• It gains over 12% today.

"One last thing." (Part Deux)

-- Lt. Columbo

Altisource Asset Management (AAMC) (my stock of the year) closes at $120, up $13.50!

Now that is one spicy meatball!

• The Fed chief's comments are unrevealing.

One last thing. --Lt. Columbo

Ben Bernanke used vague words like "continuing to evaluate" in terms of his reaction to slowing down or stopping quantitative easing. He mentioned that the (important) jobs market has improved, but only modestly.

His comments should not be market impactful.

• Viewer beware.

It should be insulting to CNBC viewers when a talking head (like myself or anyone else) talks with certainty, self-assurance and even with a glibness regarding stock market forecasts.

When this does occur, my advice is that one should run, not walk, from those forecasts.

I specifically attempt to qualify, in my writings and in my appearances, that I may very well be proven wrong. As an example, I started today's opening missive with the reasons why it is believed that the market's backdrop is favorable.

Many don't, but they should.

Case in point, Ralph Acampora who just appeared on CNBC and with seeming certainty and authority nearly guaranteed that we will see new all-time highs in the market in 2013. He quickly dismissed, as ludicrous, any notion that this might not come to pass.

Really, Ralph?

This is not meant to be an ad hominem attack of Ralph, but I will never forget Ralph Acampora, when he was at Prudential Securities in December, 1999. when he said in the media, "I'm not saying this is a straight line up. I'm not saying you can't have pauses. I'm saying any kind of declines, buy them!" (He also predicted a 14,000 Dow by year-end 2000 and an 11-year bull. He missed dramatically on both counts). 

It would be an ad hominem attack if I added his comments in 2007-08 (bullish) or early 2009  (bearish!). But I won't.

What I would have really liked to have seen, rather than Ralph in a vacuum,  was a steel cage match between Ralph Acampora and market technician Tom DeMark. It would have been a more productive exercise than listening to Ralph's one-sided view.

Mr. Market exists to turn us all around and we can never be so sure of her direction despite our (analytical) logic of fundamental argument or (technical) assessment of Mr. Market.

As it is said, when listening to those that exhibit unrealistic certitude, caveat emptor.

• I have also added to my QQQ short at $67.05 on the Dell (DELL) rumor.

• I am suspect of the rumor.

On Jan. 3, I sold some Dell (DELL) as it crossed $11.

I am now out of my entire long position.

I may live to regret this, but I am suspect of the rumor.

• I shorted more shares on the rally off of the 'Dell going private' rumor.

I am adding to my SPDR S&P 500 ETF Trust (SPY) short ($146.85) on the rally off of the "Dell (DELL) going private" rumor.

• Here is what I'm studying.

Below are a few potential near-term negative market signals that I am looking at:

• Bond yields reverse lower.
• Apple's (AAPL) inabiility to rally off the lows.
• Financials (banks, brokers, insurers) are broadly lower.
• Strength in consumer staples.
• VIX is low (indicative of little fear).

• Oddly enough, the Russell 2000 is outperforming the other indices today.

• I shorted more shares at $146.75.

I just added to my SPDR S&P 500 ETF Trust (SPY) short at $146.75.

• Discipline trumps conviction.

Always remember, discipline trumps conviction!

Toward that end, I was just stopped out of my Sourcefire (FIRE) long.

• The competitive landscape has grown increasingly hostile.

Today Goldman Sachs cut its rating on American Express (AXP) based on expectations for a continuing slowdown in top-line growth.

Milo (my analyst) and I continue to believe that American Express faces headwinds and that the company's business model is broken, as the competitive landscape has grown increasingly hostile.

Unfortunately, AmEx is not only the only thing that is broken.

Poor Milo!

• Who wants pie?

Below is a pie chart of the S&P 500 by sector.

S&P 500 Sector Breakdown

Source: Bloomberg

View Chart »View in New Window »

• I do not want to miss the inevitable rise in yields, which will likely be greater than most expect.

The ProShares UltraShort 20+ Year Treasury (TBT) has fallen from close to $68 to $64.70 as the yield on the 10-year U.S. note has dropped from 1.94% to 1.84%.

