Here is all you need to know. About 40 minutes ago, the Energy Department reported that oil stocks were up another 900,000 barrels. Inventories currently stand at 4.2% higher than last year, which if I recall were higher than the year before that. Prices are rallying, because the move is “less than expected”. That’s great, but this is just the beginning.

At the same time, gasoline demand has fallen through the floor. Recession is setting in in Europe. China has been disappointing. And US exports are set to get hit in unison.

My expectation is that May – August will be horrible; an exact repeat of the last three years. I’ll revisit these assumptions midway through any selloff, or if one fails to materialize. As for the Fall; I’ve been caught off guard plenty of times over the last few years, thinking “this is the end”. And each time, trillion dollar money balls and hope manage to squeeze me – this year was the exception to the rule.

Well, I’m sick of the rule, and much preferred the exception. So I will likely consider buying into the Fall. But we need to monitor everything and be very careful. This year is exceptional in its uniqueness; a number of very unusual motions will set in starting 2014, including Obamacare and the end of the line for pension gap coverage is looming. Throw in tax hikes and the waves of retiring Baby Boomers leaping every year for the next decade, and I’m not happy.

But I can be crazy if I need to be. Surely, the Fed is aware of all of these problems, and monetary easing is the preferred course of action over letting panic set in. So even though I’m afraid for what’s coming, sometimes you need to let go of reason and embrace the lunatic’s way out.

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I have to hand it to the EU countries. We are now years into this crisis, and still they manage to keep their bonds funded. Spanish bonds are easing back down from the 5% mark that had me on my toes. It would appear that the flare up has been contained…for now.

But that’s not the name of this game. They can save themselves as many times as they like. It would be better to ask, “what are the odds they save themselves every time one of these crises kicks up.” Much like a kid juggling eggs in his mom’s kitchen, the prudent bet is that he drops them. The moments leading up to the inevitable wrath bearing down on him are of entertainment value only.

Gasoline prices are imploding. That is merely a factual statement. I can’t decide what to think about it yet. Lower gasoline prices are inherently good for the consumer, it is true. But following the economic reports we’ve been receiving, and right out of Christmas and the optimistic projection parties that come with that time of year, and I’m not entirely sure of the thing being good.

My preference remains withdrawn defensiveness. Lots of cash, hand picked hedges. And only names of quality that I don’t mind being left holding without a bid.

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I just got out of a three hour marathon on Obamacare.

Ladies. Gentlemen. This does not look good.

We’re looking at an across the board tax increase on all existing health plans of 8-10% before cost trend. Medical trend has been running at a hot and steady 8-10% annually by itself.

So right now, before we even start factoring in things like losses from disruption or penalties for non-compliance (which can be incurred by any number of things at the administrative level in a corporation), companies in the US running an insured plan through one of the medical carriers is bound to see a 16-20% increase in the cost of their health plan. Minimum.

How much of that can even be passed along to employees (which they are bound to try)?

I don’t see anyone who’s going to escape this. Large corporations tend to self fund their benefits, so they will continue to see whatever their costs are – but everyone gets hit a little bit. And since the base of small businesses in the country are about to get railed, how do you think that will affect the business climate in this country? Being big doesn’t help you if your consumers are getting clobbered. Hell, it actually guarantees you get some of the pain.

I can tell you right now I will not be running long into the second half of this year. Between this, the pension gap funding window closing, and all the typical stupidity you expect to see throughout the summer anyway…you’re mad if you don’t have a sizable cash position by the end of May.

This is me warning you. Consider yourself warned.

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You think this makes sense do you? US markets are ramping to levels not seen since the last, great bull market. The debt of countries like Italy (where ex-president and child rapist Berlusconi is threatening to splinter the votes to ungovernable ends) and Spain (where a quarter of the youth are disaffected, unable to start their lives and about one tenth of the land mass is preparing for secession) are trading for yields that are really, reasonable. Oil is spiking towards the $100 mark – meanwhile Europe remains marred in recession and Germany just joined them. Oil stockpiles are increasing.

Precious metals are collapsing in price and the Fed is printing $80 billion a month.

In short, my dear reader, you are out of your minds.

But that is all right. You see, I foresaw your absurdity – your complete mental breakdown – months ago. I prepared for this. I realized, “this makes no sense”, and because it made no sense, I knew you would act this way. How else would the crazy behave in a crazy world?

So I did the opposite of what makes sense. And I did it first, before you.

Now, let’s chat about the euro. The $EURUSD is completely deranged. If it were a person, it would be a homeless man who found a tattered tuxedo, and is presently running around, hiding in steam vents in the middle of the street in Detroit. But, by some divine joke, this homeless man has been mistaken for a titan of industry, and is currently invited to all the high social class dinners.

“Aaaaahahghgh”, he gurgles in reply to requests for his opinion on gun control.

“EEEEAAAA”, he says when asked for advice on pre-tax 401K versus Roth.

And then he proceeds to eat his napkin with an olive fork.

