Turn off the bubble machine

Many observers credit the easy money policies of the Fed and other central banks with fueling the late '90s stock bubble. First, worries over the health of the world's financial system in the wake of the Russian debt crisis provoked the Fed to lower rates sharply, and then concern that Y2K would prompt a run on banks made it keep them low. Money supply rocketed higher and much of that money went into stocks -- particularly the most speculative ones. A similar expansion of the monetary base in Japan in the late 1980s helped feed speculative action in stocks and real estate.

So far, points out Dresdner Kleinwort Benson global investment strategist James Montier, we're not seeing anything quite as extreme as the financial conditions that prevailed in late-1980s Japan or late-1990s America. Rather, he thinks the market is rallying in anticipation of such conditions prevailing again.

"This is all in anticipation of the fact that the Fed can and will refuel the bubble," he said. "The market is playing the greater fool theory."

The greater fool theory is what develops whenever the market gets overtly speculative. Investors buy overpriced assets under the belief that there is some "greater fool" who will buy them later at some even more inflated price. Only in this case it seems like the Fed is trying to create conditions where investors can feel comfortable that the greater fool will be out there.

In doing this, the Fed could be the greatest fool of all. Easy financial conditions cannot last forever and when things shift, investors could be in for another great reckoning. For the economy, this would be a horrible turn of events, made worse by the fact that the Fed would have little of the credibility necessary for it to right things again.

But Griffin thinks that while this is true, it's important not to get too far ahead of yourself in your thinking. The money is just beginning to hit the market, players who didn't catch on to what the dynamic was early are itching to get in, momentum investing appears to be back in favor and stocks could have further to run.

"There may be a bear market on the other side of this," he said. "But it's too early to make that call. You can't see around corners."