To most people "Dark Pools" are a mystery. Heck, most people don't even know what they are. In a nutshell it's Wall Street slang for private stock trading platforms operated mostly by brokerages.

Dark Pools are electronic Alternative Trading Systems, very similar to stock exchanges where trades can be matched. The big difference of course is that the orders are dark, meaning that the size and price of the orders are not revealed to other participants. This limits the amount of interaction because the participants don't know when to move their price up or down to find the contra side of their trade or when the contra side may be present in the pool. These pools are mostly used by sophisticated professional traders.

Nevertheless, there is a lot of criticism about them lately. Odd, since in many cases the critics are not the users. In fact, the actual users of dark pools seem to be happy because they keep sending them more and more volume; clearly they are having a satisfactory experience.

(Read More: Dark Pools: Letting Some Light in Now?)

The economy added 157,000 jobs in January and unemployment rose to 7.9 percent as the economy slowed in the fourth quarter. Unemployment would have been worse had not even more adults -169,000- chosen to join the ranks of those neither working or seeking employment.

First the good news, 9-in-10 financial industry experts are forecasting either a growth in profits or no change in profits according to a new survey conducted by the Financial Services Roundtable. Only ten percent of respondents, sampled from the senior executives at the largest 100 financial services companies in the country, forecast declining profits over the next six months.

Time horizon can be very confusing when determining investment strategy and decisions.

Understanding one's philosophy is most critical, particularly when attempting to avoid emotional reactions.

Just look at Netflix; a disaster a year ago and suddenly now a roaring success. How do you make sense of these types of stories? Time and price is the key.

Long vs. Short

The long-term time horizon matters. The longer the time horizon, the better probability one has that an investment thesis will play out. This timeframe applies not only for individual selections but also for overall allocation and sector decisions. A longer time frame filters out the noise and emotion of the short-term.

But, one cannot ignore short-term news and movements in the market. For this reason, shorter term inputs matter. Look at Dow; the company missed earnings but is that likely a long term view? Or is it perhaps a shorter term headwind facing the company? You need to make that determination.

But remember, shorter term tactical adjustments for many institutional managers are more about shifts rather than a drastic repositioning; adjustments tend to be incremental.

(Read More: Netflix's 'House of Cards' Binge Strategy)

We've just received preliminary data about the pace of economic growth in the fourth quarter of 2012. The Commerce Department says that the economy shrank by 0.1 percent in the fourth quarter compared to the third quarter. The reported growth rate was much weaker than the consensus expectation for 1.1 percent growth and is also the lowest quarterly growth rate since the end of the "Great Recession" in June, 2009.

So what is going on here? Are we on the cusp of another recession, or were today's figures simply an aberration?

(Read More: Why This Is 'Best-Looking' GDP Drop You'll Ever See)

As the story goes, the Federal Reserve"made" $91 billion dollars last year, sending $89 billion of that to the U.S. Treasury. Until 2008, about the only earning assets the Fed owned were U.S. Treasury bonds.

Let's stick with that for the moment.

The interest the Fed earns on those bonds is paid by the U.S. Treasury! The Fed keeps 1 percent of the earnings to pay its rent and sends the rest back to the Treasury. So every dollar the Treasury pays to the Fed is returned, less a 1 cent handling cost. So the interest cost the Treasury incurs is magically turned into Treasury income!

(Read More: Fed Keeps Stimulus Amid Signs of Weak Economy )

So how much do you want the Fed to make?

There is no limit in principle to the amount of Treasury debt the Fed can buy so it can makes lots of money!! The Fed has increased its assets by over $2 trillion since 2007, a real money-maker!

Yes, the Fed has also purchased a lot of mortgage backed securities, but those have a Treasury guarantee, so same deal, in terms of who bears the risk, but of course mortgage holders are paying the interest and giving it to the Treasury (that lent them the money in the end).