While I have previously explained why I sold my TBT long, for the first time in about 10 days, the TBT is acting better. (It was much lower at the opening and is now in the green.)

I am short TBT and short puts, a relatively neutral position designed to take in premium (which appears to be rich).

I continue to believe, as expressed in today's opener, that yields will be moving higher but probably only beginning in this year's second half.

I am intently watching the action in the bond market because I do not want to miss the inevitable rise in yields, which will likely be greater than most expect.

Stay tuned.

• Here's a whiff.

After one hour of trading, below is a look at the breadth (which is not too sporty):

• S&P 500 -- 170 advancers to 323 decliners
• NYSE -- 706 advancers to 1,104 decliners
• Nasdaq -- 780 advancers to 1,229 decliners
• Russell 2000 -- 641 advancers to 1,184 decliners

S&P 500 volume is 9% lower than past 10-day average, 8% lower than past 30-day average and 12% lower than Friday's volume for this time of morning.

• Run, don't walk, to read Alan Abelson's 'Up & Down Wall Street' from this weekend's Barron's.

Nice mention in Alan Abelson's column in Barron's over the weekend:

Still, stocks have had a nice run, with the S&P 500 leading the way, and probably could use a bit of rest at this point. As our old buddy Doug Kass, who runs Seabreeze Partners and has been known to short a stock from time to time, points out, bullish sentiment is starting to reach dangerously high levels. Thus the latest sounding on how investment advisors feel by Investors Intelligence was tilted heavily toward the bulls, accounting for 51.1% of those responding, while the number of bears shriveled to 23.4%. The rest were too busy making money to make up their minds, or were looking anxiously for a correction.

As it happens, the last couple of times the bulls in the survey topped 50% were propitious occasions to lighten up. And from what we gather, Doug doesn't think that's a bad idea at this point, either. Our own advice is that we kind of doubt the market is poised for a real setback, but then, as the rusty old saw has it, no one ever went broke taking a profit.

• The stock is pushing through the top end of the range.

Procter & Gamble (PG) is my largest individual long.

It looks like the stock is breaking out from the top end of the range.

Procter & Gamble (PG)

Source: Bloomberg

View Chart »View in New Window »

• About 30%.

I am about 30% net short.

• It is up another $10.50 a share.

A heads up: Altisource Asset Management (AAMC) is trading at $117 a share, up another $10.50.

• Market participants are ignoring conspicuous headwinds and rationalizing the irrational.

"Beware of false prophets, which come to you in sheep's clothing, but inwardly they are ravening wolves."

-- The Holy Bible, Matt. 7:15 (King James Version)

Markets move based on how events transpire relative to consensus expectations, and it is my view that many commonly held and more upbeat expectations for 2013 are too optimistic -- perhaps substantially so.

To be sure, Mr. Market's momentum from the end of 2012 and year-to-date 2013 has been impressive, but Mr. Market is often fickle and the wolf could emerge out of the sheep's clothing.

With higher share prices has come a degree of investor optimism that is all too often associated with previous tops.

Most recently, the failure of the fiscal cliff debate to accomplish much of anything has been ignored by investors. I am now convinced that hyper-partisanship will prevent meaningful budget cutting legislation in the months ahead.

This is a profound negative, as it relates to our economy and our investments.

From my perch, the current degree of bullishness (among other reasons) is founded on the notions that:

• there is a global monetary put that limits the market's downside;
• fund flows will move out of bonds and into stocks (and reverse the trend in place since 2007);
• equities are cheap relative to interest rates;
• the economic recovery is healthy and self-sustaining;
• the growth in corporate profits will continue apace;
• corporate balance sheets are pristine; and
• the housing market will have an above-average 2013 (capable of offsetting some of the Washington induced drag).

While some of these factors have merit, I believe, nonetheless, that there is less than meets the eye to the current equity market advance.

Market participants, for now, are ignoring conspicuous headwinds and rationalizing the irrational.

So, I wanted to start the week by describing what I see as the most powerful headwinds and suggest that the high for S&P 500 in 2013 might be accomplished in the first two weeks of the year.

