There are two decidedly different ways to look at the market's rally.

The first one invites caution. From its March 2009 low nearly four years ago, the S&P 500 has compounded at a spectacular annual rate of 24%. Against the backdrop of a long list of "overbought" signals, a cloudy earnings picture, and an economic recovery that appears to be struggling, why not bail? After all, this has been one heck of a good run.

The other way to think about the market is to study its progression since WWII and note that the two very long secular rallies (1942-1968 and 1982-2000) were punctuated by two periods where the market took a very long time to advance to new highs (1968-1982 and 2000-?). This approach would acknowledge that markets may well be extended on a short-term basis. But it would also beg the question whether we may at last be coming to the end of one of those protracted periods of going nowhere.

At the Inflection Point

During the 14-year period from 1968 until the summer of 1982 the market did anything but move sideways, yet it was well capped on the upside throughout the entire period save for a brief fake-out in late 1980. It then broke out furiously beginning in mid-August 1982 as the market recognized that the long hard battle against inflation had finally been won. Similarly, today, the market may well be signaling that Bernanke is winning one of the most obstinate battles of disinflation since that Great Depression. Perhaps the long nose of the market is sniffing out a pickup in GDP growth and a return to more normal times. This would include a healthy inflation cushion of 2.5-3%.

Markets do indeed appear to be at an inflection point. We seem to be leaving the post-crisis era of what might best be called the "reluctant rally" of 2009-2012 and entering into a new phase marked by a structural shift in asset allocation preference and even a healthy return of greed.

David Fuller's view My initial concern, when I decided to lead with this article, was that subscribers to Fullermoney of the Austrian School persuasion would turn red in the face and utter some very rude words… or at least have thoughts of a similar nature.

So in my defence, I will share a fantasy inspired by an article in the Business section of The Sunday Times: Buffett joins barbarians at the gate, by Simon Duke and Ben Marlow (subscription required for the full article but here is a PDF). First, however, have a look at a portion of the optimistic copy, published on 17th February:

The swoop on Heinz is the latest in a slew of gigantic takeovers that has fuelled hopes of a return to the swashbuckling days of deal making. However, some of the acquisitions have required huge loans - an uncomfortable reminder of the credit boom before the crash.

"Confidence is coming back. The private equity market hasn't felt this positive since before the crisis," said Fotis Hasiotis, a senior private equity specialist at Lazard.

In the past fortnight four megadeals worth a total of nearly $100bn (£65bn) have been unveiled.

The tech tycoon Michael Dell kicked off the bonanza with a $25bn buyback of the computer manufacturer he founded. It was the biggest takeover announcement since the private equity giant Blackstone swooped on Hilton Hotels in 2007. The same day, the media mogul John Malone shelled out $23bn to buy Virgin Media.

A week later Comcast, the US cable provider, announced an $18bn buyout of NBC Universal, the television and film company. The spree was capped off by Buffett's $28bn swoop on Heinz last Thursday.

Green shoots of recovery, a lull in the eurozone crisis and vibrant financial markets have coaxed buyers out of their shells. "Sentiment is changing. For the past four years boardrooms have been wary of doing deals," said Richard Sheppard, head of UK mergers and acquisitions at Deutsche Bank.

"Now it looks like the problems in the eurozone are stabilising, the mood is improving. With strong stock markets and readily available financing, there is potentially perfect conditions for deals."

Some observers fear, however, that a bubble is emerging which could create the foundation of a new and more devastating financial catastrophe.

My view continued - Let's join the bandwagon! Given the financial clout among Subscribers, in today's environment we should be able to borrow collectively $1 trillion. That would be enough for a successful takeover of Apple, all costs included, especially as many of its shareholders would now be thrilled to get out above last September's high of $705.07.

Once we have control of Apple, we can reward our takeover genius by seizing its cash mountain and using it for our own bonuses (David Einhorn, eat your heart out). Of course, Apple will go from cash rich to highly leveraged but that will give all those techie nerds the incentive to work harder. In our second stroke of genius, we can sell off Apple's campus headquarters for our yearend bonus and let the company lease it back.

What!? You say that's immoral?

I thought it was creative, incentivised capitalism. Or more simply, the genius of greed.

Coming back down to earth, Andrew Parlin's opening article: This Rally Is in Its Infancy, touches on a theme mentioned and illustrated by Fullermoney in recent years. Secular valuation cycles are eventually followed by massive, long-term bull markets. I have been waiting patiently for the next one, which I hope will commence in a few more years.

However, there is a potentially important hitch: while most equity valuations are much improved on what we saw at the market highs in 2000 (some so-called, at the time, 'old economy' themes excepted), today's equity valuations are considerably higher than what investors saw in 1982, let alone in 1942. For instance, the DJIA yielded 8.64% in 1Q 1943, and the S&P 500 yielded 6.21% in 2Q 1982. Today, the S&P yields 2.15%.

Improving corporate growth and several years of stock market ranging would certainly improve valuations once again, but no where near to the levels of 1982. Andrew Parlin is apparently unfazed by this, pointing out that in 1982 investors recognised that the battle against inflation had been won. However, today he says:

"…. the market may well be signaling that Bernanke is winning one of the most obstinate battles of disinflation since that Great Depression."

Well, he has a point and it will be fascinating to see what happens as QE is eventually phased out. Meanwhile, I am more apprehensive about that stage. Nevertheless, I do maintain that another big bull cycle is in the not too distant future, which will be driven mainly by the accelerating pace of technological innovation.