The Democratic/government-union days of rage in Madison, Wis., are a disgrace. Paul Ryan calls it Cairo coming to Madison. But the protesters in Egypt were pro-Democracy. The government-union protesters in Madison are anti-democracy. In fact, Democratic legislators are fleeing the state so as not to vote on Gov. Scott Walker’s budget cuts.

The teachers union is going on strike in Milwaukee and elsewhere. They ought to be fired. Think Reagan PATCO in 1981. Think Calvin Coolidge police strike in 1919.

Governor Walker is facing a $3.6 billion budget deficit, and he wants state workers to pay one-half of their pension costs and 12.6 percent of their health benefits. Currently, most state employees pay nothing for their pensions and virtually nothing for their health insurance. That’s an outrage.

Nationwide, state and local government unions have a 45 percent total-compensation advantage over their private-sector counterpart. With high-pay compensation and virtually no benefits co-pay, the politically arrogant unions are bankrupting America — which by some estimates is suffering from $3 trillion in unfunded liabilities.

Exempting police, fire, and state troopers, Governor Walker would end collective bargaining for the rest. Unions could still represent workers, but could not get pay increases above the CPI. Nor could they force employees to pay dues. And in exchange for this, Walker promises no furloughs for layoffs.

So, having lost badly in the last election, the government-union Democrats have taken to the streets. This is a European-style revolt, like those seen in Greece, France, and elsewhere. So it becomes greater than just a fiscal issue. It is becoming a law-and-order issue.

President Obama, who keeps telling us he’s a budget cutter, has taken the side of the public unions. John Boehner correctly rapped Obama’s knuckles for this. If the state of Wisconsin voters elected a Chris Christie-type governor with a Republican legislature, then it is a local states’ rights issue.

Obama should stay out. And Governor Walker should stand tall and stick to his principles. Otherwise, a nationwide revolt of state-government unions will destroy the country as well as its finances.

“Don’t fight the Fed” is an old stock market adage. Successful investors pay a lot of attention to it. It means that when the central bank is easy, it’s bullish for stocks. And when the bank turns tight, it’s bearish for stocks. Obviously, the Bernanke Fed has been ultra-easy for a couple of years now: The bullish stock market has just doubled its value from the early March 2009 bottom.

However, another old stock market slogan is “follow profits.” Profits are the mother’s milk of stocks, and they have been doing very well over the past two-year market rally. So don’t fight profits, either.

But some new information raises a question mark about the longevity of rising profits. Namely, producer prices — which used to be called wholesale prices — are now rising much faster than consumer prices. In other words, if the input costs for a company are rising more than the prices it gets at final sale, that’s gonna squeeze earnings. And that’s exactly what’s happening now, even though the ebullient stock market seems to be ignoring it.

The January report on producer prices showed a third-straight outsized increase, summing to 9.6 percent at an annual rate. Over the past 12 months, PPI is up 3.6 percent. Behind these big jumps is the import-price index, which just increased above 5 percent year-on-year for the second-straight month.

The unreliable dollar has something to do with it. As the Fed keeps printing new greenbacks, both real and nominal broad-dollar indexes measured by the Fed are showing nearly four-decade lows. And of course, commodity indexes have been exploding. You might say there’s too much money chasing too few goods and assets at home and around the world.

But on the potential profits squeeze, consumer prices through December (we get a new January CPI tomorrow) are rising at a 1.5 percent rate — 2.1 percentage points less than the PPI. That erodes profit margins. This is a profits warning and a yellow flag for the stock market.

Incidentally, speaking of the CPI, there is an important consumer-goods component of the PPI. Overall consumer-goods prices are up 12.2 percent annually over the past three months and 4.7 percent over the past year. Even the core ex-food-and-energy part of consumer goods is rising 4.8 percent annually over the past three months.

So the combination of easy money, a cheap dollar, and rising commodity and import prices, along with the fact that wholesale prices are gaining much faster than consumer prices, should provide a sober reminder that this big stock market rally is not completely glitch free.

Finally, in the most recent Fed policy minutes released today, the central bank acknowledges a more optimistic economic-growth story. It has raised its 2011 forecast to a range of 3.4 to 3.9 percent, up from its earlier band of 3.0 to 3.6 percent. But it remains unconcerned about inflation. So as far as QE2 goes, expect the Fed to keep on pumping.

