Larry Kudlow

Dow Jones 10,000 arrived on Wall Street Wednesday for the first time in a year. It's a milestone of sorts, and it certainly represents a vote for investor confidence in economic recovery. Blowout profit reports from Intel and JPMorgan helped fuel the day's 145-point gain. So did a retail sales report that excluding Cash for Clunkers was actually quite strong.

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Profits are the mother's milk of stocks, business, and the economy. And top-line sales revenues now appear to be bolstering the corporate cost-cutting effort. As long as these earnings keep coming in strong, stocks will keep rising. My hunch is that we'll move back to pre-Lehman levels - to over 11,000 on the Dow and over 1,200 on the S&P. Backed by an easy-money Fed, the economy will probably grow in a mild V-shape of something like 3 to 4 percent for the next year or so.

But storm clouds are gathering.

One of the biggest clouds out there is the sinking dollar. What we’re witnessing right now is a big global shift out of dollars and into commodities. The dollar is quickly losing its reserve status to the yen and the euro. The proof is in the pudding: Earlier today, the greenback notched a new 14-month low against the euro. This is not good.

Meanwhile, in the second quarter ending in June, central banks around the world invested 63 percent of their new cash reserves into euro and yen, and put only 37 percent into dollars. And over the past six months, the greenback has lost 15 percent while gold has climbed nearly $150. If this trend continues, spiking inflation and interest rates will choke off the stock market rally and do serious damage to the economy. It could happen very fast.

No one in the Obama administration or at the Fed seems to care about any of this. In fact, they are probably applauding the lower dollar as a sort of 1970s way of boosting exports and the manufacturing heartland in the Midwest. But the falling dollar is bad news for consumers. It will ultimately cause higher inflation, as signaled by the rising price of gold.

There are also future tax hikes looming out there, as well as the enormous explosion of government spending and debt. All of this is why it's hard for me to be a long-term bull.

Larry Kudlow

Lawrence Kudlow is host of CNBC’s “The Kudlow Report,” which airs nightly from 7 p.m. to 8 p.m.