An Aging Advance

The economic recovery is aging (it is now four years old), and the bull market is maturing (of a similar age). These advances are typical of the life of the previous ones -- both in terms of duration and magnitude. In terms of economic growth, consider that, according to Zero Hedge, fourth-quarter 2012 real GDP estimates were ratcheted down last week:

• Goldman Sachs reduced from +1.8% to +1.3%.
• JPMorgan has gone from +1.5% to +0.8%.
• RBS decreased from +1.5% to +0.7%.
• Nomura went from +2% to +1.3%.

Unsustainable Fiscal Policy

The U.S. is running trillions of dollars in deficits while maintaining zero interest rates -- these are unsustainable policy strategies. The inevitable reversals of these policies will undoubtedly result in slower growth, rising interest rates and less attractive valuations.

The Earnings Cliff Is Upon Us

The fiscal drag may be understated both on domestic economic growth and profit expectations. Though the drag from the fiscal cliff agreement appears to many to be a manageable $250 billion-$280 billion (or less than -0.80% taken off U.S. GDP), the actual multiplier of this drag is greater than most are projecting (over -1.5%).

Consensus domestic economic growth expectations may be overstated. Moreover, there should be additional drags from spending cuts in the upcoming debates. Consensus real GDP growth in the U.S. is about +2.5% -- I expect no better than +1.5%.

In terms of S&P profits, the "V" in profits and profit margins since 2008 is likely over. Already margins in fourth quarter 2012 are expected to drop from 9.5% to 9.1% sequentially. Consensus 2013 S&P profits are about $107 a share, top-down estimates are about $108 a share, and bottom-up estimates are north of $112 a share. I live at $95-$97 a share, which, if accurate, will be a big disappointment (and will almost negate the possibility of multiple expansion, which has become the meme of strategists).

The early fourth-quarter earnings report card is unimpressive. For example, Wells Fargo (WFC) had a slight penny beat, but its effective tax rate fell from 34% to 27% and mortgage originations slipped by $15 billion, to $125 billion sequentially.

The Interest Rate Cliff May Lie Ahead

Bonds, which have been in a 30-year bull market, are likely to be poor investments in the years ahead -- perhaps much worse than most believe. The consensus appears to be that the 10-year will rise no higher in yield than 2.25%-2.50% in 2013-- based in part on continued deleveraging, slow growth and a friendly Fed (which will effectively repress long rates). It is important to recognize, however, that there is a limit to how much interest rates can rise before other asset prices are negatively impacted, as long-term interest rates are the discount rate upon which future profits are valued.

A Reallocation out of Bonds Into Stocks Is Not a Certainty

As I have written, there are numerous reasons why a broad reallocation is a premature thesis. Mutual funds are generally nearly always fully invested (with little cash in reserve), and large pension plans are slow-moving and usually respond only after a clear trend change has been in place for a while. Individual investors have been victimized by the screwflation of the middle class -- with middle class wages being outpaced by the costs of the necessities of life, this demographic has a lower propensity to invest in equities than at other times in history.

The business media has breathlessly chronicled over $19 billion of inflows in the latest week, but that number includes ETFs. The real number is $8.9 billion. This is the largest inflow since March 2000. That was the pinnacle of the tech bubble -- remember what the market did after that month?

Washington Does Not Instill Confidence

As well, it is also my view that the trajectory of economic growth in 2013 (and corporate profits) will also be adversely impacted by the manner in which businesses and consumers react to the tax hikes and the growing animosity and contentiousness in Washington, D.C., in the months ahead. Indeed, I fully expect the upcoming deliberations between the revenge-lusting Republicans in the House and the equally dogmatic and partisan incumbent President and Democratic Senate to not result in any meaningful cut in spending or entitlements reform. I do, however, expect these negotiations to have a direct and distinct adverse impact on economic growth, confidence and profits.

