NEW YORK (CNN/Money) - It's a hard time to be a market pessimist. You gnash your teeth about how everything is hopelessly overvalued, you walk around Wall Street with a big placard warning of impending doom, and you just get ignored.
But the worst part is knowing that the market can go against you for a long time, making you the target of mounting derision, before you're proven right.
Both the Federal Reserve and Washington are pumping a prodigious amount of money into the economy, and much of it will find a home in the stock market. Recent history shows that such an influx of cash can send share prices far above where they should be. In 1998, in response to the collapse of the hedge fund Long Term Capital Management, the Federal Reserve and other central banks opened the cash spigots wide open. Then, worrying that Y2K disruptions could create a run on banks heading into 2000, they left them wide open.
The result was a spectacular rise in stock prices, followed by a spectacular collapse.
Not forgetting this past experience, many professional investors have been rushing to buy, fearful that they'll miss out on a similar rally and hopeful that they'll have the acumen to get out if it turns on them. It is, thinks Merrill Lynch chief U.S. strategist, and big time bear, Rich Bernstein, a dangerous situation.
"People are dying to touch the hot stove again," he said. "They're looking at it and they're saying it can't be hot this time."
Bernstein has been in the position of being a lonely bear before. In the summer of 1998 he changed his longtime bullish view on the stock market and went bearish. In hindsight, we can say that his view was borne out, and that the last, exuberant phases of the bull market were unjustified. The situation may be similar this time.
"Maybe I will be wrong for a year and a half, but I won't be wrong in four years," he said.
The problem? Many of the clients that Bernstein advises, while sharing his long-term views, cannot afford to wait for four years. Driven by quarterly performance, they are forced to decide between touching a hot stove or potentially losing their jobs. They opt for the stove, of course.
|