(Read More: New Hawks and Doves at Fed Likely Won't Alter Policy )

Some worry about the "capital" the Fed holds. An institution that can "print" capital will never run short. The Wall Street Journal worries that when market interest rates rise, the Fed will lose money on the bonds it now holds.

Really?

As long as the Fed can print money and buy Treasury assets (bonds or guaranteed securities), it gets revenue. It's an accounting game over which there is too much hand-wringing.

(Read More: Fed Virtually Funding the Entire US Deficit: Lindsey.)

Although the Fed is "independent," it has chosen to do its work using "riskless, sovereign assets". Well, we know all about that now. Budget-makers can easily deal with this reality. It's a money printing scheme, the government debt is converted to cash and injected into the economy. The Fed could just as easily give the money directly to the Treasury and skip the "debt" step. What's the difference between $1000 in cash and a one year $1000 Treasury bond? 365 days and some change, very small change these days.

The Fed's job is not to make a profit. It is a policy maker. It's a tough job, let's not saddle it with the responsibility of delivering a $100 billion of pretend revenue to the Treasury.

The Commerce Department reported GDP fell 0.1 percent in the fourth quarter. Weak conditions abroad and flagging U.S. competitiveness caused exports to contract by $27 billion, and businesses anticipating a further slowdown slashed inventories by $40 billion.

Friday, forecasters expect the Labor Department to report the economy added 160,000 jobs in January; however, employment tends be a lagging indicator and flat or negative GDP growth will cause unemployment to rise sharply in the months ahead.

(Read More: Private Sector Adds More Jobs; Services Lead Way)

Stocks on the long-term trade based on fundamentals. Fundamentals are defined as the cash flow the position provides over a longer period of time. Fundamentals are a foundation of investing and most market participants look at this closely when making investment decisions. Warren Buffett of Berkshire Hathaway has used this over a long period of time to provide excellent results to Berkshire Hathaway shareholders.

But it's clear that momentum cannot be ignored as it does impact the movement of asset prices.

While it is dangerous (and not appropriate for most investors) to look solely at momentum as a trading trigger, we do believe it is important to recognize how sentiment effects the price of assets.

On Sunday, Chicago Tribune's John Kass wrote an insightful article on the current state of both U.S. political parties. In his usual acerbic, Chicago style, Kass doesn't mince words and rips both parties.

"At least the Democrats know what they're about. Democrats are the government party, and they're about big, big government; big, big taxes to come on the middle class (demonizing the rich was just a prelude); redistribution of income; and making lawyers rich…But the Republicans? What are they about...They don't know what they're about, not really, and so they have a difficult time explaining what they don't know they're not about to the American people who don't know either…Confused Republicans can't draft simple messages."

However, I think the Republicans may not have to craft messages.

If a tree falls in a forest and no one is around to hear it, does it make a sound? That age old philosophical question is no easier to answer than the existential riddle of 2012 that if the stock market rises in grim economic times, and few are celebrating, is it a bull market? The U.S. stock market continued its ascent - with the S&P 500 up 14 percent for the year - capping a four-year run that is almost exactly on par with the average for the 10 major bull markets over the past century.

This may be the first bull run without the bulls, in large part because the United States is also four years into the second weakest economic recovery from any recession in a century. With stock trading volumes down 17 percent in 2012, with retail investors pulling more money out of stock funds, and with layoffs still thinning the ranks in the financial industry, the general public was feeling way too worried to be making bullish noises.

(Read More: S&P Tops 1,500: Where Market Goes From Here)

The silent American bull could be a defining trend in 2013, too, because history suggests that the stock market is likely to stay strong for another year. Looking back at the major market rebounds since 1907, the S&P 500 usually rises by about 10 percent in inflation adjusted terms in year five, which we are entering now.The stock market has been outperforming the economy because profit margins are at a 70-year high, as companies work hard to raise productivity, particularly in the manufacturing sector. Manufacturing accounts for 60 percent of the S&P 500's profits but only 14 percent of the U.S. economy and employment. The growing consensus—for another moderately good year in the U.S. stock market—looks reasonable.