A dysfunctional Washington sows the seeds for reduced consumer and business confidence and risk-aversion, which could lead to slower economic growth. Our economy has never been more reliant on policy. The dependency on our economy and on business and consumer confidence to Washington's ability to compromise and deliver intelligent policy will prove, at the very least, unsettling to the markets in the year ahead. At worst, it will undermine the economic expansion by putting us in lockdown mode.

The Consumer Is Spent-Up, Not Pent-Up

In 2013 we will likely discover that there is a limit to the consumer in the face of our dysfunctional leaders' inability to deliver a grand bargain. A payroll tax increase, higher top income tax rates and the Obamacare surcharge, coupled with disappointing capital spending and weak hirings, represent the brunt of the domestic growth shortfall that I envision relative to consensus expectations.

Already chain stores sales are turning mixed. Both high-end Tiffany (TIF) and middle-of-the-road Aeropostale (ARO) are feeling it.

Policy Alternatives Are Diminishing

U.S. monetary policy is now effectively shooting blanks, and fiscal policy, out of the necessity of a bulging budget deficit, will now switch to be a drag on growth. Moreover, the likely reluctance and inertia by our leaders in addressing our budget could continue to turn off the individual investor class to stocks this year.

Valuation Is Volatile

Valuations are not demanding but, at the same time, are certainly not undemanding.

My ursine tone is also a reflection that, by most measures, the U.S. stock market is not meaningfully undervalued (against consensus forecasts) and that given the dynamic of the headwinds of slowing economic growth, a poor profit outlook and the developing weakness of policy are unlikely to be revalued upward in 2013 (as many strategists suggest).

Should my well-below-consensus corporate profits forecast be realized, current valuations could be viewed as more demanding than is generally assumed. And kicking the fiscal can down the road is not supportive of a 15x P/E ratio.

• The climate has changed.

Surprise No. 8: Apple's share price and earnings continue to disappoint in the first half of 2013.

Last year, I wrote that Apple (AAPL) would be a positive surprise in 2012, though I turned negative on the company's fundamentals and share price in late September.

This year I have a negative surprise in store for Apple -- at least for the first half of the year.

The aforementioned Senator Levin subcommittee investigations on offshore tax havens (see surprise No. 1) highlight Apple's tax avoidance strategies. The share price drops below $500 a share in first quarter 2013, as investors begin to recognize that it is likely that Apple's future earnings will be taxed at a much higher rate than in the past.

Meanwhile, Apple's core operating profits disappoint due to a more competitive landscape, lessening demand for iPads and iPhones and emerging margin pressures. Apple's earnings estimates (and price targets) are cut, and full-year 2013 results fall short of $40 a share.

Microsoft's (MSFT) Surface sales start off poorly but gain traction by the end of 2013. Google (GOOG) Nexus, Amazon (AMZN) Kindle, Surface and Samsung all sell at lower price points throughout the year, as price competition emerges in the tablet market.

Apple's consensus 2014 profit estimates move toward an expected year-over-year decline. The stock spends most of 2013 below $550 a share, but, in the last half of the year, two revolutionary product additions lift the share price to over $600 by year-end. (Samsung's stock performance continues to outpace that of Apple in all of 2013.)

-- Doug Kass, "15 Surprises for 2013"

The big story overnight was that, according to The Wall Street Journal, Apple is cutting parts orders to reflect lower iPhone demand. In premarket trading, Apple's shares are trading down by over $22 a share. (I was actually writing an outline for a column later today that focused on the growing likelihood of an Apple earnings miss in the upcoming quarters.)

Since late-September 2012, I have been pointing out a much more challenging and competitive business landscape for Apple that would likely have an adverse impact on the company's sales and profits.

My views have been dismissed and have been pushed back in my circles -- from other money managers, in the blogosphere and by the analytical community.

We must remember that, especially in bull markets such as the one we have experienced since 2009, there is sometimes no clear demarcation between progress and fantasy. Speculation is a social effort, so extreme sentiment (as I discussed in Alan Abelson's Barron's column this weekend) and group behavior can artificially alter temporarily perception and create the illusion of prosperity.

But, as I point out in today's opening missive, a wolf sometimes emerges out of sheep's clothing.

Financial markets and individual stocks have their seasons.

Apple has had its season.