Which brings me back to that old adage, “don’t fight the Fed.” Sure, the Fed is your friend. That is, until it’s no longer your friend. There is such a thing as the law of unintended consequences.

Take a couple minutes to watch Dan Mitchell’s new mini-documentary released to coincide with President Obama’s fiscal-year 2012 budget proposal.

   In the battle over Ronald Reagan’s legacy, where media liberals and even the president are trying to suggest that Obama equals Reagan, here’s a quick thought:

   Both Obama and Reagan inherited deep and brutal recessions. But the first six recovery quarters look much different for each president.

   For President Obama, from the middle of 2009 through the end of 2010, real GDP growth has averaged only 3 percent annually and nonfarm payroll jobs a paltry 121,000.

   On the other hand, in 1983-84 period, Reagan’s first six quarters of recovery saw real GDP averaging 7.7 percent annually with nonfarm payrolls rising 5.3 million.

   So the numbers are different. And so are the philosophies. President Obama is strictly big-government spending, while President Reagan cut spending and tax rates to solve recession.

   All of us Reaganites appreciate Obama’s kind words about the Gipper, but the differences between the two presidents are huge.

   I’ll be writing more on this shortly.

The January employment report was a complete snow job. Abominable winter blizzards across the country caused 886,000 workers to report “not at work due to bad weather,” according to the Bureau of Labor Statistics. This is 600,000 more than the normal 300,000 not at work for the average January of the past decade.

So the bad weather has distorted the numbers. The actual 36,000 increase in nonfarm payrolls and the 50,000 gain in private payrolls really don’t have a snowball’s chance at being accurate. The 1 million people in January who wanted a job but didn’t look for one because of “other” reasons hints again at the bad-weather distortion. So does the 4.9 million jump in the part-time workforce.

As for the 9 percent unemployment rate, it’s not likely to last as more people are recorded reentering the labor force in the months ahead. The household employment survey (on which the unemployment rate is based) increased 117,000 in January, following a near 300,000 gain in December.

On the plus side (if anything can be believed in these numbers), average hourly earnings increased by four-tenths of 1 percent — a much bigger gain than in recent months. Over the past year, wages are rising 1.9 percent.

But here’s a key point: Manufacturing jobs in January rose by nearly 50,000. That’s consistent with the blowout ISM manufacturing report for January published a few days ago. Manufacturing has been the biggest surprise in the recovery. Additionally, the ISM non-manufacturing services report was also gangbusters for January.

These reports are more accurate and more significant than today’s jobs calculation. And if you piece them together with record-breaking profits, which are the mother’s milk for stocks, business, and the whole economy, it’s hard not to conclude that the pace of recovery is actually picking up steam — despite the lackluster jobs performance.

The downside of the upside is mounting inflation pressure. Both ISM reports registered very strong prices paid. Those outsized price increases are picking up the huge commodity-price increases that Ben Bernanke continues to ignore.

Bond-market rates have moved up to 3.64 percent for the 10-year Treasury and 4.73 percent for the 30-year. Those rising yields are signaling inflationary growth. Along with soaring commodity prices, the abnormally steep Treasury yield curve is signaling the Fed to stop creating new dollars with its QE2 pump-priming.

Right now, stronger economic growth, higher profits, and rising inflation continue to help the stock market, which actually increased today after the weird jobs report. But the risk here is that reported inflation for the CPI may rise faster than anyone thinks. And that could take a bite out of stocks and the recovery.

As we know, massive popular unrest has broken out against autocratic governments in North Africa and the Arab world. Egypt is the biggest story. But to varying degrees, the people have taken to the streets in Algeria, Jordan, Libya, Morocco, and Yemen.

But in addition to the apparent revolt against repressive governments, all the experts say the other main cause of unrest is record food prices. For example, former Bush advisor Dan Senor notes that Egypt is the world’s largest wheat importer. Because of skyrocketing prices, Egyptian inflation is now over 10 percent.

So I have to ask this tough question: Is Ben Bernanke’s ultra-easy QE2 money pump-priming partially to blame?

Commodities are priced in dollars, and the Fed has been overproducing dollars for more than two years. Consequently, emerging markets throughout the world — and the food sector in particular — are suffering from rising inflation.

The CRB food index is up an incredible 36 percent over the past year, including 8 percent year-to-date. Raw materials are up 23 percent over the past year. Inflation breakouts have occurred in China, various Asian Tigers, India, Brazil, and other Latin countries. Even Britain and Germany are registering higher inflation readings.

