression besides the business takeaways, was how much corn was being planted anywhere and everywhere. There was corn planted in makeshift small lots, open fields, small farms, and bigger farms.

In a nutshell, there was corn everywhere, and when I got back from my trip it dawned upon me that the corn market was potentially a big short, and my suspicions were proven correct as the corn market dropped like a rock from $8.50 a bushel all the way down to $3 a bushel in late 2008. Now a lot of that drop reflected the capital withdrawal from markets due to the financial crisis.

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High

Seaway Pipeline Or Garden Hose

This would be hilarious if prices weren`t so high. Despite a robust export market for finished products, crude oil is backing up all the way to Cushing, Oklahoma, and it's only going to get worse in 2013.

Now that Enterprise Products Partners LLP (EPD) has let the cat out of the bag that less than a month after expanding the Seaway pipeline capacity to 400,000 barrels per day, the Jones Creek terminal has storage capacity of 2.6 million barrels, and it is basically maxed out in available storage.

How Bad Would Capacity Constraints Be Without A Booming Export Market?

Good thing there is an export market for U.S. finished petroleum products, or oil and gas prices would be much lower, as in the U.S., demand is so low relative to supply, that you almost cannot give the stuff away, and the refiners still cannot utilize

Consumers only focus on Inflation, they ignore Deflation areas

It seems that to exclusively focus on one side of the equation can be human nature at times, and with regard to inflation concerns, humans never see the other side of the equation, i.e., areas where they are actually experiencing deflation in their lives.

The Housing Market

Let`s start with housing, the Case-Shiller 20-City Home Price Index shows quite clearly that after years of inflation, consumers are getting a large break on prices due to the deflationary effects in the housing industry over the last five years.

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Mortgage & Interest Rates

How about interest rates, rates for getting financing either to finance a first purchase or refinance an existing loan that have been a real boon to consumers, and rates generally have been coming down for twenty years. I am sure your parents or grandparents can tell stories

19 Months in the Downtrend

It has been a rough 19 months in the coffee market if you were long, and you had to be real nimble trying to trade the falling knife with some counter-trend trades. Coffee is currently trading around 1.41 per pound, and has been on a prolonged downtrend since peaking in May of 2011 at $3.12 a pound.

The coffee market is not as mainstream as many of the other more commonly traded markets. Accordingly, it is quite volatile, and many traders love its trending price action characteristics. The margins are higher to account for this increased volatility, and stops are an essential tool necessary for managing the position and protecting your trading capital.

Some basic facts about the market: Brazil is the world's largest coffee producer and exporter, while the U.S. is the world's largest consumer and importer.

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No Inflation Here

We

Exxon Mobil Corp. (XOM), the world's biggest energy company by market cap, reported its 4Q profit at a five-year high boosted by its refining arm from growing supplies of cheap U.S. oil. However, Delta Airlines (DAL) can't tell a similar success story with its newly acquired refinery.

Delta paid $150 million for a Phillips 66 refinery in Trainer PA last May aiming to save $300 million a year in future fuel costs. At the time, many analysts saw this acquisition as a smart fuel hedge move by Delta. However, as I previously discussed, the actual implementation of this potential fuel cost savings could be quite problematic.

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Chart Source: IATA

During a time when most refiners are reporting good earning numbers as price gain of petroleum products has outpaced stagnant WTI crude prices, Delta reported loss of $63 million at the Trainer refinery

Where are all the Gold Bugs?

The decline in GDP saw gold and silver spike yesterday with the thought that the fed will still be around a little while longer. But before that report traders have been selling into any Gold & Silver rally with the thought that the economy is getting better, risk appetite is gaining, funds are unwinding the safe haven trades, and ultimately interest rates are going to start rising.

Gold Selling into Rallies the new sport?

This is the reason that prior to yesterday Gold and Silver have not been participating in the Risk On rallies in markets. Sure they spike a little at the beginning of the year, or week, etc. but soon are sold into rather heavily.

