Why I "fear" the impending giant bull market run...

I was inspired to write this after reading Alan Schram's column on Huffington Post. http://www.huffingtonpost.com/alan-schram/digging-out_b_186202.html He wrote: "Cash levels on the sidelines: Now at 84% of stock market value, up from 43% a year ago and much above the 66% average of the last 50 years." It got me thinking. Here are my assumptions/predictions: 1)  Eventually (I optimistically expect in 6 months to 1 year) the US Economy will begin to show real signs of recovery (the bad numbers will "bottom out" and overall confidence/sentiment will increase because Americans, who are culturally inherently optimistic, will be exhausted/bored with being gloomy for too long). 2) The first wave of investment will pour into the financial markets. This is because cash will look decreasingly attractive due to inflation and low ROIs on risk-free-rate investments. This will come primarily from wealthy & institutional investors whose investment advisers need to justify their fees and commissions. You don't need a hedge fund to keep your money in cash. So a lot of that money currently "on the sidelines" will come in to the markets (i.e. increased demand) "artificially" inflating stock prices. 3) After a quarter or two of this first increase the financial news organizations (networks & magazines) will again start enthusiastically touting the increased returns on investment and the "new geniuses" who are luckily in charge now (because that is the easy news story they're most comfortable/equipped to tell). This increased hype will lead to a second and bigger wave of investment (even more increased demand). 4) This second major wave of investment will come from the late-to-the-party institutions and the slower-moving general public. This will create what some economists might like to call a "Virtuous Cycle" (which is the opposite of a "Vicious Cycle" as in the case of the self-fulfilling prophecy of a "run on a bank").  5) In April of 2009, we have not yet reached the "baby boomer tipping point". Most of the baby boomers are still in prime earning years and thus ripe to be making maximum investments in their retirement (especially because their children are likely adult-aged and thus should be less of a financial burden). At this point, virtually the entire investment community will be back-on-board the stock market bandwagon and eager to recoup their losses. More demand increases stock prices in a self-fulfilling prophecy. At this time (which I hope will be around 2011-12) the markets will be like the go-go 1990s with the public, forever cursed with a short-memory & fickle interest, ignoring cautious economists' warnings about what will happen if we don't learn from the current mess (of 2008-09). "Hey, Dan. Overall, that doesn't sound too bad!" - You think. Why I "fear" the eventual giant bull market run... a) Systemic improvements can't happen when everyone thinks they're getting rich. No one wants to kill the golden goose. This is/was the giant cultural problem on Wall Street that caused the meltdown. You can't argue with a winner. Even if that winner is a bad poker player with a fundamentally flawed strategy of always going all-in pre-flop with 7-2offsuit. So long as he keeps winning he will not change his strategy. Only losers change their strategy. The challenge for society is redefining the barometers of losing. b) Systemic improvements have to fight inertia and entrenched interests. Consequently it is necessarily a slow fight to win. If we don't win before the economy rallies then we won't win this time (maybe have to wait until after the next market bust). c) When the boomers hit that tipping point and start making more withdrawals than they are making deposits into their retirement accounts there will be a corresponding artificial drop in stock market prices. This could start it's own vicious cycle that could last 5+ years until the boomers are sufficiently overshadowed by the rest of the market. Yet if we were more cautious and less-susceptible to hype we might be better able to limit those busts. I will write a new post to describe my proposed systemic improvements. Here's the teaser: "Accountability, Transparency, Compulsory Long Term Thinking and more deliberate decision-making (an ever higher stock price should, ceteris paribus, dissuade investors from buying but historically just the opposite happens)." However, as anyone could be with any prediction, I could be wrong here. This is especially possible because these predictions are so specific and definitively set over such a long time. We'll see...