Surprise Factors

By definition surprises come where they are least expected:they are the unlikely scenarios that come to pass. So for a major positive surprise in global stocks this year, we look to Europe, where growth may have nowhere to go but up. Industrial production fell by 20 percent across the euro zone after the crisis hit in 2008, and is now climbing back up. The investor mood is still wary, and stock market prices are strikingly low. Worldwide, the average ratio of stock market value-to-GDP (gross domestic product) is about 80 percent; in peripheral Europe, this ratio is rising but is still as low as 19 percent in Greece and 26 percent in Italy, close to the bottom hit by Asian markets like Indonesia and Thailand during the crisis of 1998. Europe has room to rebound.

(Read More: IMF Cuts World Growth Forecast on Euro Crisis)

The mood in much of Asia is very different, by some measures more upbeat than ever, a warning sign that a change for the worse could becoming. The latest surveys show that four out of five investors think emerging stock markets will rise in 2013, and most think Asia will be the best performing region. Given recent signs of an economic turnaround in some of the large emerging markets, the optimistic consensus seems reasonable here, too. But given the high level of exuberance we need to be on the lookout for deflating surprises.

One possibility is China, where the consensus forecast is still for GDP growth of 8 percent this year despite the fact that growth slipped below that level in 2012, and the strong case that China can't continue growing so fast because it is now a middle-income country. Even perma-bulls on China are beginning to worry about the sharp rise in cases of spectacular graft and bribery, and incoming leader Xi Jinping has warned that corruption could lead to "the collapse of the party and the country."

(Read More: Which to Buy—Developed or Emerging Stocks?)

China also has too much money oozing into murky debt products.Total lending has tripled in the last five years, including an explosion of lending through alternative and local channels, many funded by new Wealth Management Products (WMPs). These back channels are very hard to track, so no one can fully quantify the risks. One investment bank calls WMPs the CDOs of China — a reference to collateralized debt obligations, one of the exotic US debt instruments that triggered the global crisis of 2008. That's extreme, but most investors are ignoring the growing systemic risk to the financial network in China.

The mood in the global bond markets is even more complacent,following a year in which retail investors bought $680 billion in bonds worldwide, more than double the level of the previous year and an all-time record. Emerging market bond funds were particularly popular, attracting a staggering 25 percent increase in assets in 2012, based on the widespread perception that emerging markets have become the global anchor of macro stability, with debts and deficits under control. Since 2008, the rating agencies have rewarded responsible governments with 190 debt upgrades—including 189 for emerging nations and just one for a developed nation .

(Read More: Thirst for Yield Drives Asia's Junk Bonds to Best January)

But what investors may be under-appreciating is the decline in the macro stability of some emerging markets. There has been no financial crisis in a major emerging market for 15 years, so no one is on the lookout for one. Most investors expect 2013 to be like 2012. The reality is that some important countries, including India and South Africa, are building sizeable twin deficits in the current account and government spending.

Given the political winds in South Africa, it looks like the bigger risk. With weak foreign reserves and a heavy foreign presence in its stock and bond markets, South Africa is vulnerable to capital flight. The government deficit and the current account deficit are rising, and both now represent more than 5 percent of GDP. Social tension is rising over high unemployment. If South Africa totters, its size could produce a contagion in emerging market bonds. So could a major GDP growth shock in China, because 60 percent of the countries in the global emerging market bond indices are dependent on commodity exports, and China is their biggest customer.

(Read More: South Africa's Zuma and the 'Perception' of Africa)

Let us hope history and the consensus hold, and year five of the market recovery proves uneventful, and profitable. But if you're looking for negative surprises, don't look in the US or Europe. Crises occur when the consensus is too confident, spending and debt too loose, and right now, the early warning signs are gathering in places such as China and South Africa.

The writer is head of emerging markets and global macro at Morgan Stanley Investment Management and the author of the book , Breakout Nations: In Pursuit of the Next Economic Miracles (2012)