With the Dow near 18,000, crude oil near $53 and the dollar surging, today a legend in the business sent King World News a powerful piece warning that one prominent individual in the financial world is so concerned right now about central bank created market bubbles that he has moved virtually all of his assets in cash.

From Art Cashin's notes: "Dudley Does Right But Oil And the Dollar Do Most – Many media pundits cited the Monday morning speech by New York Fed President, Bill Dudley as the probable cause for the early reversal rally in stocks.  The speech may have helped but it was hardly an unalloyed gift to the bulls.  He called the weak data "temporary", which makes you think that he expects a rebound.

Our sources say the spike in oil and dip in the dollar were more important factors in the equity rally.  The energy stocks helped put a bid under things.

There were some parts of the Dudley speech that traders did note.  He talked about strength in the dollar, citing studies showing a rather strong dollar can be an appreciable drag of GDP.

Another aspect of interest was that he noted that the Fed watches markets, in particular how markets react to Fed actions and statements.  He implied that market reaction could affect the pace of normalization.  (The bond vigilantes are back.)

Stocks kept a bid under them throughout the session with the afternoon looking like a very low amplitude arc.

The other thing that was low was the volume.  A major reversal with over a 200 point swing should have seen a good deal more than the measly 884 million that showed on the NYSE tape.  Bulls excused that by citing the fact that virtually all of Europe was closed.

Let's see if they can build on that.  They have tough seasonals.  The days going into the tax day, April 15th, have a negative bias.

Caution Is In The Air – In today's Bloomberg Brief, there's an interview of Stephen Roach who states that the U.S. is in a bubble (Fed induced).

In a separate interview, republished in MarketWatch, my friend Mohamed El-Erian states that he has virtually all of his assets in cash.

He was then asked if we are in or near a bubble.  Here's a bit of what he said:

Go back to central banks. Central banks look at growth, at employment, at wages. They are too low. They don’t have the instruments they need, but they feel obliged to do something. So they artificially lift asset prices by maintaining zero interest rates and by using their balance sheet to buy assets.

“Why? Because they hope that they will trigger what’s called the wealth effect. That you will open your 401(k), see it has gone up in price, and you’ll spend. And that companies will see their shares are going up and they will be more willing to invest. But there is a massive gap right now between asset prices and fundamentals.

Two very smart men talking about consequences of Fed induced bubbles.  Kind of makes you wary.

Consensus – Europe reopens with a catch-up rally.  If the bulls press the bet, there may be some resistance at Dow 18000/18050 and S&P 2093/2097.  Stick with the drill – stay wary, alert, and very, very nimble. ***ALSO JUST RELEASED: David Stockman – What's Coming On The Other Side Of The Fianancial Destruction CLICK HERE.

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Eric King