With the U.S. dollar surging along with gold and silver, below is a key piece which highlights an incredibly dangerous development that the Western world is finally beginning to realize it will have to confront, and also warns a wave of uncertainty erupts as the West prepares to deal with this nightmare.

By Art Cashin Director of Floor Operations at UBS 

January 16 (King World News) – Things were a bit sobering for traders Thursday.  The move to unpeg the Swiss Franc shocked markets on two continents.  (It happened after Asia closed.)  A wave of uncertainty erupted as no one could be sure who or where the victims of the move would be.

Swiss Miss Spread Confusion – As our colleague, the esteemed, George Magnus, points out in today's FT, the SNB's efforts to peg the Franc over the last three years had swollen its balance sheet to three times the size of the Fed's balance sheet (relative to the economy of each nation).  A run on the Euro could have brought on disaster.

Ironically, U.S. stocks tried to rally on the opening.  The bullish stimulus was twofold.  Calm had returned to European markets after an initial plunge on the Swiss move.  The second was that oil had shown firmness before the U.S. opening.

That upbeat mood had a shelf-life of about a minute and a half.  Oil went negative and stocks cratered.

Then around 10:00, oil turned calmer and stocks began to lift again.  I sent this note to some friends:

Buyers tiptoe back into equities when oil begins to stabilize after the scare of early dip.

Around 10:40, oil began to dip again and stocks followed.  I sent out this follow-up:

Oil softens again and stocks go negative.  It is almost Pavlovian.

Stocks remained hypnotized by oil as afternoon began.  I sent out another note shortly after noon:

Oil continues to play the snake charmer to the equity snake.  Gold may have finally broken above a multi-month downtrend line.

Run rate at noon is active but not as much as you might have expected given the overnight whiplash swings.  Final NYSE volume looks like 810/890 million shares.

(The final NYSE volume was 878 million shares.)

Shortly before 1:00, stocks were carving out new lows for the day.  I sent along this reminder:

Reminder:  Yesterday's low in the S&P was 1988 (just below the 150 DMA).  If we weaken further, a clear break 1987/1988 could add to selling.

The S&P held at 1992 and at 1:00, a strange thing happened.  Stocks began to ignore oil.  Suddenly, somewhat inexplicably, the market shifted from slavish obsession to a smug aloofness.

Stocks dug into their own internals and tried to rally, unsuccessfully for much of the afternoon.  Ultimately, they rolled over in the final 20 minutes and closed within hailing distance of the day's low tick.

Some Sobering Thoughts For A Long Weekend – My good friend, John Mauldin, has quoted two essays in this week's edition of his Outside The Box series.  The essays are on the subject of terrorism and religious conflict.

One essay is by Stratfor's founder, George Friedman.  As with almost all his work, it is both thoughtful and thought provoking.  Here are a few bits:

Europe’s sense of nation is rooted in shared history, language, ethnicity and yes, in Christianity or its heir, secularism. Europe has no concept of the nation except for these things, and Muslims share in none of them. It is difficult to imagine another outcome save for another round of ghettoization and deportation. This is repulsive to the European sensibility now, but certainly not alien to European history. Unable to distinguish radical Muslims from other Muslims, Europe will increasingly and unintentionally move in this direction.

Paradoxically, this will be exactly what the radical Muslims want because it will strengthen their position in the Islamic world in general, and North Africa and Turkey in particular. But the alternative to not strengthening the radical Islamists is living with the threat of death if they are offended. And that is not going to be endured in Europe….

The United States is different in this sense. It is an artificial regime, not a natural one. It was invented by our founders on certain principles and is open to anyone who embraces those principles. Europe’s nationalism is romantic, naturalistic. It depends on bonds that stretch back through time and cannot be easily broken. But the idea of shared principles other than their own is offensive to the religious everywhere, and at this moment in history, this aversion is most commonly present among Muslims. This is a truth that must be faced.

The Mediterranean borderland was a place of conflict well before Christianity and Islam existed. It will remain a place of conflict even if both lose their vigorous love of their own beliefs. It is an illusion to believe that conflicts rooted in geography can be abolished. It is also a mistake to be so philosophical as to disengage from the human fear of being killed at your desk for your ideas. We are entering a place that has no solutions. Such a place does have decisions, and all of the choices will be bad. What has to be done will be done, and those who refused to make choices will see themselves as more moral than those who did. There is a war, and like all wars, this one is very different from the last in the way it is prosecuted. But it is war nonetheless, and denying that is denying the obvious.

(Go to John Mauldin's website and pull up the whole essay.)

Consensus – Expiration Day – Two Greek banks ask for aid.  Spill-out from Swiss unpeg continues.  Oil will remain an influence on stocks.  Volatility could persist.  Best to stick with the drill – stay wary, alert and very, very nimble.  Have a wonderful weekend.

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Eric King