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Financial Times pundit John Authers presented a logical case for investors to be very careful assuming the worst is over for the markets. Here are four reasons to tread carefully into a long term bullish stance:

First, someone will have to pay for the stimulus that has been administered. That means inflation, higher interest rates or higher taxes. None would be good for stocks.

Second, companies still have to raise a lot of capital. That will dilute the stock market.

Third, measures of value that have worked as market timing indicators - such as cyclically adjusted price/earnings ratios - show stocks did not get anything like as cheap at the bottom in March as they did at the bottom of the bear markets of the twentieth century.

Fourth, there are demographic issues. The developed world is ageing. This will put a greater drag on public expenditures and lead to sales of stocks as the baby-boom generation retires and cashes in what is left of its savings.

According to Auther, these are overwhelming arguments that the secular bear market is not over.

What will derail the present rally? I agree with Auther that once bond yields go over a certain level - say, 6% or so, they may become a better investment than common stock. It is my belief that the enormous debt accumulated (and growing) by the United States alone may well make the Carter years of double digit interest and the yields of 1976-80 look meek in comparison.

In fact, it might be appropriate to bring back one item from the Reagan era - the "Misery Index". This was the addition of unemployment plus inflation plus interest rates. Some just used unemployment plus inflation. Either way, if your bet is that the Obama train will derail, as did Carter's, approximately three years into his presidency, buying iShares Treasury Inflation Protected Securities (NYSEARCA:TIP), short term bonds and commodities make sense.

Climate Change (the new "global warming" mantra) may have to take a back seat to just making ends meet within the family budget if the Misery Index becomes pronounced. Legal tax avoidance to sidestep higher taxes, including a wealth tax in addition to an income tax, will likely become Rule #1 for financial planning.

Hopefully, the gloom and doom above will somehow be avoided, and all will be the right with the world. Seasoned investors know that precious few assumptions turn out as expected. Thus, consideration of both positive, neutral and negative investment scenarios is prudent.

Source: 4 Reasons Not to Assume the Worst Is Over