11/14/2009 05:12 am ET | Updated May 25, 2011

Agony or Ecstasy?

You've heard it many times before. There's a sucker born every minute. They're easy enough to spot, some skeptical market pros say. Just look at the bevy of investors, who are eagerly rushing back into the market on the premise that everything is practically honky dory again.

To money manager Selwyn Ortz of Hong Kong-based HK Investments Ltd., the sudden mad dash into equities again conjures up an observation from Winston Churchill: "The farther back you can look, the farther forward you are likely to see."

That observation, he says, is something U.S. investors ought to think about because he believes they have lost sight of the lingering and disastrous effects of the severe wreckage from the world's financial crisis of recent years in the wake of the market's breathtaking 50% rebound from its March lows.

"Too many dreamers out there think the market can continue to run the four-minute mile without gasping for breath, but they're wrong," he says. "Wall Street is still riddled with too many land mines." What's scary, he went on, is that many U.S. managers now regard any significant market drop as "a gift from the heavens, a golden buying opportunity." The onslaught of bullish fever at this stage, he says, is reminiscent to him of the kiss of death because he believes investors have lulled themselves into a false sense of security.

"Six months ago, people thought the world was coming to an end," he says. "Now that we've had a rally and see some signs of an economic pickup, they act like the financial crisis never happened and that everything is just wonderful again."

Ortz, who directs the investment of nearly $130 million of U.S. equity assets, about a third of which is currently in cash, is dubious that the harsh economic times here are fully over and done with, especially given:

  • The continuing high rate of unemployment (14.9 million workers are jobless).
  • The growing number of bank failures (84 in the first 8 moths) and the refusal of many banks to lend.
  • A rising poverty rate (nearly 40 million U.S. citizens)
  • A renewed rise in the price of oil.
  • Steady erosion of the dollar.
  • The soaring Federal budget deficit (expected to top1.58 trillion this year).

"Don't ask me when, but the U.S. market looks like it's in for a nasty wake-up call any day," Ortz says. "I wouldn't be shocked to see a 10% to 20% drop before year-end."

Many bulls, on the other hand, ridicule such thinking, taking note of what appears to be a steadily improving U.S. economy. They're not alone. Even many stock market bears, especially short sellers (those pros who bet stock prices will fall, rather than rise) have been running for cover in the face of a stepped-up demand for stocks. Actually, you can't blame them. At this juncture, stock prices look higher, at times even moon-bound. For example, after ballooning about 50%, the Dow Industrials recently extended their winning streak with another two surges -- a 545-point hike in eight straight up sessions and another 347-point jump in five consecutive rising sessions.

Equally imposing, the market, so far, is beating its September jinx. September is habitually the worst month of the year. Not this year. As measured by the S&P 500, the market, so far at least, is up about 2% this month, while the Dow has risen more than 109 points.

Not every bear, though, is running for the hills. One who refuses to hibernate is Wall Street's Grim Reaper, veteran investment adviser Martin Weiss, the 62-year-old head of Weiss Research in Jupiter, Fla.

Weiss has appeared periodically in my writings, based in large part on what I thought was some spectacular crystal-ball gazing. Last January, for example, he accurately predicted a number of ultra-gloomy events, such as a severe recession, a housing bust, a flock of bank failures and a collapse in stock prices. That's like a 1,000% batting average. Weiss was wrong, though, in steadfastly maintaining his bearish stance since anyone who heeded his advice missed a major rebound in stock prices.

So what does he think now? "That the bad times are far from over," he says, "even though housing has stabilized, the economy will recover to some degree and the government has temporarily tamped down the extreme fear that swept the nation just a few months ago."

Addressing himself to the backbone of the economy -- consumer spending -- Weiss notes that conspicuous consumption (such as keeping up with Joneses) has transformed into temerity and thrift. In other words, the consumer's financial muscle has turned to financial flab, with many skimping on even what were thought to be recession-resistant consumer staples.

Backing up his vision of a more financially impotent consumer with obviously troublesome numbers, Weiss observes that in the latest recession, American households have lost 1.5 million homes, 6.76 million jobs and $12.5 trillion in wealth.

In the aftermath of that triple-trauma, he says, "anyone in Washington or on Wall Street who expects them to rush back to the malls must have his head examined." His parting thought for investors: "With banks failing and consumers slashing spending, don't count on this economic recovery bailing out your investment portfolio."