But food riots in the North Africa/Middle East area are bumping smack into long-time resentment over autocratic government. If food is in fact the trigger for what may be a revolution in Egypt, then U.S. monetary policy has to shoulder at least some of the blame.

Ultimately, as Senor argues, a region-wide revolt against the autocrats may be healthy if it leads to greater democratization and liberalization. But the protests may spread to Saudi Arabia and Iran, with huge implications for global energy markets. And that’s where the hoped-for transition to political liberalization — with a potential backlash from radical Muslim groups — makes the story even more unpredictable.

Maverick New Jersey Gov. Chris Christie gently whacks Obama on the budget, warns the GOP that they must deliver on spending, announces an across-the-board tax cut for New Jersey, and talks about the 2012 presidential race.

New Jersey Gov. Chris Christie expressed disappointment in President Obama’s failure to commit to aggressive budget cuts and entitlement reform in last night’s State of the Union speech. In a CNBC interview that will run tonight on my show, the governor contrasted his New Jersey efforts to slash spending and reform government-union pensions and health benefits with the president’s weak approach.

While Mr. Christie would not reveal any specifics, he said he will unveil across-the-board tax cuts for New Jersey in his budget to be released in a few weeks. That’s a surprise.

Right now, Christie is in a slugfest with Gov. Pat Quinn of Illinois about businesses migrating to the Garden State and leaving the Land of Lincoln. While Christie acknowledged that his state ranks near the bottom of a business tax-climate index published by the Tax Foundation, he told me that the difference between New Jersey and Illinois is that Illinois is on a path of higher taxes and New Jersey is on a path of lower taxes.

The governor also continued his mantra that he is not ready to be president. I asked him if he might be ready for a draft in 12 months. He said it’s not in his heart, and added that he made a pledge to the voters of New Jersey to stay and get the job done. I mentioned that he was using the state as a laboratory of conservative reform on taxes, deficits, and entitlements — areas that exactly mirror the federal problem. And he agreed, telling me that he’s showing them how to get it done.

The governor recently had dinner with Mitt Romney, but he cautioned that the meeting should in no way be seen as a presidential commitment. He also cited recent visits with Haley Barbour, Tim Pawlenty, and Mitch Daniels, saying they are all good governors.

In his State of the Union message tonight, President Obama is likely to call for some kind of corporate tax reform. But don’t look for him to be a budget-cutter.

As we know, in the name of “investment,” Mr. Obama is proposing spending increases for education, energy, and so-called infrastructure. By the way, in the last three years, education spending has gone up 209 percent, energy spending 150 percent, EPA spending 126 percent, transportation spending 71 percent, and science spending 47 percent. (Hat tip to Steve Moore of the WSJ.) Do we need more?

Centrist Democrats are not likely to agree with Obama’s new spending plans. Democratic Sen. Tom Carper of Delaware talked to me about the need for “a culture of thrift” in a recent CNBC interview. And Democratic Sen. Mark Warner of Virginia told me that he and Republican Sen. Saxby Chambliss of Georgia, along with more than 20 others, are going to co-sponsor the full spending and tax-reform plan presented by the president’s deficit commission headed by Erskine Bowles and Alan Simpson.

The best thing the president can do for competitiveness is to agree to Republican demands for much lower spending and a significant reduction in the corporate tax rate. And it will be interesting to see tonight if Obama continues to bash companies for their overseas revenues and profits — his usual mantra — or whether he accedes to territorial taxation and a repatriation tax holiday to bring foreign earnings back home where they can be invested and create jobs.

Tonight’s Republican response to Obama’s claims about the economy also will be interesting. Stocks have been surging and growth has been quickening. Fourth-quarter GDP to be reported Friday could come in around 4 percent. I would attribute this to a combination of strong private-sector corporate profits and ultra-easy Fed policy, although Obama surely will try to crow about the effectiveness of his spending-stimulus package.

Of course, the administration’s Achilles’ heel remains a sluggish employment recovery. Two years ago, when the $800 billion stimulus package was unveiled, the Obama economists predicted the unemployment rate would be 7 percent today. It’s actually 9.4 percent, even though there’s no question that the financial and economic crisis is long past.

In Rep. Paul Ryan’s Republican response tonight, and in other post-speech GOP congressional statements, it will be interesting to see the contrast between the economic plans of the two parties.