Now granted gold and silver haven`t been putting in new lows, but are sort of just stuck in trading ranges. However, it is to be noted that

Just four months ago…

Markets have had a good run from the third quarter earning`s sell-off, the inevitable Santa Claus rally, and the first quarter new money being put to work. But all this talk about some Super Cycle turn in the economy is putting the proverbial cart ahead of the horse.

How quickly things can turn. The economy was reacting so poorly at Jackson Hole that Ben Bernanke needed to implement another round of stimulus in QE3, this stimulus measure failed to boost asset prices substantially, so Ben Bernanke tweaked QE3 to try and juice up markets with additional treasury injections.

The economy is so bad in Japan that they needed to replace another prime minister, employ additional stimulus measures, and weaken their currency. Auto sales are so bad in Europe that major downsizing has occurred. Britain is currently in a recession, and China has been on a two

Gas Prices Pegged to Risk On Trade

As long as gas prices are pegged to the market rally in equities and the currencies in the risk on trade then this rally is nearing its end. Gas prices are up 35 cents and climbing, oil is up $13 and climbing and because of congress, consumers are being taxed more in 2013, and as a result have less take home pay to apply towards discretionary spending. That combination makes for a healthy economy?

Decoupling Needed for Ultimate Recovery

Until gasoline and oil finally decouple from the risk on trade we are going to continually have this stop and start economy every time the market goes up on the correlated asset trade. At this pace I give the rally two more weeks at most, unless the aforementioned assets decouple. Gold and silver have decoupled, but oil is moving right up with the euro

Not a Bear in Sight

Everybody and their uncle is long this market right now, and equities have had a nice run with no pullbacks. The smart money will be selling into the rally to maximize profits by getting out when there is plenty of buying volume to eat up the sizable positions. It is the best time to sell because fund managers can liquidate large positions much easier without having to worry as much about creating complex Algos to maintain an overall high average price for the exiting position.

Bag-Holders

The S&P will be up around 5% just in January alone, not to mention the run-up from about this time last earning`s cycle when the benchmarks all sold off during the second half of earning for the third quarter. Today is close enough as good as it gets for a while, and traders will try to push up the

True Wealth Pie Decreasing

Japan came out with their long awaited 2% inflation target, and currency devaluation scheme, but it is doomed to fail. It will fail like all these government and central planning currency devaluation schemes because the one point that nobody gets right now is that the entire world is in the middle of a 25-year super-deflationary cycle because there is a depreciating pile of total wealth in the world. In short, everybody is broke.

Mature Governments all in Debt

Most governments are heavily in debt, and they are ultimately going to be forced to cut back spending through austerity programs. Most governments are going to have to raise taxes for the next 25 years, taking more money from both businesses and citizens. This all results in less disposable income to purchase products, and much lower margins for all companies for the next 25 years as competitive pressures

China's 4th Quarter

China`s economy grew 7.9% for the fourth quarter of 2012, signaling to some that China might be rebounding from a two-year downtrend in economic growth. When it comes to Chinese data though, transparency issues always rear their ugly head.

As a result, many analysts look to electricity usage to confirm the economic numbers. Many times the electricity numbers are at odds with the stronger economic numbers coming out of China, and analysts believe that during this downturn, the actual growth numbers were much lower than those published officially.

They pointed to lower electricity numbers that have dropped off substantially more than the economic drop-off on a percentage basis. The conclusion is that China is inflating the real growth numbers to paint a more flattering picture of its economy.

Is this the right Conclusion?

When the latest economic numbers came out, analysts compared these numbers with the electricity

I would be surprised

Today Jeff Currie, Goldman Sachs chief commodity strategist put forth some comments regarding the Oil market. Jeff Currie from Frankfurt said he wouldn’t be surprised “if we woke up in summer and [Brent] oil cost $150 [per barrel]".

