This post by Jill Schlesinger originally appeared on CBS' MoneyWatch.com.
I should have expected the massive stock market rally - after all, at the end of March, I had heard that the guy who I consider one of the great "contra-indicators" (let's call him "Mr. Wrong") was predicting a steep decline to Dow 5000. Before you brush aside that notion as nonsense, remember that at that time, we were still worried about the implosion of the financial system.
But when I heard that Mr. Wrong was predicting massive riots in the streets and falling equity prices, I forced myself to consider the bull case for stocks. I had made the mistake of betting against massive liquidity once before - in 2002-03, I remained underweight in risk assets for too long and paid the price. I'm pretty sure that Mr. Wrong is making the same mistake and here's why: there still remains deep pessimism over the recovery and the stock market.
As stocks make new highs, I'm not saying that there will be a straight line up (hard to imagine that when we're up 60%), but there are still far too many bears like Mr. Wrong who are clinging to their case without considering the alternative. Just because global markets have rallied doesn't mean that there isn't more room on the upside. Mr. Wrong is always so intent on proving his thesis, it prevents him from seeing that monetary and fiscal policy are working; manufacturing is in full-fledged recovery mode due to export growth; and job loss is tapering off. The re-flation trade is on Mr. Wrong, and chances are, it won't reverse until you capitulate and dive back into risk assets.
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