A number of people, myself included, have looked to Ronald Reagan’s Cold War triumph over the Soviet Union as a possible solution to Red China’s rising arrogance. Times are different today. But Reagan argued forcefully that domestic economic growth is the best weapon against foreign threats.

During the Cold War ’80s, with the U.S. economy booming, we literally produced the goods that the Soviets did not. Today, while China needs to be challenged on its unfair trading practices, the U.S. also must adopt credible, pro-growth policies — including limited government, lower spending, fewer regulations, low tax rates, and a sound King Dollar.

That will send the ultimate message to China: Do not dare tread on the U.S.!

President Obama pledged allegiance to the free-market this week, arguing for a 21st Century regulatory system that is balanced and pro-growth. Fine.

But one thing he didn’t mention is his unbalanced policy that favors unions over business.

The Department of Labor is full of former union executives and short on business people. The DOL policy is to promote high rates of union membership. That still includes card check, which would deny the secret ballot to workers in unionization quarrels. It also includes a neighborhood-watch-style system to investigate wage and hour violations by companies, all while there is no investigation of rampant union fraud.

The current Solicitor of Labor, Patricia Smith, specialized in corporate intimidation when she served in a similar post in New York. And Labor Secretary Hilda Solis has turned fraud investigators at the DOL into business-intimidation tools.

I’m not against private unions. But there must be a hands-off attitude, rather than a full-scale, pro-union push.

Right now, the Obama administration is totally pro-union and anti-business. That needs to be fixed if the president is to make good on his regulatory-reform promise.

U.S. economic recovery continues to look better, according to the stock market and a boatload of economic stats last week. Stocks jumped 133 points on the Dow, which hit a 30-month high following its seventh straight weekly rise. Early fourth-quarter profit reports from Alcoa, Intel, and JPMorgan all beat expectations. Share prices are back to June 2008 levels, before the financial meltdown.

Interesting factoid: The mid-cap S&P 400 is now a half percent above the October 9, 2007, all-time stock market peak. Small-cap indexes are about 4 percent below that peak. The NASDAQ is just 2 percent below that peak, while the S&P 500 and the Dow are 17 percent below. I note this because what seemed to be unattainable now looks to be more attainable.

Stocks are a pretty good leading indicator of the economy. A message here is that we are healing.

Last week’s flurry of economic reports send the same message. The index of industrial production continues to rise, and is now 6 percent above year-ago levels. While we’re not getting any help from the housing sector, one positive surprise in this new recovery cycle is that manufacturing is leading the way. That’s good. People are still making things — including, by the way, business equipment. That sector is up 17 percent from year-ago, showing that profitable businesses are putting money to work in the supply side of the economy.

On the demand side, retail sales continue to rise, and are 8 percent above year-ago. And total sales throughout the economy — retail and wholesale — are running 8.5 percent above year-ago. Inventory-to-sales ratios are very low.

The glitches? Early inflation pressures continue. The producer price index jumped over 1 percent in December and is 4 percent above year-ago. Where’s Ben Bernanke’s deflation? Energy and food prices are soaring. The CRB food commodity index is up 35 percent over the past year. Crude oil is drifting toward $100. Raw industrials are up near 20 percent. Energy-price increases are spilling over into the CPI, with gasoline nearly 14 percent above December 2009.

Inflation is a tax on the economy: a tax on business profits and a tax on consumer incomes. This could be the biggest surprise of the new year. Far too much Fed pump priming and a shaky dollar could undermine the recovering economy.

President Obama marks another milestone in his post-election move to the center by appointing pro-business Democrat William E. Daley to the powerful post of White House chief of staff. If there are any doubts that Obama wants to repair his business-bashing image, this should dispel them. It’s an excellent appointment.

Daley, a former Clinton Commerce secretary, is presently the head of Midwest operations for JPMorgan Chase and is the former president of the phone company SBC Communications Inc. Daley is a center-right Democrat. He opposed two of Obama’s biggest initiatives, the Dodd-Frank financial reform, which he lobbied against, and Obamacare health reform. He also is a free trader, working hard during the Clinton years to pass NAFTA.

Active in many business groups, Daley is a sure shot to promote an overhaul of the corporate tax code to slash the top marginal rate and broaden the base by eliminating unnecessary credits and deductions.

