Will stocks continue to rise like a phoenix from the ashes of the financial crisis? To be honest, your guess is as good as anyone else's.

What is clear: low interest rates around the world seem to be fueling another asset bubble driven by Asian investors, as The Wall Street Journal reports.

Jeff Matthews, founder of hedge fund Ram Partners, says "cheap dollars are going to attract more money" which means U.S. "real estate is a wonderful opportunity."

Unlike the housing bears, Matthews isn't too concerned about the "shadow inventory" of homes for sale and believes there's more-than ample demand for housing, especially with construction remaining at such relatively low levels.

Turning back to the stock market, Matthews says many stock values have gone from deal of the century valuations in March to prohibitively expensive. "Fundamentals have to catch up with valuations," says the value investor and author of Pilgrimage to Warren Buffett's Omaha.

However, "the good news is better than the bad news right now," Matthews declares, citing...

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From The Business Insider, Oct. 29, 2009:

While the exact timing of an extension for the home buyer credit remains to be seen, the extention itself appears to be a done deal and it could come within a week.

First time buyers will continue to enjoy $8,000 credits from the government while buyers who have lived in their house for five years will also be able to receive a $6,500 credit if they buy a new house.

One of the reasons housing bears might turn out wrong is that the game is being rigged in the bull's favor, whatever the undesirable cost to the U.S. taxpayer and financial system. We have to admit that it's politically unpalatable not to support housing, even if we oppose the measure.

Reuters: "There has been general agreement by a significant number of senators, Democrats and Republicans, to get this done," Reid, a Nevada Democrat, said on the Senate floor. Nevada has been hard-hit by the bursting of the housing bubble.

The chamber's top Republican, Senator Mitch McConnell, also said most senators support the measure. "I certainly share his view," McConnell said.

While extending the credit enjoys widespread support, its fate is caught up in a spat between Reid and McConnell over unrelated issues.

Reid wants to attach a bill to extend the homebuyer credit as an amendment to legislation to lengthen insurance benefits for unemployed workers.

The Reid spokeswoman said the unemployment insurance measure could get pushed to next week as lawmakers try to resolve differences over unrelated issues, which would delay consideration of the homebuyer credit extension.

"We will get this extension passed," she said.

More coverage from The Business Insider:

• Why Investors Are Going Wild for Brazil
• Investors Are Losing the Forest for the Trees

The economy is still the pits yet stocks are on a tear.  What's an investor to do in these confusing times?

John Mauldin, president of Millennium Wave Advisors, admits the average investor doesn't "have as many good choices" as in the past.

Contrary to what "experts" have told the public for years, now is not the time for buy and hold, Mauldin says. "You can be a trader. You can ride the wave, I've got no problem with that but I don't think you want to buy something and hold it for five years."

That's because he thinks another correction is coming in the not so distant future.

Mauldin, who writes the Thoughts from the Frontline e-letter, does think there's money to be made in real estate.  With prices so depressed in many markets, he says buying property on the cheap and renting it "is a prescription for making money."

I think we might have heard that one before... 

Are we on track for a repeat of irrational exuberance?

With the stock market up more than 50% since March and the Standard & Poor's Case/Shiller Index on the rise for the last three months, it's a worry, says Yale Professor Robert Shiller. "Somehow we got into this really speculative mentality and I don't think we're out of it yet."

The author of Irrational Exuberance and Animal Spirits characterizes the stock market rally as an "amazing rebound" without much historic precedence, "you have to go back to the Great Depression to see such a turnaround in the stock market."

According to his cyclically adjusted P/E valuation model - stock price divided by average 10-year earnings - stocks are overvalued today, but "not massively overvalued." 

The market's rebound isn't likely to be derailed by valuation in the short term, Shiller says, but if one looks to the classic bear market rally of 1933-1937 as a guide, stocks may eventually crater as they did then.

"This is historic," Shiller says of the recent snapback in the Case-Shiller Index. "It's V-shaped. We've never seen it before. That makes it hard to know from statistical basis what it portends."

Shiller admits to having two conflicting instincts on how this plays out:

• No. 1. Let the good times roll (again): "Housing has tremendous momentum" and bubbles can occur even with bad underlying economic fundamentals, the professor and author says. "When you see [housing] suddenly turning up" - with sales and permits rising along with his ubiquitous index - "you kind of wonder if tenor of the market has just changed.
• No. 2. False Dawn: Citing the familiar litany of problems -- including high unemployment, rising foreclosures and ongoing problems in the banking system (commercial real estate is "a crisis in the making," he says) -- Shiller wonders how long the rebound can last. "This is on government life support - massive support," he says. "What's going to happen on the other side?"

