Just follow the trend. Whoops. Too Late!

Let me first say that I am not short anything. I am holding about 25% long since last summer and I recently recommended a few new names. So I am not betting that the market will fall. I am simply here to remind you of the truth through the Purple Haze. That being said, let me just say that the market is–IMHO–clearly in “Mistake Mode” or you can call it a liar if you wish.

This quarter has been pretty wild both within the market and outside of it. News flow has been extreme. Markets actually began to experience distribution shortly before Japan but a historic flow of liquidity after Japan saved the day, again. But since last Wednesday, the market has been on a short-covering, mark-em-up mission. This move is based on nothing fundamental nor is it based on some recovery fantasy. It is, once again, liquidity driven. And not just liquidity but more importantly, our perception of a thoroughly liquidity-flooded market.

We are now at quarter end. The equity market is at three year highs. The most expensive stocks continue to get more expensive. There are still overlooked and undervalued stocks but the major indices and the advance decline line are screaming higher. Some are calling it the greatest bull market in history even if volume is running at 50% of last year.

This is happening while the fundamentals and outside events are rather poor. Earnings and GDP estimates are coming down, some sharply lower. The mantra of “follow the market” wins over everything. But this is what most investors, both large and small, were telling themselves at each and every time the markets peaked. And each modern peak was based primarily on overwhelming liquidity provided by Greenspan’s FED in order to keep growth at any cost.

Bernanke has taken this philosophy and practice and brought it to its most twisted extreme. The funnelling of an average of $5 billion in to markets each and every working day, day after day, for almost two years. That equals about $2 trillion. All that money, plus much of the money on the sidelines has been “forced” into risk assets like stocks and commodities.

If you are an individual investor and you’ve missed this rally, you are probably sick to your stomach. And now–when the 401k, IRA and retirement money comes pouring in at the end of the first quarter and maybe the beginning of the second, let me remind you about this time last year.

Last year this time, QEI was ending and everyone thought the markets would fall. But they rallied hard for two more weeks, until tax day. Then came the indictment of Goldman Sachs, financial reform and the war on Wall Street. Green shoots died and the SPX fell two hundred points. But at this exact time last year– just like now– markets, sentiment, expectations and disbelief was running at 110%. I expect the outcome this year to be very similar. The reasons or excuses may be different, but I want very much to bet that the outlook will be similar. And we may be seeing them as we speak.