As part of the new Clinton group taking over the Obama White House, he surely will expedite the next round of across-the-board budget cutting, which, along with business tax reform, will be a key issue on the agenda. It’s even possible that he will accommodate some kind of deal to revise Obamacare as the GOP makes its important push to overturn it.

As chief of staff, Daley also will handle many of the presidential-campaign reelection priorities. Unfortunately, Mr. Daley was at one time a lobbyist with Fannie Mae. However, the left-wing blogosphere is already attacking him. That’s a positive credential.

So I continue to believe that both ends of Pennsylvania Avenue — the new GOP House, the more influential GOP senators, and the new Obama 2.0 Clintonian White House — will gradually move toward pro-growth policies. It won’t always be smooth. It ain’t gonna be perfect. There are some huge rough-and-tumble battles ahead. But there are new signs that the supply-side incentive-growth model is making a comeback in Washington, D.C. Trust but verify.

Christine O’Donnell, the former Tea Party favorite and GOP Senate nominee from Delaware, is on the hot seat right now for allegedly misusing campaign funds. Is there something to this story? Or is this just another attempt by the left to discredit the whole Tea Party movement?

O’Donnell joined me for an exclusive interview last night to defend herself. Here’s the transcript.

212-849-2810

718-999-0111

Rising Treasury bond rates are all the buzz on Wall Street. Over the past six weeks, bond rates have moved up about 100 basis points to more than 3.5 percent.

Will this snuff out economic recovery? No.

In fact, yields are going up precisely because economic growth has quickened and real yields are rising. Some call it the growth trade. Get out of bonds and buy stocks.

A blowout retail number for November arrived this week, with retail sales up five straight months. Manufacturing from the industrial-production report is up five consecutive months. And the production of business equipment (capex) is rising 12.5 percent over the past year.

Fourth-quarter growth could be 3.5 to 4 percent. And that could spill over into the new year, especially with tax cuts coming. The Senate voted overwhelmingly to pass them, and 80 to 100 Democrats will join most Republicans to pass the tax-cut package in the House.

The tax deal isn’t pure, but it is a positive. It adds to confidence and refreshes incentives on personal-income investments. And with 100 percent cash expensing, it even adds incentives to business investment.

I can’t for the life of me understand why any conservatives would want tax rates to jump up, or would want to drain $600 billion or more from the private economy. Some of the goofy spending increases in the package — which are probably only 5 percent of the total — can be fixed later. Let Paul Ryan take them out. Or fund them out of the leftovers from the stimulus package, which failed so badly.

I’m glad to see that the NFIB, the Business Roundtable, the Chamber of Commerce, any number of bank economists, FreedomWorks, Americans for Tax Reform, and others agree with me. And I do not understand Mitt Romney’s opposition. He ought to know better.

And speaking of ought to know better, the jump in long-term interest rates on rising economic growth should tell the Fed to stop QE2. Capital gains and low-tax incentives for businesses large and small are real job creators. On the other hand, just printing money would be an inflation-creator over time. In fact, the rise in long-term Treasury rates is telling the Fed that short-term rates are too low and should be higher.

As I wrote in my last column, “Sell Bonds, Buy Stocks,” I continue to favor the tax-cut package. With all respect to Charles Krauthammer — he’s a brilliant guy, at least three-times smarter than I am on most things, and I love him — his recent column mischaracterizes the tax package.

Republicans should distinguish between tax cuts now (or back in 2003) and massive government-spending stimulus in 2009. The current package would refresh and maintain low tax rates, adding to confidence. So many people around the country and in financial markets expected the tax cuts to expire. Now they won’t. This is good.

We can avoid the train-wreck scenario for the economy and the stock market. We can avoid rolling back marginal tax incentives and draining $600 billion or more from the private sector and handing it over to the government.

Roughly 90 percent of this package is tax cuts. Neither Charles nor other conservative critics of the deal even mention the business tax cuts that are new, including 100 percent cash expensing, which will have a positive effect for job creation (though it should be permanent rather than just one year).

The package’s payroll tax cut for one year is really a demand-side rebate. But at least it keeps money in the pockets of the workforce. That’s not nothing. And extending the AMT is very positive. At $150 billion, this too is not nothing.

Like other conservatives, I worry that extended unemployment benefits will keep unemployment higher than necessary. But this could be funded out of the $110 billion of unspent stimulus funds from the 2009 package. And while the extra spending add-ons for ethanol, wind, and solar power, along with other nicks and nacks, come to $5 billion, they also could be taken out of the unspent stimulus and should not be enough to block the package.

