Now that the current bull market for stocks has lasted for more than two years, small investors are wading back in again.
And there's much to support their optimism.
Unemployment is coming down, the economy is growing at a solid if unspectacular rate, consumer debt levels are declining, and, perhaps most influentially, stocks have nearly doubled in two years.
But don't fall for it, says economist Gary Shilling, of A. Gary Shilling & Co.
The stock market is rising because the Fed's free money policy is making the stock market rise, Shilling says. But the economic recovery is much less than meets the eye: Wall Street is doing well, while the rest of the economy suffers, and the critical housing sector is still a mess. So the stock market's run won't last forever.
What does Shilling like instead of stocks?
Unlike many investors, including PIMCO's Bill Gross, Shilling is not convinced we're headed for a bout of inflation. In fact, he thinks the opposite: Deflation is still the main concern. In times of deflation, Treasuries do well, and Shilling is still hot on them.
And how about housing? Isn't now a good time for contrarians to leap back into the housing market--at a time when everyone hates houses?
Nope, says Shilling. He likes the "contrarian" aspect of housing, but he thinks prices have another 20% to fall. So save your powder for a couple of years from now, he says, when you'll be able to buy in a lot more cheaply.