Last Updated May 24, 2010 5:24 PM EDT
WARNING: This is the scary part, where I tell you about the big shot money managers like Baupost Group's Seth Klarman, who are ringing the bearish alarms. The bears make valid points: the mess in Europe could put a choke-hold on global growth and that means that the 60% gains since last March's lows could be it for a while. At the CFA Institute's annual conference in Boston, Klarman said "Given the recent run-up, I'd be worried that we'll have another 10 years of zero returns." As a result, Klarman has nearly a third of his funds $22 billion in cash.
But here's something that I can't shake: the news from Europe is deflationary, which means that global rates are likely to stay lower, longer. When governments pump money into the system, it is usually followed by the reflation trade, where risk assets rise in value. Now maybe the buck will stop right here and global investors will finally pay the price for jumping on the easy-money train, but something in my kishkes (gut, for the non-Yiddish speakers out there) says that this market is just as likely to surprise on the upside, now that all the "smart money" is watching out for the downside.
Image by Flickr User Mathew Black, CC 2.0