So what is Shiller's forecast?...

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There's been a lot of talk lately about a recovery in the housing market – even reports of bubbles re-inflating in certain markets.

Elizabeth Warren, chair of the Congressional Oversight Panel, isn’t buying it.

"We see things getting worse in the housing market," Warren says, citing the pernicious effects of foreclosures, which rose 5% in the third quarter to a total of 937,840, according to RealtyTrac.

"The long-term impact of high foreclosure rates on our housing market and overall economy would be disastrous," Warren warns, citing estimates that 10 to 12 million U.S. homes could ultimately go into foreclosure. "We have to get foreclosures under control."

Why the sense of urgency?

From The Business Insider, Oct. 15, 2009:

We mentioned this a week ago, though this story has been kind of flying under the radar: The housing bubble is back.

No, home prices aren't (yet) at overinflated levels again, but the housing market is seeing a return of enthusiasm, mania, and speculation, the likes of which we haven't seen in a long time.

Now CNBC's Diana Olick (via Calculated Risk) is talking about it. Here's an email a realtor sent to a friend of hers.

The foreclosure capital of America, Vegas home prices are down more than 50 percent from their peak in 2006. The median price of a home there is $138,000, but, interestingly, the inventory is down to a less than 3-month supply. Compare that to the national inventory, now at an 8.5 month supply. Despite the low supply, prices are not recovering quickly because the sales are all by banks, looking to unload properties quickly.

But back to Katie. Her Realtor, who is also an old friend, emailed Katie the following warnings before her arrival on the Vegas strip:

    - This market is crazy and many things are just not going to make any sense...

More coverage from The Business Insider:

• Real estate speculation is getting scary popular again
• CondoVultures: Fate of S. Florida housing market all depends on federal govt 

But there is going to be a heavy price to pay for the U.S. government becoming the nation's mortgage broker, says Tilson, co-author of More Mortgage Meltdown.

Specifically, Tilson is worried about the potential need for a bailout of the Federal Housing Administration (FHA), which has guaranteed about 25% of all new U.S. mortgages written in 2009, up from just 2% in 2005.

Created in 1934 to help low-income and first-time homeowners, the FHA has historically played a minor role in the U.S. housing market. But the agency has become the government's vehicle of choice for mortgage financing in the past year.

Again, Tilson supports the concept of the government stepping into the breach caused by the near total cessation of private mortgage lending, as well as the curtailed financial activity of Fannie Mae and Freddie Mac, which became wards of the state in September 2008. But "there's a price to pay," he says...

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Recent data suggests the dismal housing market is making a turnaround. 

• U.S. home prices are up nearly 4% from their low point in April.
• The Standard & Poor’s/Case-Shiller Index has risen for three consecutive months.
• New home sales are up 58% on an annualized basis since January.

Even Robert Shiller admits, "the suddenness of this shift surprised me."

Whitney Tilson, founder of T2 Partners agrees. "The rebound has been stronger than we've anticipated," he says. Still, the author of More Mortgage Meltdown remains "confident this is the mother of all head fakes."

Tilson points to the following reasons for the sudden upturn in housing.

• Low Interest rates
• First Time Home Buyer Tax Credit
• Falling Prices
• Seasonality

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Homebuilders such as Lenar (LEN) and Toll Brothers (TOL) have enjoyed a nice rally amid hopes the worst of the housing crisis is over.

But Goldman Sachs recently raised eyebrows, when it upgraded the group to "attractive" from "neutral," adding "stable home prices, low mortgage rates, and strength in sales activity...should lead to higher equity values," according to WSJ.

In contrast, Citi analyst Josh Levin says the party's over for now, and can't see justifying owning the group at such high valuations, according to WSJ.

Our guest Jon Najarian, president of OptionMonster.com, notes Goldman may be looking ahead to more stimulus for the housing sector. President Obama's $8,000 tax credit for first-time homebuyers is set to expire November 30. "I think they will extend it," says Najarian. (Senate Banking Chairman Chris Dodd wants a six-month extension.) Najarian points to sharp declines in auto sales after the Cash for Clunkers program ended -- a similar trend that wouldn't be politically palpable for Washington right now.

Click on the video to view Najarian's picks and strategies for the home-building sector.

Najarian does not own any of the homebuilder stocks mentioned in the segment.

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