Thus, there were plenty of stories as to why the market has behaved as it has, but there really was no proximate cause for why it reached record highs this week. 

The Dow Jones Industrial Average ($INDU) hitting a new high has created excitement and a certain amount of pressure on investors to join the party, which has created a bit of a feeding frenzy.

It is difficult for people to accept that markets do inexplicable things all the time, and that it is often just the collective twitching of hundreds of millions of participants.

However, we do know the real reason markets are levitating, and that is because the world's central bankers are printing money in a fashion never before seen or even contemplated. When all of that money meets a little bit of positive psychology, markets can go anywhere.

They just need a little time to unwind 

Of course, when you have stocks that have been buoyed by easy money and excited crowd behavior, they can also get smashed rather easily at some point, particularly when you have computers operating as they do, although none of that means the market will decline immediately, let alone when those of us who believe it is dangerous think it ought to. (The same was true during the housing bubble.)

This is another reason why I have continued to say over the past four years that it is risky to short stocks (and why owning gold is a preferable antidote to central bank policies), as being short would have been very, very costly over that time.

As it stands, we find ourselves in another period where logic and fundamentals mean little, as price action rules the day. The only intelligent course of action for those who are long stocks generically is to ease out of them as they see fit, and eventually there will be signs to suggest it is time to get short once again.

But until such signals emerge, it is definitely not yet that time. (Remember, when short selling, it is always better to be late to the party, i.e., let the market make a top and roll over, than to try to guess when that top will be reached.)

Gold price not so malleable

As for my preferred asset, gold, it has fared poorly for some time now, but that weakness may be ending. Jim Bianco of Bianco Research noted this week that the SPDR Gold Shares (GLD) exchange-traded fund has liquidated about 3 million ounces since the Feb. 20 lows but that the price of gold itself has not gone lower, which he views as a sign of strength, since all that selling was absorbed without any more price damage.

I had not thought about it that way, but I think it makes sense, as well as possibly indicating that physical buyers are now quite active and that the recent lows may be as low as gold is liable to go. That is just speculation, but we will have a better idea if that thesis is correct when we see how the market responds to Friday's employment report (unfortunately, after this column has been put to bed).

Set phasers to 'Are we there yet?'

Meanwhile, on the subject of the consequences of money printing, i.e., inflation, my good friend Fred Hickey's newsletter, The High-Tech Strategist, was emailed out on Tuesday and I encourage everyone to read it. For those who don't subscribe (shame on you), Fred highlighted two important points. First, he explained how he deals with periods when markets don't behave as you expect and your investments go against you (which I think would be useful for readers to understand in terms of managing their own psychology).

Second, he discussed Murray Rothbard's book on inflation, "The Mystery of Banking." The book describes the three phases of inflation: the beginning, where folks are worried about deflation and believe that rising prices are temporary; the middle or recognition phase, where people see inflation as a problem; and the third phase, when people begin to fear the tremendous financial problems that inflation creates.

Fred made the point that we are not quite to the second phase. We can't really know in advance when the recognition phase will occur, but it will. I had not thought about inflation in just that way before, as I had viewed the current environment as being in the "sweet spot," where money printing had pushed asset prices higher and made folks feel better while they ignored inflation.

Whether you want to call it the sweet spot or the interlude between phases one and two, that is where we are. Thus, one thing we can be certain of is that the recognition of the problem is still ahead of us, and when it arrives the metals complex will go wild.

At the time of publication, Bill Fleckenstein did not own or control shares of any company mentioned in this column. He was long gold.