Blue line = cyclically adjusted PE; Red line = interest rates Professor Robert Shiller, Yale University A month ago, with the market charging ever higher, climbing the "wall of worry," most bearish voices had been silenced. Now they're back with a vengeance.

(Why? Because, as we saw clearly at the depths of the market crash 15 months ago, what most people expect the market will do in the future is what the market has done in the recent past. The most recent past is a month in which the market has fallen more than 10%. So more people are getting bearish. If the market falls another 30%, people will get REALLY bearish. And the irony is that, by then, stocks will actually be attractively priced--much more so than they are today, and much MUCH more so than they were a month ago, when everyone loved them.).

In any event, Brent Arends in the WSJ observes how people are suddenly paying attention to the bears again. And many of those bears are predicting there's a lot more pain to come:

Some pretty smart people are cautious. Seth Klarman at Baupost Group is worried. John Hussman of the Hussman Funds says all sorts of warning lights have lit up across his screen. Even Ron Muhlenkamp of the Muhlenkamp Fund, who usually takes a sunnier view of things, says he has moved a big chunk of his mutual fund into cash in case there's a plunge.

How far will it go? Mr. Hussman says the technical indicators have only been this bad 19 times before in the last half century -- and on average the market plunged about 20% over the following 12 months. When markets were also high, like now, the picture's even worse.

Ugh.

Too many people have simply assumed that the last 14 months have been the start of the next boom. But it may have been a typical "bear-market rally" doomed to fall flat on its face.

That's what stock-market historian Russell Napier says. He thinks we're in a giant, generational slide that began in 2000 and has several years still to run... Keep reading at the WSJ >

Count us among the cautious group. Even after the recent pullback, stocks are still about 20% overvalued If we get down to about 900 on the S&P 500, they'll be fairly valued, but still not cheap.

Valuation doesn't tell you much about what stocks will do in the near-term, but it does give you a relatively reliable sense of what returns you can expect over the long term. And from this level, the returns you can expect are decidedly below average.

(Does that mean that this investor has sold everything and is waiting for stocks to get cheap before buying them again? No. If I've learned anything over the years it's that the times when you can be confident enough about the market's future to place a major bet on a particular outcome are very rare. The market's high valuation did provide a good opportunity to rebalance, moving some money out of stocks and into cash, but especially given the possibility of hyper-inflation on the horizon, I'd never sell out of stocks completely.

If the big bear market does continue, eventually it will provide an opportunity to buy stocks when they are cheap, which is always welcome. Based on the valuation measures I consider valid--namely Professor Shiller's long-term PE (see chart above and here)--that would mean prices below 800 on the S&P. But at this point, after 15+ years of "wildly overvalued," I'd gladly settle for "fairly valued.")