Kid Dynamite submits:

I don’t want to forget about this article from Clusterstock last week which quoted Raymond James’ Strategist Jeff Saut. Over the past several months, Saut has been repeatedly bullish. What’s interesting about Saut’s view is that he hasn’t been saying "buy stocks because they are cheap," he’s been saying "buy stocks because everyone else is buying stocks." In other words, "Don’t fight the tape." (note: none of those are direct quotes).
This time, Saut elaborated on this phenomenon, explaining the concept of "career risk" for money managers:

Nevertheless, we think the upside should continue to be driven by “game theory,” which suggests that the under-invested institutional portfolio managers have to buy stocks into year-end driven by their under-performance, their subsequent “bonus risk,” and ultimately their “job risk.” Verily, many of the portfolio managers we know remain under extreme pressure to commit their outsized cash positions in an attempt to “catch up” to their benchmarks between now and year-end

Saut’s point is an essential one: in the money management profession, for some accepted reason, it’s one thing to lose 35% when the market is down 35% – you can write it off to a global clusterfuck – "hey – there was nothing I could do – did you SEE what happened to the S&P?!?!?" But if the market rallies 65% and you’re not on board because you’re acting rationally and saying "nothing has changed, the banks are still insolvent, we haven’t fixed the problem," well, you’re clients will tear your head off.
Note – I’m in the latter camp here, trying to act prudent, and looking like a fool. Thankfully, I don’t have to answer to any investors – just myself, and I can justify my decisions to my own second guessing conscience, even if I’m missing the rally. One thing this tells me is that I’m not a spectacular (and maybe not even a good) trader – a great trader has to be able to trade the market and make money even when it’s not cooperating with his own thoughts about valuations.
This is related to my anecdote last week on Return Free Risk – one explanation (although certainly not a valid one, in my opinion) for the behavior of merger arb fund managers who parked money in deals offering returns on par with riskless rates is that these fund managers are not paid to own treasury bills – they are paid to trade merger arb deals – so they buy the deals even if the risk/reward may not be adequately compensating them.

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