The fed decision to test the waters with a taper while I was away did surprise me, somewhat. Yet it did not phase me much and so I elected to remain on vacation, silent on the issue.

I would state now in hindsight that a $5B per month taper (with as much as another $5-10B in the works) would still put the Federal Reserve on path to add another ~$800B to its balance sheet in 2014. This remains colossal and would have the Fed assets outstanding at just under $5 Trillion by 2015.

They may very well have tapered by $5B/month just because they were running out of things to buy…(laughter)

If I were to state things that concern me as potential impediments to the US economy and growth, they would list (1) consumer slowdown from budget impacts (pension, healthcare costs, rents/mortgage, increased retirement contributions, etc), (2) foreign existential shocks (EU breakup, Asian crisis, similar collapse that disrupts foreign trade) – where exactly did the EU government debt go and why is it now suddenly not an issue? Who is buying it (ECB, Fed, banking scheme, inter-government trade imbalances, etc)? And what stops non-payment concerns from popping up again in the future? and (3) the election of a Republican majority

But banking solvency just isn’t on that list right now. Neither is inflation, really, although long term prospects of an uncontrollable outbreak of inflation remains a viable possibility. With credit expansion in this country limited to growth of government balance sheets, deflationary pressure is set to commence…until it doesn’t. In the meantime, another ~$1 Trillion of free money to those closest to the trough will keep a major disruption of financial assets here at home as a low probability outcome. Of course, this bodes ill for the “wealth equality” lot, but they’re too dumb to call the system out on that, so we maintain the course.

Concerns aside, I am optimistic. Recessions don’t last forever, and my concerns are outweighed by hope in outlook. I am very long (no margin) and prepared to reap the rewards of economic growth. It’s been almost six years; the system has been on a hyperactive outlook for problems which greatly reduces the likelihood that a real “Black Swan” manages to crop up. It could still happen of course, but with hundreds of thousands of financial professionals calling bubbles as quickly as problems crop up, and a full time central banking staff armed with an unlimited supply of money attacking them at first sight, how exactly is a crisis supposed to materialize from all of this?

The only room for crisis in the US is rampant commodity/asset appreciation, which remains benign. That or an elsewise major shock to the consumer. Financial assets and liquidity issues are covered.

Now, that being said, historically we haven’t had a period longer than 10 years without a recession since at least 1789 (and probably not since long before that either – I just lack records to verify a more robust claim). I’d say the expectation of a correction since the Great Depression is 5-10 years with occasional 1-3 year shocks intermittently. We’re past the small shocks phase, which would put the expectation at right about where we’re at.

These times are unprecedented and the support the Fed is willing to lend the markets (unlike any time in recorded history) makes me think we blow through the averages. I want to say this ship will have the wind to sail to years seven, eight or nine, uninterrupted. We may even match the record holder of 10 or above.

However, it would be foolhardy to doubt another recession will most likely crop up before 2020. The ever growing levels of margin debt to buy equities may well be the first sign of the beginning of the final run before that. Of course it could be nothing.

My belief then is that a long commitment remains the way to go. I have been positively surprised by recent developments that have overridden prior comments on wanting to have a larger cash position by about this time (end of 2013) that I made late last year. However, as gains are taken, a portion should begun to be set aside, starting sometime mid 2014 to early 2015. This should create a reserve build-up of steadily marching intervals (10-20%, with a 1-2% increase every month topping out at around 40-50% of ones account value) sometime around late 2015 to early 2016.

At such time, a second hard look should be had. Earlier and exceptional strength should trigger a reassessment of these statements. Casual to quality growth does not necessarily change them. A major weakness (such as a shock of a GOP majority and fear of monetary policy interference) of course may necessitate a sudden course change.

My most hated places to invest are land/real estate (excluding multifamily or renting derived), oil companies (excluding natural gas predominated), and retail (excluding facilitation to the ultra-rich).

My favorite places center around natural gas production expansion, uranium, coal, multifamily REITs, and I remain interested in holding physical precious metals in a full position in the event an inflation shock from significant expansion in credit hits the economy.

