So tonight the first of the earnings season reports will come with Alcoa reporting after the bell.

Alcoa, for those who haven't been paying attention, has seen its stock rise from about $8 to just over $9 in the last couple of months.  This may look pretty good, but belies the fact that the stock was $18 as recently as the early part of 2011 -- and has been cut in half since then.

So you could easily say that "expectations are low."

Are they?

Well, maybe in some cases.  But in others, not so much. 

XRT, for example, the retail ETF, is trading $63 or so, up from $34 three years ago.  That's a hell of a move northbound, and given the Spending Pulse report of a couple of weeks ago looks to be entirely unrealistic.

Spamazon has well more than doubled as has Apple.  WalMart is up from just over $50 to $68.40 as of yesterday.

I don't buy the "expectations are reasonable" nonsense.  The S&P 500 is on balance trading about 14 times earnings -- which with a P/E/G ratio of 1 would imply earnings growth should be about 14% on a five-year forward basis.  Really?

I don't think so, and incidentally that's about the one-year price return in the market too.

Unfortunately what we have going on right now is a Federal Reserve "supported" market with every wonk out there chasing people into stocks.  It's not hard to figure out why, with the 10 year Treasury yielding under 2% and bank accounts yielding basically nothing.

But when everyone gets on board and the ship sails, history says that often the ship sinks and drowns everyone instead of taking them to the promised land.

In addition all the "Obama Lovers" are about to get a nasty surprise, if they haven't already.  Most people are paid bi-weekly and have yet to discover that their taxes have gone up, despite the lie by the Democrats that "only those over $400,000 will pay more."

Now don't get me wrong -- the Payroll Tax cut a couple of years ago without immediate and permanent reductions in Social Security disbursements was an outrageous scam and fraud, and everyone involved in that scheme should be rotting in a federal prison right now.  Reversing that scam was a good thing.  But if you think this won't hit consumer spending and confidence on a forward basis you're nuts -- the average household with a $50,000 gross income is going to have about $83 less a month to spend.

In any event as I pointed out in my annual review Ticker I expect the market to be peaking in the first part of the year as fiscal drag shifts to the forefront.  Monetary policy has run its course and instead of dealing with fiscal contraction as we should have four years ago we instead rammed the accelerator pedal to the metal with the bus headed straight for the cliff.

Recognition of unsound policy can be delayed, but due to the realities of arithmetic the longer you wait to recognize the truth the worse the impact is when you finally get around to truth-telling.  And that truth-telling day always comes, as that which cannot be sustained won't be -- you're simply choosing when you wish to face it, and the longer you wait the more damage you have accumulated and must recognize.