Everything is falling into place. US Stocks and the Dollar have topped out and are rolling over, interest rates are poised to rise while the commodities and emerging markets are building a base for a new bull market.

Stock market performance during the first week of the year has historically been a good indicator of market direction for the year ahead. Strong starts have historically indicated a better than normal outcome. Conversely, weak beginnings are generally ominous (excluding years when the Fed cuts short term rates).

Lots of investors have been very disappointed this year. The financial media keep telling us that the markets, although less than stellar, are intact and poised for future gains. Few investors see that in their own portfolios. The reality is that if your portfolio is concentrated a few mega cap stocks that have done well you are doing just fine.

A few months ago our 2015 forecast emphasized several points we began making late last year. Taken together, those points differed dramatically from the prevailing wisdom of the time. As we begin May, they are falling into place.

It’s already February, but for many readers this is the first communication of 2015 so, Happy New Year! It’s been a great 6 weeks so far and we’re looking forward to many more to come. Let’s get into it…

At the end of February, the market as measured by the S&P 500 moved slightly above the year-end levels. Subsequently, a brief calming of the tensions surrounding the events in the Ukraine (time will tell) generated a relief rally that extended a bit further resulting in new record highs exactly 5 years after the financial crisis lows of March 2009.

It's too early to mean much, but so far out 2014 forecast is falling nicely into place. The market highs on Dec 31st have held, bonds are outperforming stocks, gold is outperforming both stocks and bonds, while gold mining shares are soaring! The anticipated volatility in emerging markets and Japan as well as the wild card of the Chinese economy continue to unfold, while bad weather has postponed the evidence of strong 2014 US growth.

Neither hopes of job creation nor fears of inflation (based on the massive expansion of the monetary base since late 2008) have thus far materialized. Total credit creation (i.e. money supply) during most of the last five years either shrank or barely grew despite massive growth in the monetary base. Nominal GDP (growth plus inflation) grows in response to total expansion of credit (both from the Fed and the banking system), not just the monetary base.

Our April newsletter focused on the extreme overvaluation in the bond market. I argued that money market funds (or cash) were likely to outperform bonds and bond funds over the next decade. In May I applied the same logic to US stock prices and the inherent fallacy in the prevailing TINA (there is no alternative to stocks) hypothesis. Although stocks are likely to outperform bonds over the next decade, both asset classes remain seriously overvalued. In a world of overvalued assets, zero return looks much better than large potential losses even when that means foregoing transitory

Contrary to the Bernanke Illusion (money market funds are a zero return investment), history indicates that money market funds are likely to provide investors with returns approximating inflation over the next decade. As I pointed out in our last letter, the markets are pricing in inflation levels significantly higher than the prospective total returns of 10 year TBonds. The small additional return achieved by corporate bonds or US stocks (at current prices) is unlikely to compensate a buy and hold investor with sufficient gains to justify the interim risks.

In the fall of 2012 the S&P 500 came close to our forecast high (S&P- 1500) Last year we suggested that not only was the S&P likely to reach 1500, but also speculated that renewed bullish sentiment could take us back to the old highs of 1565. When the S&P touched 1563 a couple weeks ago, I started getting client calls complimenting my prescient forecast.

It's that time again. January will be over by the time you read this which means we are out of holiday excuses or "just ramping up for the new year" reasons for not getting back to work. Having said that, I'd like to offer my excuse for the Annual Forecast getting to you in February instead of the first week of the year. Hand over my heart, we started early this go-round.

I rarely use this space to rant about political issues, but the recent election made it obvious just how dysfunctional the American political process has become. The ongoing financial crisis in the US will never get fixed as long as both political parties remain focused on solutions that make the problem worse. The Democrats want to give people more money to spend, claiming this will grow the economy. The Republicans want to cut taxes, so that people have more to spend, claiming that will grow the economy