I think conservatives have to keep their eye on economic growth. There’s stuff in the deal that I don’t like, but the overall impact is going to be positive.

The GOP should not go back to root-canal deficit obsession. Next year Paul Ryan is going to lead the charge on deep spending cuts. That’s the best way to lower the budget deficit — not tax hikes.

Root canal doesn’t work. Growth has to be essential to deficit reduction.

When I read Charles Krauthammer’s article carefully, what he really seems to be saying is that conservatives should oppose tax cuts because their growth impact (he acknowledges 1 percent better growth) might reelect Obama. I don’t think that’s good economic or political logic. What Republicans should be doing now is promoting growth and better jobs. There’s plenty of credit to go around. And then comes flat-tax reform, spending cuts, and meaningful deficit reduction.

I know this tax-cut package is not a panacea. I’m just saying it’s a good thing, a step in the right direction. And I think it is consistent with Tea Party principles, as per its endorsement by FreedomWorks.

More on this later.

Stocks hit the jackpot today, with the Dow up almost 250 points.

There was better economic news from ADP private jobs and ISM manufacturing. Revised productivity came in stronger with falling unit labor costs that point to strong profits. Europe’s debt problem looks a little easier on hopes the ECB will be buying bonds. (Maybe QE2 for Europe.) There were rumors that the U.S. would contribute more money to a bigger IMF/Euro bailout fund, although the Treasury denies any commitment. China’s manufacturing survey came in stronger. And hopes are growing for an across-the-board extension of the Bush tax rates.

So all of this added up to a big stock rally.

And one final thought: The improving U.S. economy again suggests to Ben Bernanke that he should back off QE2. A tax-rate freeze is a much better idea for growth.

However, if Europe pumps in more money — as I increasingly think it should — we could be headed for a global mini-boom. Surprise, surprise.

How ironic. Ben Bernanke launches QE2 and everyone worries about a dollar collapse. But instead, it’s the euro that has collapsed, dropping 9.5 percent relative to the greenback. Overall, the dollar index has appreciated 7 percent.

Some, like Robert Mundell, believe sharp currency swings change monetary policy. In this case, as Euro-debt worries escalate, the rising dollar amounts to a tightening of Fed policy. Smaller than what happened last winter and spring during the Greece problem, but still significant.

This is partly why U.S. stocks have corrected lower by just under 4 percent. Tighter money slows the economy. It’s too bad, because the October numbers show an economic awakening, maybe influenced by GOP election confidence.

In any case, if the greenback keeps appreciating, economic concerns and stock jitters could deepen. All this despite booming corporate profits and strong holiday retail sales.

So, this would be a great time to make a deal on extending the Bush tax rates. Today’s White House meeting seemed to lean ever so slightly towards a deal. But nothing’s definite. Maybe lunch at Camp David.

But my macro point is this: A suddenly stronger King Dollar will be just fine as long as tax rates stay low. The Laffer-Mundell supply-side model argues for tight money and lower tax rates in order to maximize economic growth. That’s what we need now.

Stocks are getting ripped by North Korea and Ireland, with all the fears that go along with those two stories. People should not panic. A lot of good news out there is suggesting a strong economy, regardless of what the Fed says.

Third-quarter real GDP was revised up from 2 to 2.5 percent, including better consumer spending. And inside the report, business equipment and software investment is growing 19 percent year-on-year. But the really important news in the revision is a continuation of strong business profits. After-tax profits are up 28 percent from year-ago levels. Domestic financial profits are up 28 percent. And domestic profits for non-financial corporations are up 40 percent.

Profits are the mother’s milk of stocks, business, and the economy.

We had a string of positive economic reports in October, including stronger retails sales and factory output. And via Mark Perry of the Carpe Diem blog, Thompson Reuters reports that mall traffic for November is showing a steep rise.

Employment trends are getting slightly better. Housing is not, and that’s the biggest glitch in my narrative. But it doesn’t seem to be getting any worse. And believe it or not, for whatever reasons, the dollar has been relatively steady of late. America is still a safe haven in times of stress.

What’s left to be done is a temporary extension of the Bush tax cuts. When that occurs, stocks could be poised for another large rally. Strong profits, a positive yield curve, the Fed greasing the wheels (for better or worse), improved business activity, and slowly recovering consumers all add up to positive market fundamentals.