Now let’s chat about oil. Oil is going way lower. The US economic numbers and forecasts are, again, way off, again. This is really not very funny anymore. How ten thousand economists can blow this year after year, never bothering to even pretend to learn from their mistakes the year prior…they should all be fired and stripped of their degrees. Pathetic…

Plus, Europe remains in a spiral. Germany, the heart of the EU, has finally entered recession this year. Question: knowing German culture, do you think that will make them more or less willing to work with their fellow member states?

Wait, don’t answer that. I’ll answer it for you. “It will make them less likely to work with their peers.”

Very good me, have a reward.

Why thank you.

German’s are going to increasingly view the rest of Europe as a useless bundle. If German wellbeing takes a hit, they’re culturally predisposed to blaming Italy or Spain or France for dragging them down with their wild schemes and self-centered demands. If Germany was reluctant to sit by and watch Draghi open the ECB doors to distressed banks before, wait until their worst prejudices are confirmed. Free money was supposed to help Europe, remember? Germany goes into recession and they’ll make sure the Bundesbank does everything within its power to hamper the rest of the EU at every turn.

Now let’s chat about housing. Housing prices are going higher, but that’s not going to help you sell that third, four bedroom house you’ve been desperately clinging to, praying for a buyer. Your retirement plans are shot, pal. Prices are going higher, but sales volumes are staying depressed. The housing recovery, like most luxuries, is reserved for the rich.

Now let’s chat about bonds. Safe haven bonds have got one major push left in them. I don’t expect the US 10 year to clear 2%. Meanwhile, bonds of Italy, Spain, Greece, etc are WAY too high. They are going to be taken out back to the woodshed before summer.

After that, I’m going to reinvestigate building a short position in American treasuries. We’re one major push in commodity prices from the Fed being strung up without any options for recourse. Because they’ve decided to load up on assets yielding 2%, they really don’t have much in the way of choices for controlling the money supply, unless they want to jack up the discount rate and watch the banks crash screaming back into bankruptcy. The economy is going to become increasingly wild, like a Stallion that got away from the Spanish.

For the moment, bet on the Fed and bet on higher prices. But always remember, in the back of your mind, that trouble cannot be vanished with the wave of a wand. Problems will always materialize in some way, and if not addressed, the consequences of those deviations can build to tremendous proportions.

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Sticking with the larger theme over the past two weeks, my portfolio is melting higher into the close. AEC, CLP, CCJ, BAS, and RGR are all rushing up, either for profits or, in the case of Ruger, to close the day flat. Which, given Ruger’s last month, is really not a problem at all.

Physical silver has largely recovered from the Fed scare. The euro has also rebounded after Junker tried to talk it down.

My expectation is for higher prices. We are running, and only confirmation that the recovery is not happening will stop us. If you are betting against the indices, or are out of the market, I have bad news for you – that is months away.

You are stuck exactly where I was last year; having the right answers, but getting whipped anyway. It will come through for you in the end. But unlike 2011 and early 2012, this time I will be mocking you, sipping straight whiskey, and the pain will only end after I’ve locked in profits and position myself against the market.

So I am afraid you will be on the receiving end of jokes until at least March…

Expect treasuries to sell off as short sellers start trying to edge into that trade. The rising yield will only add to confirmation bias, bouying the stock markets higher. Both trades will fail in the Spring with bad prints going into summer.

The treasury bears will be killed at least this one last time. The markets will sell off again. I personally will be interested in building a short euro and short oil position sometime in the next two months.

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We’re really off to the races now. There is absolutely nothing that will bring down this market.

You have to understand the driving power behind this rally. It isn’t hope or nonsense, or in some way, even free money (although the Fed’s $80 billion a month sure doesn’t hurt).

No this rally is actually also being data driven.

It only takes about 4 seconds reading the talking heads on blogs and Twitter to realize that these numbskulls actually think the pickup in activity this Christmas is “gaining steam”. How this is possible is very difficult to fathom, but I think it can be well surmised by saying that these guys just aren’t playing with as much RAM as the rest of us.

Having trouble accessing those memories all the way from last year, guys?

The uptick in data is spurred primarily by the holidays, and is standard noise/seasonal fluctuation. Throw in some promising pricing in housing and a nice recovery in the US auto market in the Midwest, and these guys are now betting big that this upswing will be “the big one.”

It’s unlikely. While there are some pretty decent improvements materializing, the main weight around the global economy’s neck has not been removed – or even addressed, for that matter. We seem to be ignoring the debt and the looming, crushing money flows under the current rules and contracts, which are still very much the largest threat.

Europe is still an enormous problem. Asia is still and enormous problem. Emerging markets are still an enormous problem. And America is about to be an enormous problem.

These aren’t just going to go away. They need to be fixed. The Central Banks seems to be the only ones trying to address them; although their prescription is as much of an ailment…

By Spring, the current rounds of hope making the airwaves will go the way of Green Shoots, Decoupling, Housing Recoveries 1 & 2, and EFSF/ESM Europe Is Fixed.

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