Oil high established 1st Quarter

The counter argument to that statement would be the following: Brent has put in its high for the year in the first quarter the past two years, and actually put in the low for the year in the summer. The reason that oil has put in the high of the year during the first quarter is that oil doesn`t actually trade on the fundamentals. It trades as an “asset class” just like equities, so when funds are piling money into asset classes oil moves up alongside the S&P 500.

Further Reading - Gold Market Dip Buying Strategy

Middle East Disturbances

A secondary

With China slowing down and a recessionary GDP projection (below 3%) for the developed world in the next two years or so, many analysts are also projecting far less bullish commodity prices. Due to the very limited export capacity, the price outlook of the landlocked U.S. natural gas (Henry Hub) is even gloomier without the cushion of more robust demand from emerging nations.

After hitting a decade low of $1.90/mmbtu last April, Henry Hub (HH) natural gas price has managed to climb almost 80% to $3.398 on Jan. 14. Unfortunately, the same factors tanking natural gas to below $2.00 -- increasing production from unconventional sources via new technologies such as horizontal drilling and fracking, mild weather, weak domestic demand, and economic environment -- are still alive and well.

Production has been rising despite a 46% drop of gas rig count during 2012. According to Baker Hughes, the

“Risk On” Mode

It is pretty obvious that there is a lot of liquidity in the system, with the Fed's loose monetary policy, extremely low interest rates, and traders in all out “Risk On” mode with regard to their two favorite funding currency crosses in the EUR/USD and USD/JPY. Traders are banging every asset class except for the Metals into the close, pushing asset classes up overnight with the futures contracts on a regular basis, and it is definitely a “Risk On” environment in the markets.

You can even hear it in the language of the markets, the tired old expressions of commodities like oil being an “Asset Class” and equities who can barely meet earnings as ripe for “Multiple Expansion” which is just a fancy term for, we know that based upon any fundamental analysis company A should not be trading at these levels, but if Wall Street has

3-Month Depreciating Yen Trade

The 3-month Japanese Yen trade which every fund manager from San Diego to Hong Kong has taken part in will sure help Japanese exporters and help spur more economic activity in what has been a real laggard in both business competitiveness, and the race to weaken their currency that has occurred during the last five years.

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However, there are very few free lunches in the world, and I imagine there will be some costs or unintended consequences of this newfound commitment towards a weaker Yen.

Almost every currency has appreciated against the Yen the past 3 months, and the original target was placed at 90 for the USD/JPY cross; now analysts are targeting 100 for the cross.

On October 1st the JPY/CNY cross was 0.0806 and today the currency cross is 0.0697 for a pretty significant move against a currency who doesn't like

Stocks Setup for Fall

It is ironic that stocks are at five-year highs going into what is probably going to be the biggest disappointment of an earnings season since the 2008 financial crisis. We got a hint of 4th quarter results during the disaster which was the 3rd quarter earning's season where most companies missed on the revenue side, and those that beat EPS guidance, did so barely, and most of that was created through stock buybacks and creative smoothing techniques.

Make no mistake, when a public company sets earnings guidance these are numbers that are very conservative, and they expect to blow these numbers away given a healthy business environment. When a company just barely hits or beats the EPS number, and misses on revenue, you know they were buying back stock, and trying any possible financial trick to attain the EPS number. One of the oldest tricks on

WTI closed November just shy of $89 a barrel, on hopes of an improving economy. I think there is an argument for an improving economy in 2013, but it is just too early to tell how things are going to come together with the economy, and all the ramifications of basically an anti-business and social agenda political leadership of the last four years.

I am not making a political statement that there aren't some benefits to be gained by such governmental policies, more to state the fact that with a lot of the legislative and fiscal policies of the last four years, we have yet to fully understand some of the costs and unintended consequences of these policies like higher taxes, increased healthcare costs, and increased business regulation costs.

So this is an area that remains to be seen how all this plays out in the economy. Just last year,