I’m indifferent to the insurance market – especially health insurance. It could swing either way; they crawled into bed with the devil so it’s all political at this point. On the one hand, the entire market is shifting in wild and unpredictable ways. On the other, the feds are rigging the game in the insurance companies favor. Just stay away.

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Life is great right now, what with endless stock market gains to be had, and the rich spoils of steak and lobster dinners to be enjoyed in celebration therein. It’s all gravy boats and paradise here in the United States.

But I would caution you to keep an eye on Europe, even as I have.

The latest growth reports coming from the troika were nothing less than abysmal, once again. This is what happens when you pretend like the nail lodged in your eye socket is nothing more than in need of good marketing and a little “confidence”.

The growth expectations of European leadership that seem to get published religiously ever six months are nothing short of a riot. If their word had any bearing on when economic growth in Europe will kick back off again, it never would have stopped. Think about that, for a minute.

Life is just great now, and I’m not going to stop tasting the champagne because of little things like looming global poverty. But somewhere in the back of your subconscious, reserve a little space for recollecting that millions of unemployed, twenty year old males is not a recipe for success. Crusades have been built out of less.

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This morning, Italy announced they are now in the 8th consecutive quarter of economic decline. Do you understand how crazy that is?

In the 9th floor, a cool air drafts around my slippers, sneaking in to touch my feet. The black tea in my mug gives off a warmth to the touch, and the paper between my fingers stains the skin lightly. Dim shadows from the clouds outside the windows provides the need for a lamp on the side table that casts humming of electricity, while I read.

Italy, and all of the EU, are subjecting themselves to needless pain, just so that some dim witted economists and politicians from the 90’s can continue to enjoy the benefits of a legacy!

The thread that holds the eurozone together has slipped and is now strangling the wearer. But these fools won’t cut themselves free from some misplaced fear of tattering the shirt!

Fine; they’ve chosen their coffin. Do you believe, dear man reading over my shoulder, that we are near a bottom, just because numbers came in “better than expected”? Wrong!

These policy wonks have been calling for a bottom, always two quarters out, for two consecutive years now. They fail because they fail to grasp the intricacies of the problem. The debt maturities are breaking against the wall. Each crest that is survived simply marks a trivial point before the next wall of water raises up.

There’s one path for Europa, and that is the destruction of the euro. They may dismantle the debt instruments directing it, or they may dilute it directly. Their cheap side games are distracting from the main choice at hand, which is that the continent cannot survive if it allows itself to be dragged beneath the surface, anchored by the stubborness of those that created this mess in the first place.

As we are now almost three years past the start of the EZ crisis, my fears of Europe derailing US markets is on soft footing. However, even if America should rise above our distant cousins, and leave us sitting, as here in my office, watching curiously as distant spectators, my sympathies for what our brothers are being wrongly subjugated to stand.

There is no reason that a quarter of Spain should be sitting idle. There is no reason that almost a fifth of Portugal should be in despair. There is no reason that over half of Greek youth should be permitted to sink into shambles of anarchy.

There is no reason for any of this, other than the pride of a few.

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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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Since the Cyprus intervention, the euro debt markets have exhibited remarkable calm, in spite of the precedent that was set. Italian and Spanish yields are both pushing back towards the lows, and it seems that stability has won out.

Let’s gloss over the inconvenient fact that Italy hasn’t had a government for, oh, seven weeks now. According to Italy’s debt, all is well in the land shaped like a boot.

Clearly, this is a contradiction. It’s a matter of if, not when, this thing blows up.

At some point, people are going to question exactly, what business do the remnants of Italy’s last government have in collecting taxes, or administering programs. Or issuing debt at all. How can a country with no government make its payments?

I know it’s all about the northeaster countries at this moment, dictating events and how they play out. But at some point, you have to question, what is “Italy”? Seven weeks without any government is kind of a big deal. And where does this get resolved?

Yet, here we find money flooding into the country-less bonds. Why? I’ve heard a few theories, but I’m not really interested in them. More importantly, at what point do the theories become a distraction from the problems?

And when the problems become front and center, what does that mean following everything that has happened up until now?

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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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